 I'm Timothy Terrell. I teach at a small college in South Carolina. I'm a former Mises fellow from when I was in graduate school here at Auburn. This is my favorite week of the year. I enjoy teaching these or giving these lectures because students you're not going to fall asleep at least I hope not unlike my students that are taking a class because it's required and they have to you know they have to go through all the motions and but you're here because you want to be and that's I think that says a lot about the the health of what we're trying to do here the the Austrian school is is thriving and what I'd like to do today is is give you some application of some ideas about free markets in medical care which is something that a lot of people would say you can't apply market principles here medical care is different well no not really you know if you raise the price of something then the quantity that people want to buy is going to increase or push away did I say that if the price goes up the quantity demanded will go down in medical care as well as other things I've had a long interest in this topic because my father was a physician and was a he was a hard-money guy he was very interested in Austrian economics and yet you know when I when I talk to students about some of these things there's a lot of misconceptions about what what the state of medical care is about how things function and I'd like to clear some of that up I had a student a conversation with a student a number of months ago who said I'm still in shock that the U.S. has one of the highest maternal mortality rates a continuously declining life expectancy and overall increasing issues with access to health care most other Western nations are ahead of the U.S. in that respect despite the U.S. having the highest spending in these sectors part of this worst performance is due to the lack of accessible health care etc etc so you know there's a lot of misconceptions people have I mean first of all life expectancy the United States has not been continuously declining rather the opposite there's I've talked before in this setting about the so called well the disparities that people think exist between the United States and other countries that are the really the result largely of factors outside of the realm of medical care so you got you've got differences in accident rates for example which is not really the fault of the medical medical sector differences in how different countries account for child mortality I did some work on this some years ago and a lot of that a parent gap in things like infant mortality your life expectancy disappears once you take those factors into account so we doubtless we have a lot of problems with American medical care but some of the comparisons are very misleading and I want you to just be aware of that I'm not going to go into those in detail here but that if you hear that kind of thing and you get these little you know something on tiktok or whatever about how terrible free market medical care is I hope you'll take that with a grain of salt so I wanted to talk about several pieces of the government's takeover of medical care in the United States with apologies to those of you in other countries but I think you'll find some parallels probably in your own in your own countries number one is something that Patrick Newman talked about very well yesterday and that is medical licensure so I'll just review here since he covered a lot of this in detail yesterday but we know that medical licensure has been around for a long time this is a picture of a an 1824 medical license from Connecticut the state of Connecticut we had a lot of competition in medical care you not everybody had to fall lockstep into the Johns Hopkins model that Dr. Newman talked about yesterday so we had a lot of experimentation some things failed and failed miserably other things succeeded and so when you've got that kind of dynamic environment in medical care you can get some innovation out of that and that's exactly what happened medical licensure took a big step forward with the Flexner report which I'll mention again in a minute but in the late 1800s the United States had a lot of access to professional medical practitioners the highest number of physicians per capita in the world now some of those were probably not very good physicians others were excellent but as you saw yesterday in Dr. Newman's talk this this was not to the liking of doctors who wanted to pull up the drawbridge not allow any more doctors in or at least greatly restrict the number of new doctors in order to drive up their own pay and so in 1904 the AMA the American American Medical Association began to try to reduce the number of medical students in the with it with the argument that this is going to make doctors better and people are going to have better medical care of course there is as we know a trade-off you can have a lot of doctors or you can keep out a lot of doctors and end up with maybe improved quality but then what good is high quality if you can't get in to see your doctor so in 1910 and again the the a lot of this content was discussed yesterday but the Flexner report came out with the backing of the Carnegie Foundation on medical education the upshot of this was that it closed a lot of medical schools the vast majority of them in fact my numbers said 155 down to 31 a lot of the medical education became very homogenous you're not allowed to do things outside of the accepted methods any new medical school had to be approved by the state government you wanted to practice medicine you had to basically pass through the the AMA's own accepted medical education processes the result of this too was that prices of medical care went up doctors were paid better but there were a whole lot fewer doctors schools of alternative medicine were almost all closed with a handful of exceptions and this of course means that that experimentation