Thomas DiLorenzo

The government’s initial step in attempting to create a government-run healthcare monopoly has been to propose a law that would eventually drive the private health insurance industry out of existence. Additional taxes and mandated costs are to be imposed on health insurance companies, while a government-run “health insurance” bureaucracy will be created, ostensibly to “compete” with the private companies. The hoped-for end result is one big government monopoly which, like all government monopolies, will operate with all the efficiency of the post office and all the charm and compassion of the IRS.

Of course, it would be difficult to compete with a rival who has all of his capital and operating costs paid out of tax dollars. Whenever government “competes” with the private sector, it makes sure that the competition is grossly unfair, piling costly regulation after regulation, and tax after tax on the private companies while exempting itself from all of them. This is why the “government-sponsored enterprises” Fannie Mae and Freddie Mac were so profitable for so many years. It is also why so many abysmally performing “public” schools remain in existence for decades despite their utter failure at educating children.

America’s Healthcare Future?

Some years ago, the Nobel-laureate economist Milton Friedman studied the history of healthcare supply in America. In a 1992 study published by the Hoover Institution, entitled “Input and Output in Health Care,” Friedman noted that 56 percent of all hospitals in America were privately owned and for-profit in 1910. After 60 years of subsidies for government-run hospitals, the number had fallen to about 10 percent. It took decades, but by the early 1990s government had taken over almost the entire hospital industry. That small portion of the industry that remains for-profit is regulated in an extraordinarily heavy way by federal, state and local governments so that many (perhaps most) of the decisions made by hospital administrators have to do with regulatory compliance as opposed to patient/customer service in pursuit of profit. It is profit, of course, that is necessary for private-sector hospitals to have the wherewithal to pay for healthcare.

Friedman’s key conclusion was that, as with all governmental bureaucratic systems, government-owned or -controlled healthcare created a situation whereby increased “inputs,” such as expenditures on equipment, infrastructure, and the salaries of medical professionals, actually led to decreased “outputs” in terms of the quantity of medical care. For example, while medical expenditures rose by 224 percent from 1965–1989, the number of hospital beds per 1,000 population fell by 44 percent and the number of beds occupied declined by 15 percent. Also during this time of almost complete governmental domination of the hospital industry (1944–1989), costs per patient-day rose almost 24-fold after inflation is taken into account.

The more money that has been spent on government-run healthcare, the less healthcare we have gotten. This kind of result is generally true of all government bureaucracies because of the absence of any market feedback mechanism. Since there are no profits in an accounting sense, by definition, in government, there is no mechanism for rewarding good performance and penalizing bad performance. In fact, in all government enterprises, exactly the opposite is true: bad performance (failure to achieve ostensible goals, or satisfy “customers”) is typically rewarded with larger budgets. Failure to educate children leads to more money for government schools. Failure to reduce poverty leads to larger budgets for welfare state bureaucracies. This is guaranteed to happen with healthcare socialism as well.

Costs always explode whenever the government gets involved, and governments always lie about it. In 1970 the government forecast that the hospital insurance (HI) portion of Medicare would be “only” $2.9 billion annually. Since the actual expenditures were $5.3 billion, this was a 79 percent underestimate of cost. In 1980 the government forecast $5.5 billion in HI expenditures; actual expenditures were more than four times that amount — $25.6 billion. This bureaucratic cost explosion led the government to enact 23 new taxes in the first 30 years of Medicare. (See Ron Hamoway, “The Genesis and Development of Medicare,” in Roger Feldman, ed., American Health Care, Independent Institute, 2000, pp. 15-86). The Obama administration’s claim that a government takeover of healthcare will somehow magically reduce costs is not to be taken seriously. Government never, ever, reduces the cost of doing anything.

All government-run healthcare monopolies, whether they are in Canada, the UK, or Cuba, experience an explosion of both cost and demand — since healthcare is “free.” Socialized healthcare is not really free, of course; the true cost is merely hidden, since it is paid for by taxes.

Whenever anything has a zero explicit price associated with it, consumer demand will increase substantially, and healthcare is no exception. At the same time, bureaucratic bungling will guarantee gross inefficiencies that will get worse and worse each year. As costs get out of control and begin to embarrass those who have promised all Americans a free healthcare lunch, the politicians will do what all governments do and impose price controls, probably under some euphemism such as “global budget controls.”

Price controls, or laws that force prices down below market-clearing levels (where supply and demand are coordinated), artificially stimulate the amount demanded by consumers while reducing supply by making it unprofitable to supply as much as previously. The result of increased demand and reduced supply is shortages. Non-price rationing becomes necessary. This means that government bureaucrats, not individuals and their doctors, inevitably determine who will get medical treatment and who will not, what kind of medical technology will be available, how many doctors there will be, and so forth.

