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Originally published by Washington Examiner.
We all watched in horror the videos of United Airlines’ inhumane treatment of David Dao. Stories of customer mistreatment at United continue to emerge, suggesting that United’s business culture may be at fault, rather than a particular company policy.
But if you consider United’s nightmare and the market’s response to it, there is a vital lesson: Free markets allow society to achieve beneficial and just outcomes, without government intervention and the unintended consequences that come with it.
Consider the initial response from United Airlines. The company apologized publicly, but United’s CEO privately criticized the customer to United employees for being “disruptive and belligerent” and refusing to leave the plane. Then an interesting thing happened: The market responded, and United’s stock took a hit of more than $255 million.
What did United do next? Its CEO released another, more contrite statement saying the incident was “truly horrific” and promising a broad review of procedures and policies relevant to Dao’s situation. The company has already revised one such policy, precluding any need to remove a passenger such as Dao from the plane. A lawsuit to ensure personal justice for Dao remains likely.
In other words, because United operates in a functional market, where free-market forces such as stock prices inform companies of investor opinion regarding their behavior, the company abandoned both the views and policies that led to the appalling treatment of its customer. Without intervention from government regulation or crusading bureaucrats, free-market actors (news media, investors and company managers) produced a just and beneficial outcome for society. The United experience is a case study in how free-market forces, when allowed to freely operate, produce practical solutions to social problems, to the equal benefit of everyone in society.
What does this have to do with federal healthcare reform?
The healthcare system does not operate in a functional market. Prices for even routine healthcare services are virtually unknowable until the bill is due. This prevents patients from shopping around, which destroys market pressures that would push doctors and hospitals to keep service quality high and costs low. Many healthcare systems operate on a non-profit basis, even though they act like for-profit companies. Without shareholders, healthcare providers feel little pressure to increase quality while decreasing prices to maximize shareholder returns. Without stock prices to publicly check poor customer service policies, healthcare providers routinely care for patients’ health while abusing their financial well-being through predatory billing practices.
Federal policymakers should apply the lessons of the United debacle and move the healthcare system in the direction of a functional free market. The American Health Care Act begins moving in this direction by lowering healthcare taxes and reducing regulatory burdens, and that’s a good thing. But in addition to passing this legislation, the administration and Congress should be thinking ahead.
For example, they could begin taking preparatory steps to require hospitals and clinics to provide insurer-negotiated prices for basic outpatient services upfront to patients (i.e., before the doctor’s appointment) and price quotes for more extensive treatments before services are provided. Patients could then shop around based on quality and price, allowing market forces to keep healthcare costs down. Consideration should also be given to requiring non-profit healthcare providers that act like for-profit companies to structure themselves accordingly, allowing equity assets and shareholders to create further market pressures to lower costs and prevent abusive customer policies.
Policies like these will, over time, pull America’s healthcare system in the direction of higher quality and lower costs. That would be a victory for all Americans.