with different kinds of medical practice was greatly diminished the changes also resulted in fewer women fewer African Americans in medical education Michael Akkad observed that only two out of the seven African American medical schools and only one women's medical college survived those reforms in the early 1900s so I just wanted to review those ideas because of that that is kind of underlying a lot of the restrictions even today if you want certain kinds of medical procedures you're you have to go to a doctor an MD for some of these a licensed medical professional even if someone else is capable of doing it maybe a nurse practitioner or some other kind of practitioner of medicine it's not it's not going to be allowed for those other practitioners to carry out that procedure even if they're very competent at it the second part I wanted to mention is the food and drug administration now I I've hammered on the FDA for a number of years when I give this talk I really can't stand the FDA but if I talk to students about this they'll say well who would make sure our drugs are safe I mean you don't want people consuming rat poison under the impression that this is somehow going to make their their headache go away and also get this well don't you remember these these quack medications that people would take 120 years ago and so forth and I'm like well yeah but I mean that was 120 years ago you know I don't expect that if it hadn't been for the Department of Transportation or something that we still be driving around a Model T either you know we we learn and science does progress and a lot of these you know I don't think we'd go back to some kind of crazy quack medication if it were not for the FDA protecting us from our ourselves the FDA started in 1906 it was part of the Pure Food and Drug Act which was pushed by Theodore Roosevelt one of those presidents that I at one point thought very highly of but then learned a little more about and the FDA gained power over the years as many federal bureaucracies do in 1938 there was the Federal Food Drug and Cosmetic Act and then in 1951 some amendments that established a prescription only category 1962 some more amendments which actually this was a pretty significant change because it gave the FDA the power not only to check out the safety of a drug and approve it on that basis but also the efficacy so then they're trying to decide whether it works and of course you know again people have misconceptions about this kind of thing they think okay well drugs are either safe or not safe they either work or they don't work and they forget that there are massive trade-offs with with for example safety no drug is 100% safe the only way to be completely safe from side effects of a drug adverse side of side effects of a drug is to not take it right that's the only way to be 100% safe so any time you take a drug of any kind you are accepting some risk the FDA has inserted itself into this by saying well we know what those trade-offs ought to be we know how how safe how much safety you have to you have to have and you're not allowed to go below the boundary that we have established for this same thing with efficacy well you know maybe maybe it's not efficacious maybe I maybe I think that it's worth a try maybe I'm very desperate to be cured or treated for my condition and I'd really like to to to give an experimental drug a shot there have been some promising movements in recent years to allow more of that kind of thing but the FDA cannot know every individual's willingness to trade off safety versus efficacy how much risk am I willing to take in order to get possibly effective treatment they can't know that at all in 1984 there was the extend extension of the length of patents on drugs another barrier to entry in in medical care and so all of these kinds of powers that the FDA has attained over the decades have led to several problems one of which is what we call drug lag one famous example of this which I share with my students every year is the SEPTRA the antibiotic SEPTRA which according to George Hitchings cost 80,000 lot not the antibiotic but the delay in getting this antibiotic to the market cost 80,000 lives just in the United States people that would have been saved if they had had access to this antibiotic but because the FDA was making sure that we were safe 80,000 people died by our estimate beta blockers probably about 250,000 lives lost in the United States of course we don't know exactly who those individuals are it's hard to identify but we know about how effective beta blockers are and that lag and FDA approval cost a lot of lives drug analysts Dale Geiringer said that the benefits of FDA regulation relative to similar regulation in other countries could reasonably be put at some 5,000 casualties per decade or 10,000 per decade that's the you're avoiding those deaths or casualties rather in comparison the cost of FDA delay can be estimated at anywhere from 21,000 to 120,000 lives per decade so the FDA is going to point at cases like philidomide a drug that was administered for morning sickness it had been approved in Europe it had not yet been fully approved here and it ended up causing tragic birth defects and so the FDA says you know see because we were careful you didn't get those birth defects here in the United States like we saw in other countries that that's looking at only one side of what's going on drug suppression I mean the costs of the FDA include not just the delayed access but also the fact that FDA approval costs so much that drug developers say well basically we're just not willing to develop a new drug I know of one case in which there was a a nutritional supplement for premature babies that was being used in Europe the company that made it was not even trying to get FDA approval here in the United States because of the cost of jumping through FDA hoops and so they just didn't didn't bother according to