How Austrian Economics Explains Why Universal Healthcare and Free Pricing Can’t Coexist Without a Cost
Drawing on Ludwig von Mises’s Human Action, this essay argues that a society’s moral commitment to universal healthcare access is a normative choice standing outside economics — but once made, it collides with the economic reality that healthcare remains scarce, specialized, and expensive to produce. When governments promise access regardless of wealth while still allowing providers to negotiate prices freely, the resulting tension doesn’t eliminate scarcity — it just relocates where that scarcity shows up, whether in reimbursement caps, wage pressure, waiting times, or rising taxes. The United States’ unusually high healthcare spending, driven more by price than by utilization, offers suggestive real-world evidence for this dynamic, illustrating that the real policy choice isn’t “market versus government” but rather which mechanism a society uses to allocate an unavoidable scarcity — and who ends up bearing its cost.
Starting with Human Action
Ludwig von Mises begins Human Action with one of the most fundamental propositions in economics: human beings act purposefully. They have ends they wish to achieve and employ scarce means to achieve them. From this starting point follow the concepts of value, scarcity, exchange, price, cost, profit, loss, and economic calculation—concepts Mises treats as logically implied by the fundamental category of human action.
This framework offers a powerful way of understanding healthcare, but it also reveals a boundary. Austrian economics can explain how people respond to scarcity, incentives, prices, and institutions. It does not, by itself, tell us which ultimate ends a society ought to choose. That distinction is essential. Suppose a society decides, as a moral and political principle, that healthcare should be accessible to everyone regardless of wealth, and that poor people should not receive an inferior standard of medically necessary care merely because they are poor. That is not a conclusion derived from Austrian economics; it is a normative premise. Once the premise is accepted, however, Austrian economics can be used to ask a different question: what economic consequences follow from attempting to achieve universal, high-quality healthcare under conditions of scarcity?
This question leads to a more complicated conclusion than either “free markets are good” or “government healthcare is good.” It suggests a fundamental tension between universal access independent of purchasing power and unrestricted market pricing of scarce healthcare resources.
Subjective value does not mean healthcare workers should automatically earn more
Consider a person suffering a life-threatening medical emergency. At that moment, the subjective value of an effective treatment can be extraordinarily high—a person may value the service of a particular surgeon more than almost anything else they possess. This does not contradict subjective value theory; indeed, it illustrates it. Mises’s theory begins with the fact that value belongs to the acting individual and depends on the relationship between the means available and the ends the individual is trying to achieve.
But an important distinction follows: the subjective value of an outcome is not the same thing as the market price of the labor producing it. A patient may value being kept alive at a million euros. That does not mean the surgeon receives a million euros. The market price of the surgeon’s labor depends on the interaction of supply, competing employers, alternative uses of the surgeon’s abilities, capital complementary to that labor, and the expected market value of the services the surgeon can provide. Mises explicitly treats labor as a scarce factor of production—the entrepreneur bids for labor according to its anticipated contribution to goods or services that can be sold to consumers, and wage rates tend toward the value of the marginal product of the relevant kind of labor, subject to the supply of labor and other factors of production.
This distinction explains an apparent paradox: a healthcare service may be extraordinarily important to the person receiving it while the healthcare worker providing it receives a comparatively modest income.
The importance of healthcare is not enough to determine the worker’s wage
Imagine two professions. One worker is a specialist capable of saving a patient’s life; another manages a billion-euro investment portfolio. It is tempting to say the healthcare worker creates more value because human life is more important than financial returns. But this is not what subjective value theory measures. The market does not assign workers wages according to an objective hierarchy of human importance. The wage of a worker is connected to the market value of the worker’s marginal contribution and to the opportunities available to both employers and workers.
Mises therefore does not claim that a worker earns what he or she morally deserves. He claims something much narrower: wages are prices for particular labor services, and those prices emerge from the economic structure within which the services are bought and sold. This is why the high social importance of healthcare does not automatically imply high healthcare wages.
Scarcity changes everything
Now introduce scarcity. Suppose millions of people are capable of providing a particular service. Even if consumers value that service highly, competition among providers can keep its price relatively low. Now suppose only five hundred people possess the necessary skills—the price pressure changes. Suppose only twenty people can perform a particular highly specialized operation. The supply of that service is extremely constrained, and if demand is also highly inelastic because patients may die without it, the market-clearing price can become very high.
