The doctor indicates that labs, imaging studies, and other services will be paid by me and I can go anywhere I choose. However, he has made arrangements for reasonable fees with quality providers he can recommend if I wish.

The doctor then takes a history and physical, spending about 30 minutes with me, for which the flat fee is $50. He explains his hourly billing is $100–much less than a typical lawyer charges, I’m happy to note. He tells me at the end of the evaluation that my problem can likely be evaluated in under five hours of his time, and that the retainer will be $500. I will be billed monthly and asked to replenish the retainer if it drops below $150. I can pay cash, write a check, or use a credit card, but I have money saved in a health savings account (HSA), so I just pay using my HSA debit card.

I do not have to wait to see my physician. He makes himself or his physician assistant (PA, who bills at only $50 an hour) readily available to me. He phones and e-mails to answer any questions I have or to convey health information to me in a timely fashion.

The doctor successfully manages my health problem in only three hours over the course of two months and four visits (not all of this is face time, of course; he bills me for his research time, time to consult with other physicians, time to review my test results, time talking with me over the phone or e-mailing me, and so on), and with the final month’s bill comes a check for $150, retainer minus charges.

Since I’m generally healthy, I find my costs each year are under $1,000. I recognize that at some point I’ll likely have a significant illness, so I have an insurance policy that pays for all charges over $10,000. It’s a very inexpensive policy that, like my fire insurance, I’ve never had to make claims on.

My mother, who has a chronic problem, diabetes, tells me she has a specialist who offers a flat fee per year to his patients. It’s more expensive than what I pay, of course, but she uses the service much more than I use mine. Fortunately, she bought insurance coverage years ago, before the diabetes developed, and paid a little extra for guaranteed renewability at a stable price (inflation charges only). She tells me her specialist places his patients in one of three tiers, with graduated prices, based on the severity of their problem and associated complications. In an effort to minimize her charges, she works diligently to keep her blood sugar in the appropriate range and has consequently had few complications so far.

Sadly, some people develop chronic diseases without having obtained insurance. Many of them, who can afford it, simply accept that they will pay more for their health care, just as very litigious people pay more for their legal care. Some can’t afford it on their own, and family or church is often there to support them, as was the case before third-party payers took over that role. In addition, such people often receive pro bono care from a wide variety of physicians who feel offering such free care for a percentage of their practice is both good business and the professional thing to do. It’s also true that once you have a working relationship with a doctor, he can’t just drop you because you’re falling behind in payments (which is why doctors demand retainers in the first place).

Many healthcare items–from CTs to cholecystectomies–are clearly priced, and people compare prices and shop for quality as well. You can look up surgeons and radiologists on the Internet, for example, and see what prior customers thought of the quality of their services. Other people choose to use a qualified middleman to recommend a local physician of high quality and reasonable price. Such middlemen advertise their services and list many reasons to use them, including the opportunity to take advantage of volume discounts and to have someone knowledgeable to guide you through the various medical options. Yet others make their own decisions, using the Internet and new software programs, just as they use software to help them make the right tax-paying decisions.

Mayo and Kaiser, among others, take strong advantage of their brand name, which signifies quality, but the competition from many other physicians makes it difficult for them to charge too much additional for “value-added.”

Of course, I am not forced to see a licensed physician. If I am willing to assume the risk (usually associated with a lower price) of seeing an unlicensed physician, it is my own choice. The law says only that those offering the services of a physician must truthfully and prominently display whatever certificates they have. Often there is little actual risk: It turns out that many “unlicensed” physicians are simply physicians who are properly licensed elsewhere (another state, another country) but who didn’t want to jump through all the regulatory hoops to get one more license. Given that this is allowed, the cost and hassle of additional licenses is, I hear, coming down. (Before these licensing regulations were changed–back in the 1990s, for example–you had bizarre situations where top-flight general surgeons from Britain or Canada became anesthesiologists or even PAs here, because those licenses could be obtained more quickly than that of a general surgeon. What an economically inefficient use of scarce resources, economists pointed out.)

