The Neo Liberalism And Healthcare

Published Date: 02 Nov 2017

Mid-Term Paper

Zoram Kaul

Arizona State University

PAF 604

Abstract

This paper looks at how neo-liberalism impacted health care and health outcomes in the United States. Neo-Liberalism which is based on individualism, free markets, and deregulation has been linked to income inequality. In particular, the three basic tenets of neo-liberalism i.e. individualism, the free markets, and deregulation have been linked to higher costs and health disparities since health care sector is highly privatized, a price setter, and has minimal state interference with the exception of entitlement programs such as Medicare and Medicaid. There is growing evidence that power of businesses has increased while it’s lowered for the working class. Neo-Liberalism’s strong focus on privatization of markets has lead healthcare to become one of the most profitable industries while the quality of care has declined. Evidence supports the claim that neo-liberalist policies are associated with greater poverty, increased income inequality, and health disparities. Literature supports claims that countries that are less neo-liberal have better health outcomes.

Introduction

Neo-Liberalism (NL) gained popularity in the U.S during the late 70s and continued to develop during the 80s fueled by the policies of the Reagan administration. The need for a speedy economic recovery that included a solution for rising unemployment and inflation set the stage for NL. Introducing NL into the economy was seen as creative destruction that would wipe-out previously existent systems, Harvey (2005) asserts that NL entailed "creative destruction not only of prior institutional frameworks and powers but also of divisions of labor, societal relations, welfare provisions, technological mixes, way of life and thought, reproductive activities, attachments to the land and habits of the heart" (pg.3). NL has its roots in the concept of Laissez Faire or minimal intervention by the state and favors monetary economics over Keynesian economics. Its spread throughout several countries can be attributed to the University of Chicago, where many economists were trained. NL can be viewed as the trinity of ideology, framework, and governance.

The three tenets of NL are individualism, free market, and decentralization/deregulation. As an ideology, NL proposed that people can be best served by giving individuals the freedom such as private property rights. Individuals are seen as rational and self serving, the concept of public good is replaced by individual responsibility. The only part the state plays is to "create and preserve an institutional framework appropriate to such practices" (Harvey, 2005, p.2). As a framework, NL strongly believes in the existence of free markets that support economic growth, innovation, and promote competition. According to the advocates of NL, government intervention is only required in setting up markets, but beyond this "state interventions in markets should be kept to a bare minimum" (Harvey, 2005, p.2) as they do not possess adequate information. As a form of governance, NL heavily favored decentralization and deregulation of institutions with the thought that this would speed up their efficiency and make them more responsive.

The spread of NL globally and through the U.S required the "articulation of fundamental concepts that become so deeply embedded in commonsense understandings that they are taken for granted beyond question" (Harvey, 2007, p.24). Common sense according to Harvey is carved out of long standing traditions and does not necessarily imply ‘good sense’. In this case, common sense was misleading and disguised real problems under cultural prejudices. In other words, "cultural and traditional values (such as belief in god and country or views on the position of women in society) and fears (of communists, immigrants, strangers, or others) can be mobilized to mask other realities" (Harvey, 2005, p.39). In particular, freedom and the idea of it resonated with the American public, and justified several politically motivated moves such as war.

Legitimating NL was achieved through several channels such as the media, institutions as universities, and think tanks. Further, Harvey (2007) states two reasons for its legitimacy; first, NL was characterized by sporadic instances of successes even as overall it was failing and second, NL was a success from the standpoint of the upper class. Therefore, media which was dominated by the upper class and think tanks backed by corporate power supported and constructed evidence and empirical studies to back NL even though it was nothing more than a redistributive program. Thus, the events and the sign of the times led both the Republicans and the democrats to accept and embrace NL as they desired corporate backing.

As mentioned, NL was market by sporadic success. It helped reduce inflation but did not change the unemployment figures. It took a turn when it primarily became an alliance between businesses and conservative Christians. While proponents argued that it pushed individuality and motivation, and encouraged people to take control of their own lives it also assumed unemployment and poverty to be voluntary. Banking crisis in South American countries such as Argentina in 2001 collapsed the entire country’s banking and financial system. In other developing counties in Africa and South America structural adjustment programs run by the IMF exploited natural resources of these countries and caused long term harm to the ecology. Uneven growth resulted in differences in income and living standards in countries such as China where the gap between the top and the bottom earners expanded.