All countries that have adopted socialized healthcare have suffered from the disease of price-control-induced shortages. If a Canadian, for instance, suffers third-degree burns in an automobile crash and is in need of reconstructive plastic surgery, the average waiting time for treatment is more than 19 weeks, or nearly five months. The waiting time for orthopaedic surgery is also almost five months; for neurosurgery it’s three full months; and it is even more than a month for heart surgery (see The Fraser Institute publication, Waiting Your Turn: Hospital Waiting Lists in Canada). Think about that one: if your doctor discovers that your arteries are clogged, you must wait in line for more than a month, with death by heart attack an imminent possibility. That’s why so many Canadians travel to the United States for healthcare.

All the major American newspapers seem to have become nothing more than cheerleaders for the Obama administration, so it is difficult to find much in the way of current stories about the debacle of nationalized healthcare in Canada. But if one goes back a few years, the information is much more plentiful. A January 16, 2000, New York Times article entitled “Full Hospitals Make Canadians Wait and Look South,” by James Brooke, provided some good examples of how Canadian price controls have created serious shortage problems.

  • A 58-year-old grandmother awaited open-heart surgery in a Montreal hospital hallway with 66 other patients as electric doors opened and closed all night long, bringing in drafts from sub-zero weather. She was on a five-year waiting list for her heart surgery.
  • In Toronto, 23 of the city’s 25 hospitals turned away ambulances in a single day because of a shortage of doctors.
  • In Vancouver, ambulances have been “stacked up” for hours while heart attack victims wait in them before being properly taken care of.
  • At least 1,000 Canadian doctors and many thousands of Canadian nurses have migrated to the United States to avoid price controls on their salaries.

Wrote Mr. Brooke, “Few Canadians would recommend their system as a model for export.”

Canadian price-control-induced shortages also manifest themselves in scarce access to medical technology. Per capita, the United States has eight times more MRI machines, seven times more radiation therapy units for cancer treatment, six times more lithotripsy units, and three times more open-heart surgery units. There are more MRI scanners in Washington state, population five million, than in all of Canada, with a population of more than 30 million (See John Goodman and Gerald Musgrave, Patient Power).

In the UK as well — thanks to nationalization, price controls, and government rationing of healthcare — thousands of people die needlessly every year because of shortages of kidney dialysis machines, pediatric intensive care units, pacemakers, and even x-ray machines. This is America’s future, if “ObamaCare” becomes a reality.

Thomas J. DiLorenzo

August 20, 2009

Thomas DiLorenzo
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  • Barry Schatz

    Go ahead: “drive the private health insurance industry out of existence” already. The slated proposals to replace it might well not work, but what exists only works for the very few making money from it. Even 3rd world countries have universal health care that is more effective than what U.S.A. citizens can obtain reasonably.

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  • MJJP

    Health care is already rationed in this country. It is rationed by price and rationed by the particular plan your employer provides. Ask anyone about their insurance if it contains words like “In network”. That is rationing. The quality of health care should not reflect the profitability of the employer you work for and doesn’t in most other civilized countries and they do it for less than us and have similar outcomes if not better for major disease and longevity.
    In fact I am wondering why health care is even being discussed as an insurance program. Insurance is for those things that are unlikely to occur. Everyone will get old and disease and injuries are more prevalent. Let me ask a question to the experts out there. How much profit would an insurance company make selling fire insurance if it was known that every home or building would sooner or later catch fire? Probably not much. So how is it that sooner or later people will get sick and injured but the insurance companies had record profits last year. HMMMMM??? As the fat man would say.

  • john conner

    Nonsence you dont know what you are talking about. I am a Canadian. In more than50 years of government health care I have never talked to any government employee. Our system is not perfect but if you need attention tomorrow tou will get it. All Canadians are cov ered fro m the cradle to the grave (or the erection to the resurection) for a cost of less than 10% of gnp. Most of the stories published in the US are misleading exceptions. The Canadian in the ads against medicare is a convicted felon for trying to defraud thesystem. If the care for profit companies are unable to compete – so be it. It would be to your advantage.

  • James

    I am from Canada. We have free medicare up here even if there is long lines. It is free. I think we all deserve it. I do not try to make money and try to buy very little. This way, one is trying to do what the government is trying to accomplish. It does not make sense to me but there must be a reason for it. So who am I to oppose what the government is trying to accomplish. If it were not for people like me feeling we should all be equal whether we are lucky to be employed or whatever. I am getting use to drawing social assisstance and I feel it is everbody’s right to have the same standard of living as the next person no matter what. I just hope some or most of the people work and help give me the same standard of living that I deserve even if it means that they have to lower theirs. I feel that they are selfish and do see that if every body is equal that that they should be happy to share.