I need not even see a doctor for all my medical complaints. For example, nurse practitioners and PAs both offer deep discounts on monospot swabbing and rapid strep test if I have a sore throat. And pharmacists are happy to make recommendations for medications, which no longer require a physician’s prescription. Granted, many people are not comfortable taking what had been prescription meds without some input by a physician and are willing to pay extra for that privilege, but in some instances and with some people, the pharmacist seems sufficient. (Most pharmacists feel comfortable not getting the advice of a physician as to what drugs are best for their diagnosis.) Some upper-scale pharmacies require you to compensate the pharmacists for their time and advice, as you do other professionals, though some large-scale businesses like Walgreens and Wal-Mart offer the pharmacist consultation as part of the price package.

People make mistakes, of course, as with any institution involving human beings, though the mistakes associated with overly burdensome regulation are no longer a problem. When they do make mistakes, they can be sued, as before. But the introduction of a “loser pays” principle in malpractice suits has reduced spurious lawsuits. Some physicians offer discount fees to those who agree to waive their right to sue, and courts have recently modified past precedent to allow people this option. (Reputation is sufficient to prevent abuse.)

Hospitals are run competitively. Some are small boutique hospitals, catering to those with specific problems–cardiac, musculoskeletal, and others. Others are megaplexes that offer a total package with every imaginable specialist coordinating all aspects of your care. For many problems there are clear prices that cover all aspects (labs, imaging, post-op care), and long-term payment plans are commonplace. Many hospitals have a sliding scale for the less fortunate, but the idea of offering “free care” is considered laughable, since most recognize that people overutilize scarce resources that are underpriced. Some have a local reputation, while others are branches of well-respected national chains. Mayo hospitals are often located near major highways and can be recognized from afar by their bright yellow arches. The price of a major operation is typically more than an inexpensive car, less than an inexpensive house (though transparent pricing and market competition lower these prices each year), and is financed as people finance cars and houses: long-term. Hospital companies, like car companies, have associated financing wings (such as “MAYOAC”) that offer long-term financing options.

Some people choose to go without insurance, as is their right. For young, healthy people it is often a reasonable risk to take. When people without insurance have an acute medical problem or trauma requiring immediate care, they are usually treated in a basic fashion and compensation is handled at a later, more appropriate time. Hospitals often try to attract physicians to help with things like trauma by offering to compensate them immediately and up front, adding these costs onto the bill to be financed.

Most people, though, have health insurance. Because there are no state or federal mandates, health insurance is inexpensive, especially for high-deductible packages. You only insure against those things you want to insure against. Cancer and diabetes: yes. In vitro fertilization and hair transplant (to name two of several hundred mandates previously required in one or more of the 50 states): no.

Even a majority of the poor can afford health care now, just as they can, according to government studies, afford flat-screen TVs, air conditioning, computers, cell phones, two cars per family, and many other goods and services not available to the rich of 50 years ago. There is a society-wide discussion about how to help the poorest of the poor–some urge reliance on family, charity, and the resurgent friendly societies; others seek some form of government involvement–but all agree that concern for the poor in no way justifies government take over of nearly 17 percent of the national economy.

Health care is not perfect. But we have saved a lot of money by no longer pretending it could be made perfect if we handed it over to the political class. If only we could as easily solve the continuing problem of first-class mail delivery.

Congress, with President Clinton’s approval, recently mandated that health maintenance organizations (HMOs) permit women giving birth to stay at least two days in the hospital. Many physicians applaud the mandate. But mandates, even for praiseworthy actions, have pernicious effects.

No HMO opposes patients staying an extra day—even an extra month—as long as they pay for the service. So what is really at issue is the provision of extra services at no additional cost, a condition with which physicians have become intimately familiar in the last decade. Such services won’t be uncompensated for long. HMOs, forced to provide additional services, will simply raise rates. Since all HMOs face the same mandate, competition won’t keep the prices down. Everybody will end up paying more so pregnant women can obtain a benefit they can pay for themselves if they really want it.