Today, many crises are blamed on lax governmental regulation and excessive privatization. The financial meltdown for instance was a result of massive deregulation in the banking and finance sector. Financial institutions were given more than adequate freedom to play with financial instruments without worrying about regulations. Similarly, housing crisis was blamed on subprime lending and predatory practices by some of the leading lenders. Another example and the focus of this paper is the healthcare sector where excessive privatization and deregulation has led to health disparities and excessive costs. Lobbying from major associations have made the industry a price setter and severely reduced the government’s role in health. Lack of nationalized health insurance has not benefitted the majority. Private providers of insurance and healthcare own a majority of the market and dictate terms such as coverage, prices, and procedures. This really does not leave the individual with much choice then. The evidence is clear as rates have risen over the years, and healthcare costs have spiraled out of control.

Neo-Liberalism and Healthcare

Harvey (2005) asserts that "neo-liberalization required both politically and economically the construction of a neoliberal market-based populist culture of differentiated consumerism and individual libertarianism" (p. 42). The neo-liberalist ideologies of free markets and deregulation gained popularity and support to make a claim the state intervention was ineffective and private markets were more cost effective. As a result, government spending on social programs including healthcare were cut (McGregor, 2001). Since NL supports deregulation and minimal state interference, the role of the government diminishes in controlling any outcome and is generally seen as a decline for the consumer’s welfare (Labonte, 1998). Health reform under a neo-liberalist thinking proposed four reforms (Terris, 1999), these were; one, charge users for government health facility; two, provide insurance and cover risk; three, use other resources effectively and efficiently; four, decentralize government health services.

Deregulation is seen as a cost cutting and efficient tool under NL. The Reagan era is infamous for deregulating businesses. Union power was severely reduced while businesses were granted greater leeway in their operations, according to Coburn (2004) "contemporary business dominance, and its accompanying NL ideology and policies, led to attacks on working class rights in the market" (p.44). It was understood that healthcare "for sale" would make it more efficient. At the same time neo-liberalist policies diluted the power of the welfare system that led to an increase in social inequality and income inequality since these policies are typically unconcerned with inequality. They blame lower income and unemployment as being voluntary; "labor, as the argument goes, has a reserve price below which it prefers not to work. Unemployment arises because the reserve price of labor is too high" (Harvey, 2005, p.53).

Consumerism has been on the rise and has moved onwards in leaps and bounds in the health sector. Businesses have seized this opportunity and developed healthcare into an attractive market. Technologically, the United States health care market is the most advanced in the world and as Harvey (2005) states "the neoliberal theory of technological change relies upon the coercive powers of competition to drive the search for new products" (p.68). New procedures and inventions have pushed costs up, medical device manufacturing and pharmaceuticals are known for their relentless efforts to bring out newer devices and drugs. The sector is heavily influenced by a businesslike approach and healthcare is seen as a commodity rather than a necessity. NL has become factor as we believe that private healthcare is the way to go. The language of healthcare reflects the language of neo-liberalist ideals (McGregor, 2001).

Coburn (2004) finds that less neo-liberal countries have better health care than those who are more neo-liberal. Giving the example of social democratic countries such as Finland and Sweden, he finds that these countries have higher overall labor participation and stronger policies favoring labor markets. The markets and the State are not separated in these countries, the policy implications being fuller employment and lower income disparity. On the flip side are liberal nations like the United States and United Kingdom where a race for globalization reinforced business power. Inequalities in these markets increased with changes in markets that have resulted in lower labor power and lower wages. Liberal nations also experienced increasing rates of income inequalities with the adoption of neo-liberal policies, in the United States; this was marked by the beginning of the Reagan administration (Coburn, 2004).

Even as the economy improved, disparities kept increasing. There is an inverse relationship between socio-economic-status (SES) and health status (Coburn, 2000). It is believed that the State’s withdrawal from welfare will increase inequality across the board; Harvey (2005) argues that "as the state withdraws from welfare provision and diminishes its role in arenas such as health care, public education, and social services,…, it leaves larger and larger segments of the population exposed to impoverishment"(p.76). In figure 1 below, we can see that as a result of NL, globalization and power of capital increase in section A and its implications in section B. Further implications are shown in section C (increase in income inequality) and as a result decline in health and lowering of wages.