Mary Ruart at least half of pharmaceutical innovations get shelved because the cost to take the drug through the regulatory testing process makes those drugs uneconomic for drug developers to pursue and she found that the years of life lost due to FDA clinical demands is somewhere in the millions this is not a an agency that is simply making us more safe than perhaps we might choose for ourselves it is actually harming us by keeping helpful new drugs off the market at least for longer than they otherwise would be available information suppression is part of this in the early 1980s there were several reports in medical journals that indicated that folic acid if you take it early in pregnancy could prevent a number of birth defects but if manufacturers of folic acid wanted to advertise those benefits they would have to go through a very expensive process by the FDA mandated by the FDA had they been permitted to advertise maybe we would have seen a lot fewer birth defects instead the estimates are about 10,000 American babies were born with deformities because drug manufacturers were not allowed to advertise that benefit same same kind of problem may exist with Lodos aspirin the the if you wanted to advertise at least years ago if you wanted to advertise that Lodos aspirin would be effective in helping prevent heart attacks sorry you've got to go through this whole process before you can put that on your label and advertise that that possible benefit so as time to Lorenzo has pointed out new drugs don't do consumers any good if they don't know about them and advertising restrictions imposed by the FDA prop up the profits of incumbent drug makers and this is at the expense of newcomers in the industry so this is you know the FDA is it really working for the benefit of patients or is it working for the benefit of drug manufacturers that want to keep competition out if you can create this very high barrier to entry through the FDA you might be able to yeah as an individual pharmaceutical company you've got to you've got to meet those requirements and cross that hurdle but you also keep out upstart competitors as well during the COVID-19 years we saw the FDA standing in the way of developing new coronavirus tests we had a German test available in January of 2020 the FDA said we're not going to use it private labs are also prevented from developing tests and then if that weren't enough the CDC contributed to a shortage of tests with this policy of distributing tests without regard to the size of local populations so in early March facilities in the United States March of 2020 the facilities in the United States had administered about 3100 tests and in South Korea a much smaller country than the United States their epidemic started the same day ours did in so far as you can tell what day it started and they administered 180,000 so we can quibble about you know how effective these tests were and what what were they actually capturing and we can have that conversation later I suppose but if you're just interested in did people get the test that they were interested in taking or that their employers were interested in them taking we were a lot less effective at it than we could have been at home testing was was was shut down by the FDA forcing people into channels that may have aggravated any kind of infectivity that we were trying to avoid so you know we had fewer tests they were administered in a way that didn't make any sense and then to I mean I don't know if you remember the the fact that distilleries because they weren't able to manufacture and sell as much of their their normal product in in 2020-2021 they started making hand sanitizer they everybody wanted hand sanitizer all of a sudden and hand sanitizer makers couldn't keep up and so the distilleries said well you know this is basically some kind of alcohol type product we can make this and so distilleries started making hand sanitizer I seem to remember it kind of smelled funny but hey it was hand sanitizer and everybody thought that they needed this stuff so there was a kind of a run on that on that market well the FDA had that in mind that they needed to check this hand sanitizer to make sure that it didn't have certain impurities in it so they took their samples and the distillery they went away and the distilleries thought okay well I guess we passed whatever the FDA's requirements were well a year and a half later the FDA came back around said well you know you had too much of this particular chemical in your hand sanitizer who knows what happens to samples after they sit on a shelf for a year and a half but the samples were cited by the FDA as being substandard as far as this this this contaminant as they thought of it and so they started to find the distilleries you know $14,000 fines for making hand sanitizer that contained a little bit too much of some chemical the FDA was worried about now that faced some objections and in some cases those fees were waived but the distilleries were just regretting ever having tried to step into that gap because of the FDA's efforts at trying to impose more regulation on them and one distiller said at a point in time I was so glad of sanitizer because it helped their business to stay afloat and right now I wish we had never done it he had taken out a $45,000 loan to produce hand sanitizer at a very marginal profit and he said I will not put myself on this same chopping block again so rather than encouraging innovation and the production of things that people want in an emergency the FDA was standing in the in the way of that I can't leave this alone without or leave this section without talking about patents we know that this idea that we we have to create this intellectual property is is very common even among people who are kind of market-oriented and yet it seems to be completely unnecessary and in fact harmful again it's another barrier to entry in an innovation that