But don’t women need two days in the hospital after delivering a child? The answer, of course, is: not all of them. Some women still bear children at home. Mandating a minimum not required by all women makes no sense.

That mandate pales, however, beside the more pervasive subsidy granted to pregnant women in general, a subsidy that grossly distorts the health-insurance market. We are referring to mandates for pregnancy coverage in employer-purchased health insurance, an essentially middle-class phenomenon. (Government-provided health care for the poor, including prenatal care, is not discussed in this article.) The fact is that routine pregnancy should not be an insurable event at all.

The Role of Insurance

Insurance aims to keep certain unforeseen disasters—from fires to auto accidents to devastating disease—from financially ruining the insured. The goal is not to prepay for planned events; that’s what savings accounts are for. Paying for services like pregnancy and birthing through insurance leads to the twin problems of adverse selection (those who purchase the insurance are those most likely to be planning a pregnancy) and moral hazard (purchasing insurance increases, at the margin, the likelihood a pregnancy will occur). The fact that pregnancy is a desired and elective state guarantees adverse selection. Mandates, which limit adverse selection by extending the coverage to more people, magnify moral hazard.

University of Chicago law professor Richard Epstein made these points in Forbidden Grounds (Harvard University Press, 1992), “Normally pregnancy is regarded as a voluntary and welcome event, easily distinguished from any disability for which insurance is usually sought and extended. Because pregnancy is desired, and because women largely control whether and when to become pregnant, the evident moral hazard makes pregnancy a poor candidate for any form of insurance.” Epstein also makes the indelicate though economically correct point that “women are more likely to choose to become pregnant if they can receive disability payments for an outcome they regard as beneficial.”

Despite these perverse outcomes, Congress passed the Pregnancy Discrimination Act in October 1978 (amended under the Civil Rights Act of 1991), requiring employers with 15 or more employees to include pregnancy coverage in any offered health insurance benefits. Consider the perverse incentives this creates. Employers, of course, don’t have to provide health insurance. Insurance versus higher cash income is a routine tradeoff employers and employees bargain over. Given the uneven tax treatment of the two types of compensation (employer-purchased health insurance is paid with pre-tax dollars while employee-purchased health insurance is paid with post-tax dollars), employees tend to prefer health insurance over additional salary at the margin, while the employer is relatively indifferent.

That tax treatment distorts the market. The market is then further distorted by the Pregnancy Discrimination Act (PDA). If provided at all, group health insurance must be purchased for everyone in the group; all employees are eligible by law. The PDA, by mandating that pregnancy must be covered if health insurance is offered, raises costs dramatically, shifting employers away from offering coverage if they are unable to lower cash wages.

All mandates, obviously, increase costs. But why does pregnancy coverage increase them so dramatically? Because pregnancy is not a random event (as disease is). Since pregnancy is common and doctors know their payments are covered by insurance, costs skyrocket. Epstein’s adverse selection and moral hazard principles apply.

From a business point of view, there may be something even worse than a dramatic increase in costs: an unpredictable increase. Since pregnancy is not a random event, statistical predictions don’t apply. Calculating business costs associated with health insurance becomes more a matter of reading entrails than actuarial tables. In such circumstances, employers do not remain indifferent to the choice between wage increases and additional health benefits.

Harm to Low-Income People

As health-insurance costs rise, those at the bottom of the employment ladder are frozen out. An employer can ask an employee to choose between a $60,000 salary or a $50,000 salary plus $10,000 of health insurance. An employer cannot ask an employee to choose between a $15,000 salary and a $5,000 salary plus $10,000 of health insurance.

Although mandated pregnancy coverage is probably the government’s most expensive health mandate, it is by no means the only one. Scores of mandated coverage items permeate the federal and state regulations, grossly distorting negotiations between employee and employer, and between doctor and patient.

Over the last decade, employers have tried several approaches to circumvent insurance mandates. Some dropped coverage altogether, paid their employees more, and urged them to purchase insurance on their own. (Many employees didn’t, of course.) Some large companies have self-insured, which often eliminates the legal mandates. Self-insurance, however, is typically more costly and less efficient than purchasing insurance from companies that specialize in providing it. So government mandates push people to forgo the benefits of the division of labor.