This is exactly what subjective value theory predicts. The value of the service to the consumer may be extraordinarily high, the supply may be extraordinarily limited, and therefore the price can become extraordinarily high. There is no contradiction here.
Healthcare adds an unusual moral constraint
Now introduce the political premise. Suppose society says that a person’s access to medically necessary healthcare should not depend on his wealth. This means society does not want healthcare rationed purely according to purchasing power. That is fundamentally different from buying eggs: if eggs become expensive, a consumer can simply buy fewer eggs. But if someone is having a heart attack, society may reject the proposition that treatment should go to whoever is willing and able to pay the most. Instead, the desired allocation rule becomes that treatment should go to the person who medically needs it.
This is a moral choice. It is not a theorem of Austrian economics. But once that moral choice is made, it creates a problem that Austrian economics can analyze.
Scarcity remains even after price is removed from the allocation decision
Suppose society guarantees healthcare regardless of wealth. There are still only so many doctors, nurses, surgeons, hospital beds, operating rooms, MRI machines, pharmaceuticals, and hours of medical labor. The moral principle has changed the allocation rule; it has not changed the physical scarcity of the resources. A society cannot simply declare that everyone should have access and thereby create unlimited doctors, hospital beds, or operating rooms. Some mechanism must still determine who receives scarce resources, when, and at what cost.
Quality requirements make the supply problem more severe
Universal access is not necessarily the only social objective. A modern society may also demand that healthcare be safe and of high quality. That produces another set of institutional constraints: doctors must be educated and licensed, hospitals must meet standards, medical equipment must meet safety requirements, drugs must pass regulatory processes, and professionals may be subject to malpractice rules and professional obligations.
These restrictions can have very good reasons. If the social objective is high-quality healthcare, society may reasonably decide that it does not want anyone to provide surgery simply because they are willing to offer the lowest price. But economically, restrictions on entry and production can restrict supply. The system can therefore simultaneously have high demand, highly constrained supply, stringent quality requirements, and a moral prohibition against allocating essential care according to wealth. Under unrestricted market pricing, those conditions would tend to create upward pressure on prices.
The apparent paradox
This produces the central paradox. A society wants healthcare for everyone, while also wanting high-quality healthcare, while simultaneously maintaining restrictions on who can provide healthcare and how, while also insisting that inability to pay should not prevent access. Under ordinary market conditions, scarcity would be expressed partly through price. But the moral principle prevents price from being the decisive mechanism determining access. Therefore the system must suppress, redirect, or replace part of the normal price mechanism. This is where government enters.
The government has an incentive to control expenditure
Once government assumes responsibility for ensuring universal access, it becomes responsible for financing a potentially enormous quantity of healthcare. Unlike an individual patient, government cannot simply pay whatever a treatment happens to be worth to the person who needs it—it must collect resources from society as a whole. That creates an incentive to control expenditure. If healthcare providers can freely increase prices while government is politically committed to providing healthcare to everyone, the government’s expenditure can rise rapidly.
This produces a predictable strategic interaction. Healthcare providers have an incentive to seek higher reimbursement; government has an incentive to limit expenditure. The government therefore negotiates reimbursement rates, establishes fee schedules, controls formularies, limits budgets, regulates providers, and otherwise attempts to constrain the prices it pays. This is not necessarily the result of malicious intent—it is a predictable consequence of the institutional structure. If one actor promises broad access while another actor supplies scarce services, the financing institution has an incentive to control the price of those services.
The price cannot simply be suppressed without consequence
Suppose the unrestricted market-clearing price of a medical service would be one hundred euros, and the government decides it can only afford to reimburse seventy. The thirty-euro difference does not disappear. The service still consumes the same scarce resources, and someone must absorb the difference. It can appear as lower provider profits, lower wages, lower investment, fewer providers, reduced staffing, reduced quality, longer waiting times, higher taxes, increased government borrowing, rationing, or some combination of these.
This is an application of the Austrian concept of opportunity cost. Resources have alternative uses. If society pays less for healthcare, the resources employed in healthcare must receive a smaller economic return unless another mechanism compensates them.
Why healthcare workers can therefore be relatively poorly paid
This provides a more sophisticated explanation for the apparently paradoxical earnings of healthcare workers. The healthcare worker’s wage is not determined by the moral importance of the service; it is determined by the economic value of that particular labor input under the institutional conditions in which it is employed. Mises argues that employers must compete for scarce labor and that wage rates tend toward the anticipated value of the marginal product of that labor. But the expected value of the marginal product depends partly on the price that can be obtained for the resulting service. If the healthcare system politically constrains the price or reimbursement of the service, this can constrain the revenue available to remunerate its factors of production.