otherwise would occur is is stifled there's all kinds of patent abuse even even if you accepted some modest kind of patent regulation which I don't but if you did why why would you why would you want to open yourself up to this kind of this kind of this kind of abuse by manufacturers that that extend their patents and keep out their competition with the aid and support of the government it does not appear and I encourage you to read this article by Nathan Nicolayson from Mises Daily some years ago it doesn't appear that this is even helping helping to to encourage innovation one CDC survey you'll you'll pardon me citing the CDC here as a reliable source but they said quote of the 10 most important medical discoveries of the 20th century none of them had anything to do with patents so then you know we I still hear about this I mean this is years and years ago and I still hear from students about the EpiPen and know how terrible it was that the this this company raised its prices and this is capitalism run amok and and we need regulation on prices because if we don't have this regulation on prices of drugs and companies go and do this well how did how did this company raise its price without worrying about competition well because it had a patent because the government was keeping competition out so you know I point this out to students and like well the reason that you you see this is because they don't have to worry about somebody else making this product which is not a mystery it's epinephrine is not some kind of magic formula that only only a few people know about this is this is I mean they had a patent on this injector and the FDA is busy keeping competing injector technology out while the patent is extended by or is acquired by Merck and well yeah of course the company raised the price because they did not have to worry about new competition my land not Merck sorry so you know I point this out and students are like oh well yeah I guess okay but that's what you get when you you get your you get your your thoughts about capitalism from a three-second tiktok so part three I wanted to talk some about medical insurance I I would say that you know we got a lot of medical insurance that is government run most medical insurance in the United States is nominally private but why do we have so much medical insurance paying for medical conditions and a lot of this has to do with taxes basically income taxes during World War two income tax rates were higher than they are now the highest bracket I think was like 97% by the end of World War two and firms were trying to figure out how to attract workers and allow the workers to have more kind of take home pay even with these very high tax rates and so they figured what they would do is since medical insurance was not taxable they would give their employees a benefit of medical insurance and that began to grow and in fact grew very rapidly in the 1940s so we had about 10 million Americans who had health insurance of any kind in 1940 we had 80 million who had medical insurance by 1950 so it exploded third party payers whether that's government or private tend to create moral hazard problems which means if someone else is paying the bill you're going to become a much worse shopper you're not going to care I've told the example before in previous lectures on this that I went to get to get an MRI one time and I didn't even look at the price I got the form from my insurance company a few weeks later and they said oh well you know this was $6,000 and we paid 5,700 of it or something and I you know I didn't care but if they had told me it's $6,000 and you're gonna have to pay this out of pocket I would have told my medical practitioner well can you get by with the next an x-ray you know my back pain is not that bad and because other people are paying people become a lot less careful about rationing we can see this here with the the increase in health insurance as opposed to out-of-pocket payments so in 1960 we have about half and half about half of your medical costs are being paid out of pocket and about half are being paid by insurance of some kind and several decades later and we're at about 90 10 90% being paid by insurance now of course that means that prices are going to go up too because if you've got a whole bunch of people out there they're not really caring about what the price is prices are going to rise that's going to be a big part of this we can see the contrast with cosmetic procedures which are typically not covered by insurance and if you look at the CPI for all items over this time period that we're looking at here in 1998 to 2016 it's a 47% increase if you look at medical care services as a whole it's about a hundred percent and hospital services about a hundred and seventy six percent or hundred seventy seven percent and look at cosmetic procedures that we've got here on this list some went down in price while the CPI was going up many others went up but at a rate that was far below medical care services in general in fact I don't think any of these beat a hundred percent the highest number I saw on this was for chin augmentation so anyways I don't know why that wouldn't went up by 82 and a half percent but anyway high demand for chin augmentation I guess anyway so what we've seen is rising costs because of these these third-party payers studies have indicated that this really does matter quite a bit that that a fully insured population spends about 40 to 50 percent more than a population that has a large deductible and furthermore your status is not measurably improved by the additional medical care that you are consuming with your insurance so you're you're spending a lot more but the marginal benefits of your medical care are quite small and decreasing the study that I've got cited here on the slide says that yes technological change has increased health care costs in many cases without significantly improving