C:\Users\Zoram Kaul\Desktop\NL.jpg

Figure Source: Coburn (2004)

Due to its overwhelming influence, NL has changed health care in the way it’s distributed. It has changed from being a largely public responsibility to individual choice (Hofrichter, 2003) which as we know is not always an individual’s choice, rather his/her ability to be able to demand health care. Such economic considerations are important in making health care decisions according to Musgrove (2004). The economics are important since they determine allocation of resources. In a neo-liberalist state, policies influence economics of health care availability by the way of moderation and cuts. Social transfers are low and limited and therefore, have to be supplemented through the labor market. Welfare is primarily in private hands with the State covering the bare minimum (Navarro & Shi, 2001).

The free market aspect of NL is the alternative to universal health care. The market provides a system where exchange is possible, the market runs on principles of demand and supply. Hence, neo-liberals believe that investments in markets will give the consumer choice and a better price due to competition. Health care markets according to Callahan and Wasunna (2006) include "a managerial rather than a bureaucratic style in the organization of services, the promotion of cost conscious behavior by the consumers of health care, and the simulation of competition and other characteristic market type interactions between purchasers and providers" (p. 37). Callahan and Wasunna (2006) also give the example of the pharmaceutical industry as a highly profitable sector that benefit from the illnesses of the individual. The industry is propelled by competition, free markets, and demand side economics.

Arguments made to support a neo-liberal approach in healthcare include individualism and free choice. Neo-liberalists view universal health as inhibiting; individuals should be free to choose their care (Folland, Goodman, & Stano, 2006). Burden (2005) argues that neo-liberalist healthcare is based on a society where individuals can express their choices in free markets and get what they can pay for. Proponents of NL such as Friedman and Friedman (1990) declare that in a publicly funded health care organization there is disconnect between what people want and what they get. They state that "national health insurance is another example of misleading labeling. In such a system there would be no connection between what you pay and the actual value of what you would receive, as in private insurance" (p.113).

Neo-liberalists also believe that publicly funded health care is costly, involved too much bureaucracy, and is inefficient. While some believe in limited intervention, "others argue for inaction because the cure will almost certainly be worse than the disease" (Harvey, 2005, p.67). It also reduces incentives which could imply lower quality of service (Freidman & Friedman, 1990). Additionally, publicly funded health creates costs for the state and hinders economic growth. Advocates believe that welfare states create dependents; NL believes that people are responsible for themselves and the condition they are in. The state should only be responsible for the existence of health care markets and providing services to those who disabled or the elderly. Consumers are seen as being the cost regulators under a neo-liberalist approach. Waitzkin & Iriart (2004) believe that when consumers feel in control for what they pay, they act as price regulators and keep costs in check.

Private health care is an example the principles of NL at work. For instance, private health insurance is a way in which private health care is funded. It limits public spending while increasing private and individual spending. Therefore, it is seen as the solution provided by the free market to manage risks, rather than the State holding any responsibility (Eriksson, Barry, & Doyle, 2000). It is seen as promoting responsibility for individuals as well as encouraging efficiency and innovation for providers. This system makes health care a commodity for sale; it also shifts the burden of risk from the society to an individual.

From the available literature and previous studies focus on NL in developing regions of the world. The find that market forces are responsible for having a major impact on health care services (Kim, 2005; Bovill & Leppard, 2006; Muntaner, Salazar, Benach, & Armada, 2006). They also found that these countries had high rates of morbidity and mortality and living conditions that contributed to poor health conditions. Since the focus here is on the United States, the literature is somewhat lean. McGregor (2001) has taken the tenets of NL and examined them in light of how the thinking influenced health systems in western countries such as the United Stated, Canada, and United Kingdom. Most western countries have a nationalized health plan with the exception of the United States. While this is not longer the case as the Affordable Care Act (ACA) was recently passed, this paper assumes that since this is a recent event the benefits will not be realized for a few years and in the meantime the status-quo will not change.