The effect will not necessarily fall equally on every worker. A highly specialized surgeon may have enormous bargaining power because replacing that surgeon is difficult; a more easily substitutable healthcare worker may have much less bargaining power. The adjustment tends to fall where the relevant factors are most economically substitutable, depending on the particular institutional structure. This does not mean government simply “chooses to pay nurses less.” It means that when the price of the final service is constrained, the economic pressure propagates backward through the production structure.
The price paid by the patient is not the same as the price of healthcare
There is an important qualification here. Universal access does not necessarily require suppressing the price received by providers. A society could theoretically say that the market price of an operation is one hundred thousand euros, and simultaneously say that nobody should be denied the operation because they cannot personally pay that sum. Government or insurance could pay the provider the market price while the patient pays nothing or very little. This arrangement would preserve the provider-side price signal while preventing wealth from determining access.
Therefore the strongest version of the argument is not that universal healthcare necessarily requires price controls. It is that universal healthcare creates a strong political incentive for price controls or other forms of expenditure control whenever government is responsible for financing care and cannot, or does not want to, allow expenditure to rise without limit. That distinction matters.
The United States as an empirical comparison
This theoretical question becomes more interesting when comparing the United States with European healthcare systems. The United States is not a pure free market—it has Medicare, Medicaid, extensive regulation, licensing requirements, employer-sponsored insurance, public subsidies, tax preferences, and many other interventions, and so should not be described as a “free-market healthcare system” without qualification. But it has historically allowed substantially more market-based price formation in important parts of healthcare than many European systems, and the difference in expenditure is striking.
According to the OECD, US health spending reached approximately $14,885 per person in 2024, compared with an OECD average of about $5,967, with US spending representing 17.2 percent of GDP. KFF’s comparison with eleven similarly wealthy countries found that the United States spent nearly twice as much per person—about $13,432 compared with $7,393—while utilization was generally lower, concluding that higher prices, rather than simply greater utilization, explain much of the difference.
This is particularly relevant to the thesis. The United States does not simply consume dramatically more healthcare; it often pays more for it. KFF reports that Americans generally have fewer physician visits and shorter hospital stays than people in comparable countries, while prices for many healthcare services and drugs are higher. The OECD reaches a similar conclusion, noting that the United States does relatively little to regulate healthcare prices compared with many countries that regulate health spending, and identifying high prices as a major explanation for high US expenditure.
This is consistent with the thesis—but does not prove it
The empirical comparison does not prove that free markets cause expensive healthcare. There are too many institutional differences between the United States and European countries: different insurance structures, employment relationships, regulation, provider consolidation, pharmaceutical markets, litigation institutions, tax treatment, and patterns of government financing. Indeed, the US is not universal—the OECD reports that about 25 million people were uninsured in 2023, whereas most OECD countries have achieved universal or near-universal coverage for core healthcare services. The US therefore cannot be treated as a clean experiment.
But the evidence is strongly consistent with one component of the thesis: when healthcare providers have greater ability to negotiate or charge high prices, while society simultaneously remains committed to broad access, the total financial burden can become very large. The OECD’s own comparison notes that countries with stronger price regulation can achieve significantly lower healthcare prices, and specifically observes that healthcare prices in the United States are among the highest in the OECD.
The deeper issue is not simply “government versus market”
The real question is what happens when two principles are combined: that everyone should have access to healthcare regardless of wealth, and that healthcare providers should be permitted to negotiate prices relatively freely. Neither principle is inherently incoherent, but together they create a financing problem. If patients cannot be excluded because they cannot pay, someone else must pay. If providers can freely increase prices, that someone else may face rapidly increasing expenditure. If government is that payer, it has an incentive to control those prices. If it controls those prices, the resulting scarcity must be expressed elsewhere.
This creates a feedback loop: universal access leads government or insurance to assume financial responsibility; providers then negotiate for higher reimbursement; expenditure rises; political pressure builds to contain it; reimbursement controls and regulation follow; revenue per unit of healthcare falls; pressure mounts on wages, profits, investment, supply, or waiting times; political pressure then builds to compensate for the resulting shortages, prompting further intervention. The exact outcome depends on the institutions involved, but the underlying economic tension is persistent.