health outcomes because medical insurance in its current state discourages individuals from economizing health care decisions so we're spending a lot more we're getting less and less additional now I've got two parts that I'm hoping to be able to to get through here in the next five minutes or so 4a and 4b so 4a is Medicare and Medicaid both of these are old programs are older than me 1965 and they were passed in as part of the great society programs under Lyndon Johnson Medicaid is a needs-based program Medicare is for old age as well as those that suffer with renal disease Medicare has four parts I won't go into all of these in the interest of time but I will say that if you dig into the details of Medicare you find that the it's it's not a market program it is a government program but the more market-oriented part of Medicare has been expanding in recent years which is interesting people seem to see the benefits of markets even within this government operated program Medicare Advantage has been increasing in its enrollment at the expense of single payer Medicare these are these are privately admit this is a privately administered component of Medicare so it is a government program but pieces of it are a little more market-ish and and that that has that that's been noticed evidently by by the population Medicaid I will say just a couple of things about Medicaid it is a program that has been vastly expanded with the Affordable Care Act that's the 4b that I'll mention in a minute but it's not very clear that it's actually doing anything helpful at the margin at least one study not too long ago found that Medicaid coverage generated no significant improvements in health outcomes in the first two years even though people were consuming more medical care this is that famous or infamous I guess depending which side of the aisle you're on that Oregon study where Oregon administered a lottery in 2008 and they said okay we're going to randomly select some people who are going to get expanded Medicaid benefits about 10,000 more people were enrolled as a part of this their medical service usage increased their health was compared then to those who did not win that lottery and what they found is no statistically significant impact on physical health measures you got Medicaid you're not any better because of it as a result of this lottery now we did see financial strain for the lottery winners decreasing and the winners had lower rates of depression but you probably could have achieved that by buying these people a puppy seriously you probably could have at far lower cost I mean really you probably would have probably would have been able to accomplish the same result so if you really care about people being healthier this expansion didn't seem right now this was all completely lost on advocates of the Affordable Care Act most I call that 4b because it's really just an expansion of Medicaid if you get down to what actually happened as a result of the Affordable Care Act it's just Medicare or Medicaid rather got more extensive and so there were a number of restrictions on insurance companies they had to you know they they had to ignore pre-existing conditions everybody was required to obtain health insurance although the penalty for not getting health insurance was dropped to zero in 2019 so a lot of the pieces of the Affordable Care Act were fairly dramatically changed if you remove the penalty on not getting health insurance then than that that's a pretty significant change not all states adopted the Medicaid expansion that came out of out of the Affordable Care Act a lot of these as you can see are southern states that said no thanks we're not going to do this Medicaid is a program that the states share the funding of this with the federal government unlike Medicare so I'll just say a couple of things about the about the Affordable Care Act the the unintended consequences of this were were serious and predictable I mean we could have seen this coming we saw premiums go up premiums went up substantially if insurance companies were required to cover everyone then even those that were very expensive to cover then they had to be required to cover certain things they couldn't refuse to cover pre-existing conditions if you do all of that then insurance is going to be very expensive you can't promise to increase the quality without expecting to see an increase in the price as well so that's where the subsidies came in and the government was going to heavily subsidize this even more than more than before but insurers began to pull out of these markets they the they said well we we we can't afford to provide health insurance under these circumstances so they they began to back out the high premiums were not buying people low deductibles in fact deductibles were very high in 2019 a benchmark silver plan had a deductible of nearly forty four hundred dollars so this is not this is not what the advocates had expected or promised additionally employers began to limit the number of employees who worked thirty hours or more per week in order to qualify for this this kind of this kind of of insurance so you can talk to a lot of people most most people in their in their twenties have been in a situation where they are they're working they're willing to work more but they can't work more because their employer won't give them more hours because if their employer gives them more hours then the employer has to provide health insurance so did you really make somebody better off if they aren't eligible for employer provided health insurance because they're working fewer than 30 hours a week and they had been working maybe 35 or 40 hours a week so they got their hours cut and now they're having to go one of to one of these exchanges and buy insurance with a $4400 deductible how is this person better off as a result of this I mean it it it didn't didn't make a lot of sense so employers the threshold