The American Free Market Healthcare System Is Socialist

by Luna Flesher

Opponents of healthcare reform fear socialism.  And rightly so.  They list a host of problems that other socialist systems have seen.  While some examples are unrealistically exaggerated, their underlying point is well-taken.  Socialism, no matter how well intended, suffers from a number of unintended consequences.

The intention of collectivism is to provide equality, but the frequent result is that everyone is equally deprived.  No one is allowed to have more than anyone else.  Motivations become skewed, producers produce less, consumers consume more. Bureaucracy increases with the intent to stop fraud and abuse, which leads to increased inefficiency.  The least common denominator is prized because it is something everyone can agree on.

The Soviet Union is one of the best examples of this cycle, when it inevitably collapsed under its own weight.

A hat tip to my socialist friends out there. Yes, I know the USSR didn’t practice “true” socialism. But I still make my claim — any collectivist system of more than 100 people will generally suffer from similar symptoms.  When properly balanced, those issues can be stabilized and mitigated somewhat, but they are real problems that need to be recognized for what they are.

Socialized medicine is criticized for the following reasons:

  • Overall costs are rapidly driven up by lack of market forces.
  • Providers, manufactures, and other achievers are not compensated enough.
  • Choice becomes limited.
  • Care is rationed.
  • There are long waits for care.
  • There is a high level of bureaucracy leading to inefficiency, frustration, and corruption.

Most socialist healthcare systems in the world today show at least some of these problems, to one degree or another.

Previously, I posted about how our healthcare system is in crisis.  Our free market system is supposed to be immune to these problems.  Yet I’m noticing a strange correlation.  We are already experiencing all of the issues listed above.  How can this be?

Correlation is not causation, but I had already reached this conclusion a number of years ago for different reasons.  I briefly made this claim elsewhere in this blog, when I argued for government intervention, but did not have room to make my case.

My conclusion?  Health insurance is socialist.

By design, insurance is collectivist.  By design it requires large numbers of people to pool resources which are divided it as needed.  It is wealth distribution by it’s very inherent nature.

Here we have a system where:

  • Everyone pays into a “risk pool”.  You may pay different amounts based on risk factors, but you will pay even if you are actually healthy. In fact, the system works best when lots of healthy people participate. “From each according to his ability
  • Those who become sick, or those who decide to act upon their benefits to see a doctor for any reason, consume dollars from the risk pool.  to each according to his need.” – Karl Marx

Of course our system differs from state socialism as practiced by, say the former USSR, or Canada, or Britain, or Cuba.  For one, we don’t force everyone to participate. For two, there are a large number of insurance companies, so competition forces are theoretically in play.

Unfortunately, these two factors don’t seem to affect the outcomes.  The side effects of collectivism cannot be avoided simply by having competing collectivist systems.  Privatized collectivism is still collectivism.

Of course it makes sense.  Common beliefs to the contrary, the free market does not guarantee individualism will prevail.

Let’s take a look at some of the specific problems caused by collectivism in the medical field.  I have a lot of data to back up my claims already linked in my previous post on the healthcare crisis, so please refer there.

Accelerated Rise of Costs

Socialism: Everyone is motivated to game the system. Maximizing personal gain usually works against, or takes something from, everyone else. This tends to increase costs.  The payer is a large bureaucratic government organization which easily absorbs extra costs.  It’s hard to notice or track individual abuses.

Providers such as doctors, hospitals, and pharmacies may be motivated to charge a little extra here and there.  Or perform unnecessary tests or treatments. Sometimes it’s to make up for times when the collective would not pay them enough.  And other times it’s for pure profit.

Likewise manufacturers of drugs and medical equipment will be motivated to increase prices to pass profit on through the providers.

Individuals, who can see a doctor at little or no extra cost to them, might be motivated to visit the doctor for every little hangnail and head cold. This also drives up costs.

Insurance: Simply re-read the above section, but replace the word “government” with “insurance company”.  It is equally true.

Normally, competition forces would help drive all these costs down. But we don’t actually have competition, we have pseudo-competition.

Competition works best on the individual level.  In health care, the patient (an individual) and the doctor (another individual) have the greatest control over medical decisions. If cost mattered personally to the patient, he could weigh it in his total “purchase” decision, just like consumers in other industries do.  The pressure of those decisions would “trickle up” the market to equipment suppliers and drug manufacturers.

But patients usually don’t worry about costs because the insurance company will pick that up.

And since most individuals don’t even choose their insurance company (employers do), competition forces don’t apply there either.

There are a lot of moving parts here, but most are moving to drive prices up not down, because the system is collectivist, not individualist.