Criticism

It is not surprising that NL has been criticized for health disparities and over all lowering of well being. As previously thought, competition in free markets has really not lowered prices, on the contrary health care costs have risen drastically as these markets are not heavily regulated and tend to be price setters. These costs account for over 17 percent of the GDP in the United States; the highest in OECD [1] countries and the world. Callahan and Wasunna (2006) assert that health care is prone to market failure due to imperfect information and complexity and Koivusalo (2000) views the business of healthcare as decreasing its quality. Neo-liberalist policies in health care do not view the moral aspects of health care delivery. It does not take health care to be a basic right and a necessity for all.

Health care is not seen as being aligned with competitive markets due to the business like culture and profit motive. Healthcare based on the principles of free markets increases the vulnerability for those seen as being fragile, old, and chronically ill. Since NL ignores common good, there is a high probability that those needing costly treatments and long term care will not get a priority under a neo-liberalist health plan. A user fee based system will add to the financial burdens of those who cannot afford to pay for their care and deters them from using health services. Under such circumstances, these people forgo health check-ups and any preventive measures. They only use services such as emergency rooms (ER) in extreme cases; their inability to pay for the services in ER implies a tax burden on the rest.

Several studies find fleeting evidence that neo-liberalist based health systems performed better. Busse (2000) did not find any evidence that health markets performed better or were more efficient. Comparing several countries, Callahan and Wassuna (2006) did not find any evidence in the claim that deregulated competitive markets increased efficiency or controlled costs; neither did they suggest that it led to equitable access. Even if one considers the minimal interventionist strategy practiced in the United States i.e. entitlement programs, there is little evidence that these have reduced costs. Most contracts under entitle programs are managed by private contractors and these programs are subject to gaming and fraud.

There has been a growing trend of scholars who don’t see health care as a commodity. The belief emerging that com-modification of health care will impact population health negatively (Hofrichtre, 2003). In NL, there is a strong emphasis on the com-modification of health care and undermines any moral purpose of health care and is seen as a barrier to universal public health, even as scholars think that health care needs are different from business needs, as Koivsalo (2000) states "health care and health care related markets are not typical markets, health related goods cannot be traded the same way as other services and goods" (p.18). Historically, healthcare has been viewed as a professional field rather than a commercial one (Tomes, 2003). Health care providers are bound by professional ethics and are expected to focus on well being over profit.

NL accepts inequality in society as being unavoidable and omnipresent and dismisses the notion of social justice. As inequality in society increases, so do the ramifications for health. Greater socio-economic inequality is correlated to greater health disparities (Daniels, Clancy, & Churchill, 2005). The socio-economic dimension of health care is dismissed under NL as health care is individualized. Therefore, the idea of common good is undermined and the notion of social justice is eliminated. While in NL, economic growth is seen as the only way to increase standard of living for all through trickledown economics, Edelman, Levy, & Sidel (2009) claims that people can get limited by their health; poor health limits a person’s potential for economic opportunities.

Disparities based on poverty, resources, and other forms of discrimination within the society are seen as being associated with adverse health consequences and premature death (Powers & Fadden, 2006). Disparities in health and health status are often a result of mismatch in political powers and are avoidable (Hofrichter, 2003). A neo-liberalist would place the responsibility for these on the individual and political and socio-economic determinants of health are dismissed. NL fails to consider that many of these conditions such as social, political, and economic are often out of an individual’s control and require intervention from the State. While individual accountability and behavior count towards health outcomes and are clearly a personal responsibility, they get curtailed due to factors out of an individual’s control.

Income disparity is a leading indicator for health outcomes and a barrier to access resources such as timely check up and care, access to medical services, and resources for health; all needed for a better outcome (Hofrichter, 2003). SES is related to health, poverty reduces life expectancy and those with higher incomes have greater life expectancy (McClellan & Skinner, 2006). Health care under NL therefore ignores social justice and favors market justice, in a neo-liberal health care system people are more likely to be exposed to health hazards and a lower standard of health. Hence, the notion of individual responsibility offered by NL is inadequate for positive health outcomes.

Private health insurance in the United States is the primary source of insurance for those who can afford it or get it through their employer. It was thought that private insurance would give the individual the freedom of choice, however, these choices can get severely restricted either due to the nature of the ailment or pre-existing conditions. There is a gap between what is being said and the reality as Harvey (2005) point out that "authoritarianism in market enforcement sits uneasily with ideals of individuals freedoms" (p.79) and "this contradiction is paralleled by a growing lack of symmetry in the power relations between corporations and individuals" (p.79). The corporations in this case being private health insurance companies, the insurer has better knowledge about the market and may choose to withhold information from the consumer.