was like 50 employees if you had 50 employees or more they were working more than 30 hours a week then you had to provide them with with health insurance and so that that had some unintended effects on the labor market in 2010 the Congressional Budget Office projected that 24 million Americans would enroll in these insurance exchanges that were set up in 20 in 2019 when that when this this had been in effect for several years the actual figure was about 9 million so it did not have the affected or anticipated result didn't seem to have much of an effect on mortality rates 2014 is when this came into full effect and it you know if you look at mortality rates it's just kind of sitting there not doing anything much different from the trend and yet you had you had advocates of this program that were saying you're if you oppose the Affordable Care Act then you you just want grandma to die how many times have we heard that in the last 10 years so that's that actually did not end up being anywhere close to the to the result we didn't really see an improvement in mortality the pre-existing conditions how much would you charge to put fire insurance on this house right so if you've got a pre-existing condition that's like a guarantee that that insurance company is going to have to pay something for your whatever that condition is maybe you've got a chronic condition now there are ways that markets can handle this I don't have time to go into all those now but this is this is somebody did not think this through very carefully they thought well all we got to do is require the insurance companies to ignore these pre-existing conditions and then we'll we'll solve the problem without thinking about the fact that you're dramatically increasing the cost of providing medical insurance to those individuals and those costs have to be borne by somebody and if you can't raise premiums and we did see the premiums were fairly high in some of these exchanges can't raise premiums then you're gonna have to transfer the cost to somebody else and so even when we had penalties placed on individuals for not getting health insurance many people who are relatively healthy said you know I'll pay the penalty because the insurance is going to be so expensive I'd rather pay to pay that that that cost then and continue to go without insurance then pay for the very high cost of the insurance itself so the healthiest people still drop out of the market this was the the thing that the penalties were intended to prevent and they they did no such thing the last piece of this and I've only got a couple of minutes I put a question mark there by this because we we haven't actually seen this put into place but there is still a bill in front of the current Congress to put Medicare for all into law I don't know what his chances are but Medicare for all is kind of doubling down on an already bad idea of state intervention for universal insurance and this guy right here was one of the best known advocates of this kind of thing it would have first dollar coverage dental vision hearing all of that would be covered your payments to providers would be cut by 40% or more relative to private insurance payments and all of this was supposed to provide people with essentially universal medical insurance it was still be administered by private firms so you're not really getting that part of things eliminated but it was a an idea that has huge huge problems rather than admit that the market can handle medical care we're just going to introduce even more government into into medical care it would be hugely expensive some estimates about $33 trillion at it well what's a trillion dollars anymore right but yeah I mean that's a lot of money very very expensive increases in federal medical medical care expenses would be around 11% of GDP and going up from there one estimate was that you'd have to double all currently projected federal and corporate income tax collections in order to even get close and even that wouldn't be sufficient to fund the added cost of this kind of plan so it was it was going to be tremendously expensive insurance companies as I said would still be around and if you tell medical providers doctors nurses and the rest you've got to accept a 40% cut in your in your pay how many of those are going to stick around and and what does that mean for access to medical care if you've cut pay and and expect people to still do that they're not going to do the same job they'll retire early or they'll work fewer hours that you'll have people that won't go into the medical field when they're in college and trying to decide about what they want to do with their lives and that this kind of thing would be the the death of of of market medical care what what residual we still have in the United States well I wanted to throw this out to you as well you've seen probably the headlines about Social Security going bankrupt or not having enough money to pay promised benefits by 2034 I think that's the current year for Social Security saying we can't pay more than about 70% or so of promised benefits well health insurance Medicare is running into the same kind of problem 2025 is where they say we are going to have cost to exceed our income and by 2031 which is not that far off reserves are going to be depleted and so Medicare is in financial trouble which has a time horizon even closer than that of Social Security so I don't think that means that they're just going to throw their hands up and say well so much for Medicare we give up and let the market handle it I think that's going to end up translating into higher taxes and more rationing and all the rest when you've got people that are truly committed to government running medical care in spite of all the evidence that it doesn't work a few sources here massive topic if you're interested in more I'll be happy to talk to anyone afterward and that's all the time I've got but thanks for