The final irony is that the politically imposed mandates for pregnancy coverage (and other mandates) are a primary reason that many Americans lack health insurance. They’ve simply been priced out of the market. You’ll recall that First Lady Hillary Clinton deplored that state of affairs and used it to justify her attempted socialization of the health-care market, even though the government mandates were a major factor making insurance so expensive. This is a medical microcosm of Ludwig von Mises’s point about the instability of a mixed economy. The logical consequences of one intervention lead either to repeal or a new and more pervasive intervention. We are still suffering from not having learned his lesson.

Against Motherhood?

But how can you be against health insurance for pregnancy? Isn’t that like being against apple pie? Or motherhood, for that matter? Actually, it’s only about being against subsidized motherhood. You can like apple pie but oppose the government’s mandating a slice with every restaurant meal.

Mandated health insurance for routine, uncomplicated childbirth (medical complications of pregnancy and childbirth are insurable events) makes no more sense than mandated health insurance for baldness, myopia, or infertility. Like pregnancy, those are not diseases. Like pregnancy, they were until recently viewed as natural situations to which one adapted. Now, like pregnancy, they are conditions that can be improved by medical science. The question is: if medical science is used in that way, who should pay?

Health-insurance mandates increase costs for everyone, making coverage less affordable. That higher cost forces some people out of the health-insurance market. Those remaining are compelled to subsidize other people’s cosmetic improvements, visual acuity, fecundity, and pregnancy coverage.

Analogies, of course, are always limited. There are differences between pregnancy and baldness, infertility, and myopia. For example, pregnancy is usually a consciously aimed at state while the others come to us unbidden. In this regard, baldness, infertility, and myopia—unlike pregnancy—resemble diseases. That makes them more like insurable events than pregnancy is. But to some extent and in perhaps subtle ways, the adverse selection and moral hazard problems still obtain.

Obstetricians, focusing on the many benefits of complete prenatal care, might oppose removing the mandate for insurance coverage. No one disputes the benefits. But again, the question is: benefits to whom? Are the beneficiaries clearly identified, and if so why don’t they pay for the benefits themselves?

Some claim if people must pay for obstetrical care directly, they will forgo it. This is nonsense. Insurance doesn’t routinely pay for cosmetic surgery or corrective-lens surgery or in vitro fertilization; nonetheless, plastic surgeons, ophthalmologists, and fertility specialists make good money offering those services. Like pregnancy, such procedures are largely elective and voluntarily paid for.

Should We Subsidize Children?

Are the subsidies justified by the importance of children to society? People chose to have children for all of recorded history without requiring subsidies of this sort. They would continue to do so even if the subsidies ended because most people want children. It is unnecessary to subsidize choices people already are prepared to exercise. Moreover, you can have too much of a good thing.

Ironically, much of the subsidy that pregnant women receive represents a transfer from one group of women to another. Infertile women, lesbians, and women who simply choose not to bear children suffer lower salaries and diminished job opportunities (both the result of increasing the business costs of hiring women) so other women can have “free” birthing care. That is unjust.

What about women who cannot afford the costs of pregnancy? While no one should be prohibited from having children, neither should anyone be forced to pay so that others can have children. Clearly, the cost of having a child is dwarfed by the cost of raising a child, yet almost no one suggests that those costs should fall on anyone but the parents. Do we really want to support subsidies that encourage prospective parents to have children they cannot afford to raise?

Do these positions sound radical? They actually harken back to the traditional method of medical payment, standard practice as recently as four decades ago. It may also be the practice people will prefer if they move away from employer-provided health insurance and opt for a more economical package consisting of catastrophic insurance and medical savings accounts (MSAs). They will use MSA money to pay for routine prenatal and delivery costs.

Imagine that: actually paying for the costs of delivering our own children rather than using government mandates to thrust an uncompensated burden on others. What a wonderful demonstration of responsibility and independence for our children to witness as they enter the world.