Government-Funded Health Insurance Is Essential for the Free Market's Survival

Government-Funded Health Insurance Is Essential for the Free Market's Survival
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Government-funded health insurance is an intrusion into the marketplace, undermining investment. But it is also essential to the free market’s survival. Rising health insurance prices are an anvil on entrepreneurship and labor mobility – one that has to be lifted. 

Free marketers will rightly recoil at government involvement in a sector that makes up 17 percent of the economy. But protection against unforeseeable threats has a distinguished lineage in free market thought. Perhaps surprisingly, F.H Hayek advocated mandatory universal health care, enforced if not directly provided by the state. In the 1940s, Hayek went so far as to criticize the United States for failing to provide health insurance. As Hayek wrote: “Nor is there any reason why the state should not assist individuals in providing for the common hazards of life, against which, because of their uncertainty, few individuals can make adequate provision.”

Just as bankruptcy laws are critical to competition by making risk bearable, so is stable affordable health insurance. Quite simply, the soaring cost of private health insurance is causing job lock - too many Americans are hanging on to their job to hang on to their health insurance. With more than 50 percent obtaining health insurance through their employers, employees are reluctant to change jobs, move to take or seek a new job, or start a new business.

Labor mobility is crucial to a robust marketplace. It expands the supply of labor, improves productivity by maximizing the impact of specialized skills, curbs wage spirals, allows nascent industries to grow by increasing workforce flexibility, and enhances an economy’s capacity to adapt to technological changes and take advantage of new approaches. But a study by the Harvard Business School in 2008 found that around 11 million Americans suffered from job lock. In 1997, the National Medical Expenditure Survey found job mobility among men aged 20-55 30 percent higher among those with health insurance coverage. To many workers, the fear of losing health insurance hangs like the Sword of Damocles. 

As health insurance becomes easier to obtain and hang on to, labor mobility is enhanced. During the first two years of the Affordable Health Care Act, self-employment increased by nearly 3.5 percent as employees found it easier to bail out of employer-sponsored health insurance. Several studies have found that employees with a spouse with health insurance are more likely to change jobs than those who depend exclusively on their own employer. Job separations increase 25 percent to 50 percent when employees have access to spousal health insurance. 

While the fear of risking insurance is only one of the drivers of reduced labor mobility, it is contributing to a less mobile and less entrepreneurial economy. In 2016, U.S labor mobility fell to an all-time low since the Census Bureau began collecting data after World War II. Americans moving across county lines has declined from 7.7 percent in the 1970s to 4.1 percent in 2015, according to an August, 2017 article in the Wall Street Journal. 

People are simply less willing to take a risk. The proportion of the U.S population starting businesses is shrinking, from 14.2 percent in 1983 to 11.5 percent in 2004, according to the Federal Reserve. Data from the Small Business Administration shows that, on a per capita basis, the number of people starting companies that employ at least one person is lower today than in the 1990s. Fewer new businesses means fewer gazelles; less entrepreneurship means less innovation. 

Even conservative thinkers have recognized the economic importance of portable health insurance. As Paul Ryan has said: “The key question that ought to be addressed in any health care reform legislation is - are we going to continue job lock, or are we going to allow individuals more choice and portability to fit the 21st century marketplace?” Similarly, the conservative think tank the Heritage Foundation praised the late Sen. John McCain’s health insurance proposal in 2008 because “individuals would no longer feel obligated to stay with their employers simply keep their employer-based health insurance.”

Unquestionably, the more government involvement in the health industry, the less innovation. But innovation is undermined even more when people are too scared to innovate. When employees are locked into their jobs, the economy is locked out of growth. The vibrancy of the U.S market economy depends on labor mobility. But the crippling cost of health insurance is undermining that. Improving portability would not undermine the free market but bolster it. 

Allan Golombek is a Senior Director at the White House Writers Group. 

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