Why the US comparison matters
The US case provides a particularly interesting contrast because it has retained more market-based price formation while also retaining a large insurance and government-financed healthcare sector. The result is not a pure market—it is market pricing layered on top of socialized risk. This combination can create unusual incentives. The patient may have little sensitivity to the actual price because an insurer or government program pays much of the bill. The provider therefore negotiates with an insurer rather than directly with the patient. The insurer has an incentive to control prices but also has to maintain a network. Government subsidizes or directly finances major parts of the system. And yet many prices remain substantially above those found in countries where governments or compulsory insurance systems negotiate or regulate reimbursement more aggressively.
The result can be a system in which the patient is partially insulated from price, the provider retains considerable pricing power, and government and insurers ultimately bear much of the financial consequence. This is not the competitive textbook market of Human Action.
The central hypothesis
The resulting hypothesis can be stated precisely: a healthcare system in which society morally commits itself to universal access but permits relatively unrestricted market pricing can produce unusually high total healthcare expenditure. This is because healthcare combines several unusual characteristics. Demand can become extremely inelastic when health or life is at stake. Specialized supply is often highly constrained. Quality requirements restrict entry. Patients frequently lack the information necessary to evaluate providers. Patients often do not directly pay the marginal price. Insurance reduces price sensitivity. Healthcare is politically protected from ordinary market rationing. Yet providers may retain substantial bargaining power over reimbursement.
Under these conditions, market pricing does not necessarily perform the same simple rationing function that it performs for ordinary consumer goods. Instead, society may obtain the worst of two worlds: the high prices associated with relatively unrestricted provider-side pricing, combined with the weak price sensitivity associated with universal or heavily insured access. This is not an inevitable outcome, but it is a coherent economic hypothesis.
And this returns us to Austrian economics
The Austrian insight is not that market prices are morally good. It is that prices contain information about scarcity and opportunity cost. If society decides that price should not determine access to healthcare, that is a legitimate normative choice—but society must then answer how else scarcity will be allocated. And if it allows market prices to determine provider remuneration while simultaneously promising universal access, it must answer a different question: who ultimately bears the cost of the resulting prices?
This is where Austrian economics becomes particularly useful as a tool of political analysis. It prevents the political system from confusing the fact that the patient does not pay the price with the claim that the healthcare service does not cost that price. It prevents the fact that government controls the reimbursement from being confused with the claim that the scarcity has disappeared. And it prevents the fact that a healthcare worker receives a relatively low wage from being interpreted automatically as evidence that the worker produces little value. The economic system may simply be suppressing the price through which that value would otherwise be expressed.
Conclusion
The strongest version of this thesis is not an argument that Austrian economics proves laissez-faire healthcare is right. It is almost the opposite: Austrian economics provides the tools for understanding why a society cannot simultaneously escape scarcity, abolish price rationing, guarantee high quality, restrict entry, and permit unlimited demand without creating compensating costs elsewhere.
The moral premise comes first: healthcare should be accessible to everyone, regardless of wealth. That premise sits outside economics. Then Austrian reasoning begins. Healthcare is scarce. Healthcare labor is heterogeneous and specialized. Subjective valuations can become extraordinarily high. Scarce specialized labor commands economic value according to its marginal contribution and opportunity cost. Regulations can restrict the supply of that labor. High demand combined with restricted supply creates upward pressure on prices. If society refuses to allow those prices to determine access, some other mechanism must ration the scarce resources. If government finances the system, it has an incentive to control its expenditure. And if it controls provider prices, the resulting economic pressure must be transferred elsewhere.
The United States provides suggestive evidence for one part of this argument: it spends dramatically more on healthcare than other wealthy countries, and the evidence indicates that higher prices—not simply greater utilization—account for a substantial part of the difference.
The conclusion, however, should be stated cautiously. It is not that free markets cause healthcare to be expensive. It is that when relatively market-based pricing is combined with a political commitment to broad access, the resulting system can have a structural tendency toward high total expenditure, because society simultaneously prevents the normal market rationing mechanism from determining access while allowing scarce providers to receive relatively high prices. That is a considerably stronger and more testable proposition.
Perhaps the most interesting general conclusion of the whole argument follows from this: the relevant comparison is not between a “free market” and “government.” It is between different mechanisms for allocating the unavoidable scarcity of healthcare. The market allocates partly through prices. A universal system may allocate partly through taxes, insurance, regulation, negotiated prices, queues, clinical criteria, and political decisions. Neither system abolishes scarcity. They merely decide where scarcity becomes visible, and who bears its cost.