Private health insurance has other implications as well. For those who get it through their employer, choosing insurance coverage can be tricky. The individuals are responsible for any gaps in the policy and may not be covered for certain pre-existing conditions. Additionally, the may have a cap on their prescription drug coverage. Insurance providers categorize individuals based on their risk in a way that those who might need insurance the most or are the sickest get left out, providers openly discriminate based on gender, age, and class (Ericsson, Barry, & Doyle, 2000). The neo-liberal view that consumers are free to pick and choose from a range of alternative does not hold. There is a choice, but no freedom since there are constraints based on costs, structure, and selection.

There is empirical evidence that countries spending more on private health expenditure do not have better health outcomes, in fact it is the contrary. Privatization of health is strongly related to a decline in health outcomes. In the United State, where health care shows every sign of influence from neo-liberal policies, spending on health care is highest in the world. Yet, it has the most inefficient and inequitable health care system and most of it 46 million uninsured citizens are not able to afford care due to low incomes (Callahan & Wasunna, 2006). Countries that spend a loss less of their GDP compared to the United States have better health outcomes. Coburn (2004) found that countries with comprehensive welfare regimes reduced poverty and inequality in a study comparing social democratic nations and liberal nations.

Additionally, counties with an equitable social infrastructure also have better health outcomes compared to others. Coburn (2000) feels that it’s a common tendency to equate economic development with human well being when in fact national wealth has little do to with national well being. Indicators of human well being are considerably different from indicators of economic well being. As welfare states have declined, so have indicators of social well being. Wilkinson (1997) found that nations with higher inequality have significant decline in longevity.

Conclusion and Discussion

It is evident from the literature that health care in the United States has strong roots in neo-liberal ideologies. It has been embedded into common sense ways of thinking; therefore, many don’t seem to see it as being the root cause of the multiple issues in health care. The neo-liberal approach opposes universal access to health as it infringes on individuals rights. The free market is seen as the alternative to universal access. However, NL clearly is not the long term solution for health care in the Unites States. Health care cannot be commoditized and should be treated differently from other commercial products. Practicing business approaches in healthcare has been criticized by several scholars. Learmonth and Harding (2004) argue the validity of this approach and Coburn (2004) states that business approaches in healthcare mean that interests are more likely to focus on the business aspect rather than the people.

A free market approach to health care has serious pitfalls, it cannot account for the complexity and irregularity of healthcare. This approach also undermines any moral issues in health and views health care in monetary terms. Free market also does not promote health in the holistic sense, rather basing it on business values. It leaves a greater number of individuals vulnerable to victims of otherwise preventable ailments. As health care costs rise, there is increasing pressure to cut back spending. Austerity measures such as program cutbacks, reduced services, and curbing demand have been considered. Evidence from OECD data tells a different story. Free markets approach and trade liberalization are seen as significantly increasing expenditure.

Free markets are also known to externalities, these spillover effects reduce effectiveness of free markets. There are those who benefit and those who are the disadvantaged; the neo-liberal assumption that all have access to equal information is not true. Information availability is asymmetrical, which renders an imbalance in power (Stiglitz, 2002). Examples of asymmetrical information are all around in free markets, for example the gap between the employer-employee, or the individual and the insurance provider. Despite the claim of equal opportunities, free markets according to Harvey (2005) "results in monopoly or oligopoly, as stronger firms drive out weaker" (p.67). Competitiveness can also become a never ending pursuit for improvement in technology and innovation, as in the case of health care in the United States, and is blamed for increased costs.

In other areas NL has had deleterious effects as well; resources have been redistributed from the poor nations to the rich through structural adjustment and contributed to inequality. While a majority of the population in the world lives in poverty, "neo-liberalization by contrast celebrates tax cuts for the rich, privileged dividends, and speculative gains over wages and salaries, and has unleashed untold though geographically contained financial crisis" (Harvey, 2005, p.187). Harvey also contends that NL has increased social inequality, and has concentrated wealth within upper classes.

It has been observed that over the last two decades economic performance and development has declined (Tabb, 2005). NL has been closely associated with the downward economic performance. There has been a significant amount of backlash against NL, since the 90s, protest against pillars of NL such as the IMF, WTO, and GATT. These institutions wielded enormous power and exerted pressure on developing counties and poorer nations. They were seen as lacking transparency, basing decisions on ideologies rather than evidence, and blamed for other ills such as environment degradation and abuse.