  • Val

    US is the only industrialized country in the world without universal health care ! The explanation is simple – billions of profits for the healh ihsurers and many millions for the lobyists and compain contributions.
    About 46 mln without health insurance vs. the heavy profits of the healthcare industry ! How sad for the world’s richest country .

  • George Ivanoff

    It seems Mr DiLorenzo is not a clear thinker in terms of this debate. His bias is overwhelming his article. I have lived in the US and in Canada, and recognized that problems exist in both countries health care systems. However, I am much more confident in getting adequate care in Canada than I was in the US, where private insurers can determine my prognosis. Mr DiLorenzo’s sources are one sided. Have a look at the New Scientis article/video on this subject:

  • Radical Independent

    Thanks John Conner. I have friends in Canada and other countries and they love their system. I would love to have your system. Like most things economists yap about, they are usually proven wrong, given enough time. I am self employed and have been for my 27 years as a working adult; thus I have to buy private insurance, which is insanely expensive. Nonetheless, I did and after several spinal fusions I was dropped. Now, due to the major meds I must take to work so I can avoid being disabled, and the ongoing problems associated with a bad back; no one will insure me at any price!! Believe me, I’ve tried. I’ve even asked for a $25K deductable, etc., but no one will insure me!

    I am not poor enough for Medicaid and don’t want it. Nor am I old enough for Medicare. As a result of the world’s best health care system (yeah, right), I work for two things…to pay major medical bills every month (a decade now uninsured) and taxes. My taxes, of course, can’t be used to help me, but they pay for the health insurance for the elderly. And my retired parents love their health care but think it would be SOCIALISM for the government to help me access, provide, get some health insurance!! What a stupid damn country!

  • David

    So what would you deduce from this chart. All the countries shown below
    have universal healthcare policies, EXCEPT the USA. The Swiss require
    universal health insurance, but most of the rest of the countries have
    government run medical systems. They ALL pay less per capita for health
    care than
    the USA.

    List by the CIA World Factbook (2009

    Rank by
    UN member
    Rank by
    Overall life expectancy at birth
    Male life expectancy at birth
    Female life expectancy at birth



     Hong KongChina)



     France (metropolitan)




     New Zealand








     United Kingdom





     United States

  • James

    I can’t be certain if this is the correct Website that I read this comment from one of your writers, however if it is I would like to make my own comment about which the person in answer to what the credit card company’s are doing isn’t right. The answer you gave this person was , If a person is not able to pay off their credit cards every month, they are not being responsible. I thought at the time what a cold, hesrtless answer. I still do, I personally am blessed to be able to pay my credit cards off every month, however I do know of a situation where this young couple (Both have good jobs) were unexpectively hit with a very sick child. Their Insurance company covered some of the cost but not all, plus there on several on going test this child will need that are not covered. Hence, they have had to use their credit card to make-up the different or else not allow their child to have the medical tests. They faithfully make there payment every month, yet the balance never goes down. Life hands people unexpected emergency’s, this couple is not irresponsible at all. I feel you were wrong in your evaluation of the credit card company’s, they are LOAN SHARK’s, it makes me wonder how off you are in other evaluations. If it was not this site that had the person make that evaluation, I am sorry, I just couldn’t sit back and say nothing. Life isn’t always fair and the less fortunate shouldn’t be punished because they have less then you or I.

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  • Cheri

    Stop with the “evil corporation profit” bs.
    James, you are a MOOCH.
    You are not equal to others in your contribution to your society/group. You should get equal to what you and yours contribute.
    You have the equal right to get off you bottom and take care of yourself.
    You have the right to learn.
    You have right to CHOOSE how you live your life.
    You have the right to want better for yourself.
    People are not equal. They should have equal rights to be what they can be. We are all not the same.
    Why is anyone else’s health my $$ responsibility? If I CHOOSE to help/care for others I can.(and do)
    Socialized medicine/Universal healthcare is not right for America because it conflicts with this countries founding principles, NOT because it “dosen’t work” in Canda or elsewhere. Universal coverage contributes to a “non-working” class. Societies work when EVERYONE is contributing.(Motivations change over the course of life.) Through those contibrutions there is abundance and the ability to take care of the less “fortunate”. These issues need to be handle at local and state levels. How did the world/US get so populated without Universal Healthcare? Most of the arguements are based on “I am sick, but I still want that car/vacation/_____.” or “Hey how do I get some of that for me/us.” Life is pay as you go and you should be saving for a rainy day and stop coveting your neighbors “savings”.
    Healthcare, insurance, welfare, etc. are in dire need of attention. It doesn’t matter what we do if more people don’t start participating in responsible intelligent ways. C~

  • Annie

    Hi! I know this is kinda off topic but I was wondering if you knew
    where I could locate a captcha plugin for my comment
    form? I’m using the same blog platform as yours and I’m
    having trouble finding one? Thanks a lot!

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