Providers Sometimes Are Not Compensated Enough

Socialism: Government programs need to cut costs where ever possible to increase public perception.  There are potentially a lot of middlemen who might be receiving or giving kickbacks, “skimming” off the top, so they are also motivated to cut costs to reroute some of that wealth to themselves.

Since the system is collectivist, such decisions are not made wisely.  Costs are naturally driving upwards due to lack of competition, so cuts are contrived, and not usually in the best interests of those providing or receiving care.

Providers who actually do real work may have their rates reduced and are paid unfairly.  If the provider is employed directly by the state, they may not make as much as they otherwise would on the free market.

There is less incentive for people to go through the grueling process of becoming a doctor. This leads to a shortage of doctors.

Insurance: Again, you can read the above section and replace the words “state” or “government” with “insurance company” and it will equally apply.

Insurance companies mandate how much a doctor is able to charge, literally capping her salary. On every medical bill I receive, the doctor has tried to charge one rate, but the insurance company has allowed a lesser rate.

HMO‘s actually employ doctors directly and have full control over their compensation.

Doctors are no longer beholden to market forces, they’re slaves of the collective.  Outstanding providers are unable to charge the high fees they deserve, and poor quality providers are falsely elevated.  Many actually leave the field for these reasons.

Lack of Choice

Socialism: Collective pressures lean strongly towards doing what’s best for the collective or the people running the collective.  Choice is an individual thing, so it is often sacrificed for the best interests of the group. In socialized medicine, this means you may not be able to choose your level of care, type of care, or even your doctor.

Insurance: Our free market system lets you choose any doctor you want. As long as you have insurance. And as long as the doctor is in your network.

You can choose any level of care you want. As long as it’s covered. As long as your doctor isn’t motivated to give you a specific kind of care because he’s been pressured by the insurance company or manufacturers.

Collective systems motivate a lack of individual choice, whether it is state socialism or private insurance.

Rationing Care

Socialism: Medical resources are not infinite.  A pure free market deals with shortages each according to what he can afford. In socialism, this is done by a bureaucrat or committee.

At some point, someone gets to decide for the collective who gets what medications, the maximum length of hospital stays, and who gets what treatments when. Costs become a large factor in whether the person lives or dies.

Insurance: This effect is also clearly shown under insurance coverage. Insurance companies decide exactly what is covered and what isn’t.  And as costs skyrocket, they have been covering less and less.  You are at their mercy just as surely as you are at the mercy of a government bureaucrat — unless you can afford to pay for additional care out of pocket.

Long Waits

Socialism: The ugly step-sister of Rationing Care is long waits.  In addition to rationing, supply-side issues begin to develop.  When more people can visit the doctor at little or no cost to themselves, care is driven into shorter supply.  Unless you can increase the supply of doctors, there will never be enough to see everyone.

Worse, since doctors in socialist systems may not be compensated enough, it is hard to incent enough people to enter the field.

Insurance: With insurance, I’ve called up for an appointment and been scheduled 6 months out.  In fact, I’m usually surprised when a provider can see me in anything less than a month for anything but the most immediate of complaints.

Worse, I’ve waited doubled-over with severe pain abdominal pain at a suburban emergency room for over 4 hours in the middle of the night on a weeknight.

If those are not long waits, I’m not sure what is.


Socialism: The bureaucracy of socialism is stereotypical. Remember the movie Brazil?  You know what I’m talking about…

Government generates endless paperwork, hoops to jump through, forms to fill out.  You wait in line to get a form to wait in another line to fill out a different form only to find out you waited in the wrong line and filled out the wrong form.

People are just a number, forgotten by the system, stuck in endless circles, falling prey to bookkeeping mistakes.  Administrative overhead skyrockets.

Insurance: Insurance companies are actually motivated to intentionally make things harder.  Here’s why:

Few Americans really choose their insurance companies, so there are no normal market forces driving them.  If I can be dropped from coverage for not filling out a form correctly, the insurance company profits. If I pay a few medical bills myself because the reimbursement process is such a hassle, then the insurance company profits.  The insurance company doesn’t really care what their paperwork costs doctors, because the doctor has no choice, either.

The benefits of creating intentional bureaucracy outweigh the costs.

Individualism vs. Collectivism in Healthcare

What can we do?  As I see it, we have a choice between two systems.

Socialism, we already live with.  There are certainly many flavors of socialism.  There are ways to do it better and ways to do it worse.  I think we’re doing it better than some countries, worse than others.  There is certainly room for improvement.  So one option: we can improve our already-socialist system with the full knowledge that it is already-socialist so we stop wasting effort trying to avoid something we already have.