In a neo-liberalist state the private sector is known to increase its influence through public private partnerships (PPP). The economic conditions in the late 70s lead increasing number of public services to be privatized or partner up with governments. Private sector served as a model that the public sector could follow. PPPs are seen as a solution for sectors where government cannot always be present. They combine the benefits that governments offer with the expertise of the market (Padgett, Bekemeier, & Berkowitz, 2004). Any service delivered by the State can also be delivered by PPPs. Harvey (2005) is opposed to the idea of PPP, he feels that they can overly influence legislation and determine policies. There is also an imbalance in the partnership as "in many instances of public private partnerships, the state assumes much of the risk while the private sector takes most of the profits" (p.77).

The neo-liberal model of health care makes several assumptions which differ from reality. Uniformity in health care markets as assumed under NL is not true; in fact health care markers are characterized by barriers such as barriers to entry. In other instances the assumption of uniformity are proven false as monopoly power is revealed by a few firms in the market. There is geographic variability and services are not distributed uniformly, there is ample uncertainty in this sector and future health care needs cannot be predicted. It is hard to imagine any kind of equilibrium in this market as what individuals want can be very different from what is being offered.

The neo-liberal approach of individualism recognizes the autonomy of the individual and that it is a fundamental value in health care. Yet, NL does not take into account that individual autonomy and well being are related. While NL supports individualism, it overlooks what it takes to achieve the goal of individualistic autonomy. For example, people rely on other for their well being. In times of sickness, individual autonomy is reduced and reliance on other increases, health care is interdependent. Due to information asymmetry the relation between the individual and provider gets enhanced, the relation is based on specific needs of the individual, and each individual has different needs. NL fails to consider this interdependence and therefore has a complete disregard for it.

NL has continued to have a growing role in health care over the years in the United States. This is evident by the increasing competition in the health care sector, an example is the private health insurance, where despite having several options and a claim that there is competition, insurance rates have not dropped. Insurance companies have a strong presence in the government and through lobbying efforts have constructed barriers to entry and minimized risk. Overall, there is a strong focus on cuts to public health budgets while keeping profits in these industries high. There is a strong opposition to any welfare; alternatively, the three tenets on which NL is based should be promoted. In some ways it a paradoxical situation as neo-liberalist ideology threatens to become the very ideas it opposes such as suppressing individual freedom and constant intervention. Coburn (2000) also concurs that neo-liberal regimes can become centralized and authoritarian as they seek to break any kind of opposition.

NL has had severe implications for people, markets, politics, environment etc. Time and again neo-liberal policies have not been successful or even related to human well being and growth. They haven’t proved to be the miracle as originally thought, Harvey (2005) concurs that despite all the "rhetoric about curing sick economies, high levels of performance were not achieved, suggesting that NL was not the answer" (p.88). The definition of human well being under NL seems to be very narrow and does not consider factors on which well being actually depends such as lower disparities and a more equitable society. Other topics such as individual freedom and consumer choice are debatable and can be interpreted entirely differently. Under NL, they fail to address several loopholes such as information asymmetry or uniformity of the field.

Power in NL is also highly disputable; the most powerful are the ones who usually benefit while the rest get excluded. The basis of success in NL is sporadic and is due to the success stories of the wealthy few (Harvey, 2005). Power in NL has monetary implications, and since the distribution of wealth is highly uneven, the direction of power flow becomes evident. Social justice seems to be dependent on power as well; social justice exists for those with power, for the rest its injustice. Inequalities and unemployment are inherent in free markets, and NL views that as individual responsibility while failing to account for social and political determinants.

As already noted, responsibility for health is seen as entirely resting on the individual, therefore, issues such as public health and preventive measures are greatly ignored. The neo-liberalist notion completely dismisses any social determinants for well being. Social justice in health care is seen as being closely related to better health outcomes and is just the opposite of the neo-liberal agenda. Empirical evidence too supports this notion; besides, countries that have universal health care continuously outperform market based systems. Private health insurance exhibits gaps and loopholes favoring the industry and has proven to be inefficient, unequal, and discriminative.