The Market is the Cure for Europe’s Health Systems

Not even Germany’s great success in hosting the recently concluded World Cup competition could shield Angela Merkel’s government from the wrath of the German public for its disappointing healthcare reform proposals. Such is the urgency of healthcare reform in Germany today that her government’s poll numbers dropped to new lows even as World Cup football boosted Germany’s image in the international community to new highs.

Of course, Germany is not the only country in the world facing healthcare costs that are unnecessarily escalating unnecessarily because of over-stimulated demand and inadequate competition on the supply side. This is a problem in the United States as well as throughout Europe.

Various insurance schemes and government subsidies over-stimulate demand for medical services by making the price to consumers artificially low. Because this prices understates the true cost of medical services to the economy, people buy more than the economy can afford to supply. The result is too much pressure on healthcare resources, causing healthcare costs to escalate.

In Germany, the link between wages and healthcare costs exacerbates this problem is exacerbated by the link between wages and healthcare costs. Because of the link, : the artificially low price of healthcare not only increases healthcare costs, but also —it escalatesdrives up wages as well. The resulting decline in competitiveness puts an excess burden on the economy, making it even less able to absorb the over-stimulated demand for medical services without an increase in costs. Supply-side inefficiencies due to a lack of competition make the problem even worse.