Or we can scrap insurance all together.  Scrap every government socialized program, and return to a more wild time.  Every individual for himself.  Competition and market forces reign supreme.  Pay for what you get, or get nothing.  Make your own way in the world with nothing in front of you but a level playing field, hard work, determination, and a good idea.

To me the answer is clear. Yes, I firmly believe in systems where people are fairly rewarded for their own labor, their efforts and creativity, their brilliance.  The problem is, normal dynamics of meritocracy do not apply to the world of medicine.

Personal health has little to do with personal choices.  You get strep because you showed up at work on a day when it was going around. You get breast cancer because you’re genetically predisposed to it.  You get leukemia because of contaminants in your local water supply. You have major reconstructive surgery on your back because you were hit by a car while crossing the street when the sign said “Walk”.

Sure, we can personally reduce risk by not smoking, eating healthily, getting annual checkups, and exercising.  But ultimately, it is a rare person indeed who never, ever gets sick or injured.  We all have bodies, and we all get sick, sometimes deathly so, because of factors entirely out of our control.

As Americans, we seem fine letting the poor starve, because, well, maybe they should get a job.  But we’re a little more squeamish when it comes to letting them suffer and die of injury or illness.  We value the lives of our fellow beings so much because we are mammals.  The social critter inside of me comes to the forefront, and says, “In this, we will take care of each other.  In this, I could be next.”  Only third world countries let their people die in the streets.  Mass-death from preventable disease is something that only happens in Africa.

So even as individualist as our culture is, we still came up with a plan called “insurance” to collectivize risk.  We accept it because the alternative is “socialism”, and socialism is bad. But in the end, it’s still socialism.

We can never pull collectivism out of healthcare. Those days are long gone.  In retrospect, I am very glad to have not been sick during the first 150 years of this country when only the rich had access to good medical care. As a middle class person who climbed my way up from welfare, who has had a handful of potentially life-threatening illnesses, I would probably not be alive today on a system that did not, in some way, spread my costs to the collective.

You might ask yourself the same question — without collectivized risk, would you be alive and whole today?  Have you ever had an illness or injury that might have become infected or spread out of control had you gotten treatment?  How much did those treatments cost?  Would you have, at that time in your life, been able to pay for it out of pocket?

If not you, then someone in your family?


I feel like a traitor to my ideology, but on this pragmatism wins. I am not a reptile where logic prevails over feeling.  Or perhaps it is my logical side that sees this as an act of enlightened self-interest, since my own survival is at stake.

But I have to conclude our modern society cannot in good conscience remove collectivism from health care.  The debate on this issue today focuses on the looming menace of socialism.  But it, and all of its problems, are already inseparable from our way of life.  When we are unable to see this, it clouds our ability to make rational decisions about our future.

We should move forward with an eye towards reducing, as much as possible, the problems inherent in collectivist systems. What type of collectivist system could we design to minimize the risk and provide the greatest possible good to the health of each individual?  Which system would give the largest number of individuals the greatest amount of freedom?  Which system would best protect individual rights? And since it’s already collective, shouldn’t we aim for one of the few benefits of collectivism, to make sure everyone has care?

Perhaps we keep our beloved insurance system, but with better checks and balances. Perhaps we need more or better state programs. Perhaps someone can think of something new.

But socialized medicine, by whatever name we call it, is here to stay.

Published in: on August 24, 2009 at 11:15 pm  Comments (2)  
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2 CommentsLeave a comment

  1. Isn’t any audience a collectivist entity? If a small group or an individual performs (or writes) for a larger group that subsidizes it, the larger group is distributing the “cost” of the performance.

    I’m not necessarily a Libertarian. Still, I am in awe of the lucidity of your writing. Keep doing it.

    • Great question. :) We live in a world of varying degrees of both collectivism and individualism. I think where it matters is how much the collective detracts or adds to a work of creation. For example, mere financial support after the work is created does nothing to detract from the value of the work — in fact, it adds to it. However, if that collective participated in the creation of the work, it might make the work better or worse. In the real world, it usually makes it worse (“death by committee”), UNLESS there are systems in place to keep things efficient and to help the best rise to the top.

      Interestingly, internet technologies help that succeed, so that collaborative works have a better chance of being improved rather than ruined by the collective. I wrote about this here:

      If you’re interested in the subject of collectivism vs. individualism, I get a lot of my foundational thought from Ayn Rand. She created the philosophy called “Objectivism” which I am heavily influenced by. You might read Atlas Shrugged or one of her other books (Anthem, The Fountainhead, etc.) While her philosophy has some flaws, it is very interesting stuff to think about, and at times it is inspirational.

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