The Importance of Price Signals in Healthcare: A Response to Single Payer Advocacy

Resources are scarce.  These scarce resources must be distributed for an economy to function.  This holds true in healthcare the same as in any other industry.  Prices are one way to allocate resources, and, as economists have demonstrated numerous times, the most efficient way to allocate resources.

This is why those of us who advocate for market forces in healthcare do so.  We do not advocate for prices because we want to see patients bankrupted by medical bills. Rather, we recognize that prices are vital signals for allocating resources to their most productive and efficient uses. Prices are the backbone of a functioning economy, helping to direct resources where they are most needed, but they are alarmingly absent in healthcare.

In medicine, price signals exist, but they are deeply distorted. Medicare’s fee schedules, regulatory burdens, and financial arbitrage mechanisms warp the natural flow of market forces. Nevertheless, the limited pricing mechanisms that remain still play a crucial role in ensuring that resources are allocated in ways that produce value. To strip the healthcare system of prices entirely would be to invite inefficiency on a grand scale.

I had the honor of attending the Western Neurosurgical Society (WNS) meeting last month.  There, President Marco Lee advocated for single payer healthcare, arguing that such a system would be economically beneficial. While well intentioned, I disagree with his argument.  It’s worth noting that, under the currently Medicare-For-All proposals under discussion, they all eliminate private financing for healthcare.  Thus, under this version of single-payer, the government controls all aspects of healthcare, eliminating any remaining market forces and the price signals that come with them.  No private insurance, no cash-pay surgical centers, no direct primary care would be allowed. 

As the economist Ludwig von Mises famously argued, when the state takes control of an industry, it can no longer calculate the costs of production accurately. This is because state-run enterprises lack the ability to generate true price signals, which are essential for determining the relative value of goods and services. The government would have total control over how much to pay for physician services, pharmaceuticals, therapists, hospitalizations with no means of feedback.  Because other options for payment are eliminated, those entities would simply be forced to take the government set price.  Without these signals, resources cannot be allocated efficiently, leading to shortages, inefficiencies, and long wait times for care.

We can see the effects of price distortion clearly in systems like Canada’s, where the Supreme Court recently ruled that patients cannot pay for healthcare out of pocket. In such a system, patients have no alternative but to wait for care. This erasure of pricing as a mechanism for resource allocation has led to significant delays in access to critical services.

A similar phenomenon is observable in the U.S., particularly with Medicaid. Beneficiaries are essentially locked into their own version of single payer, as they cannot afford to select their plan in an ACA marketplace or through an employer.  Elective procedures, such as joint replacements or cataract surgeries, often come with extended wait times, up to many years on some occasions. This is not because the procedures themselves are overly complex or scarce, but because the lack of meaningful price signals distorts the incentives for physicians and healthcare facilities. When prices are used to direct resources, wait times tend to decrease, and access to care improves.

We already see examples of how prices can improve access and reduce inefficiency in the U.S. healthcare system, albeit in isolated pockets. Consider the Surgery Center of Oklahoma, which posts the prices of various procedures directly on its website. For instance, cataract surgery is listed at $4,800. Compare this to the experience of patients on government-controlled healthcare systems, who may have to wait several years for the same procedure. Undoubtedly, waiting many years to restore one’s sight would be worth the $4,800.  Yet, because of the distortions with Medicaid, the system ends up paying much more, in both dollars and lost productivity due to the wait time. 

The problem with a “Medicare for All” model is that it removes the private financing option. Patients can no longer choose between waiting and paying. Instead, they are stuck in a system where resources are allocated without any price mechanism, leading to unnecessary delays and suffering. This is an inefficient allocation of resources, where scarcity is exacerbated by the very system meant to provide care.

To be clear, the need for a robust safety net in healthcare is undeniable. We must have provisions for those who cannot afford care or who have pre-existing conditions. However, a well-designed safety net need not eliminate the role of price signals. It is possible—and essential—to preserve the market’s ability to allocate resources efficiently while ensuring that those in need receive care.

By keeping prices intact, we can allow for more efficient distribution of medical services, while designing targeted subsidies or support for those who require financial assistance.

In the end, prices in healthcare are not a barrier—they are a tool for efficiency. Distorting or removing them entirely, as a single-payer system would do, inevitably leads to inefficiencies and a lack of timely access to care. The challenge is not how to eliminate price signals, but how to integrate them with a compassionate and effective safety net. By doing so, we can ensure that resources are allocated efficiently while also caring for those who are most vulnerable.