Op-ed: Education and health care are never free

Free stuff always sounds great — except for the fact that not much is really ever free.

Such is the case in the current political talking points from the left in which leaders are promoting that higher education should be free and that health care for all will solve all our nation’s inequalities.

In fact, the opposite is true.

It’s a sad truth that, despite the strong economy before the coronavirus, more people were struggling financially due to the escalating cost structures of education and health care, two of society’s critical pillars. The cost of education outpaced wage growth by eight times between 1989 and 2016, while the cost of health care has increased twice as quickly as wages over the last 10 years.

Current student debt is over $1.5 trillion. The bulk of that is guaranteed by the federal government, which has supported a false economy within higher education. This is evident in the record-building boom on campuses nationwide, supported by a bond market that relied on massive federal lending to students. 

After building new facilities at a record pace, many universities now face significant and growing repair and renovation needs, and most campuses lack a funding source to pay those bills. The result is that significant additional spending will be needed. Meanwhile, real estate investment trusts have jumped in and built student housing, also at a record pace, creating a strong competitor to university-owned units at many campuses.

None of this is sustainable given the cost structure that it now takes to get a four-year degree — the math just doesn’t work.  

The health care industry has also created an equally unsustainable model on many fronts. The consolidation of health care systems and physician practices has not driven down cost and improved quality. Instead, statistics show costs rising and quality declining.

Just as in higher education, the medical industry has seen a large increase in administrative bloat, helping drive costs steadily higher. Much of this added expense can be traced back to federal regulatory requirements that take layers of staff to handle reporting needs. Has such administrative growth improved either higher education or healthcare? 

Both spaces have become drunk on federal and state dollars for support, and both are looking for more. Higher education constantly lobbies for more money, while health care groups promote Medicaid expansion and, in some cases, state support to bail out health care systems. 

Anyone who believes that giving away more health care and education without requiring dramatic changes in governance and cost controls will improve these industries doesn't understand simple math nor sustainable models.

My suggested answer for government is much, much less involvement. Many of the flaws of higher ed and health care stem from politicians buying votes and rampant bureaucracy in both spaces. Change is never easy when everyone’s checks are clearing, but history has shown a long list of once-dominant industry titans that no longer exist. These failures, for the most part, equate back to management’s unwillingness or inability to change their models related to cost structure or innovation.  

Education and healthcare both need significant model disruption with a focus on efficiency, cost reduction and performance. Executives and boards in both spaces need to change their approach — and politicians need to stay out of the way and allow competent and capable leaders to drive change that is easily identified and vetted.

Rather than boosting the government’s role with giveaway programs, which only increase unsustainable cost structures, the answer is healthy disruption and recruiting more successful private-sector executives who don’t have the history, relationships and backgrounds of big bureaucracy.  Both spaces need to change their approach to board selection and criteria to serve and stop the appointing of weak boards and individuals who are unwilling to hold senior executives accountable. 

Disruption isn’t easy, and it should be done in a measured, meaningful way led by competent executives and qualified, capable boards. But numbers don’t lie, and the numbers in education and healthcare haven’t worked for a long time. We need to show the strength to disrupt these industries with a focus on lowering cost through efficiency, less administrative expense and demanding a higher level of overall performance. 

Americans need to be smarter than supporting an approach that will lead to massive tax increases that would bolster two very broken models. 

Harry Smith is the founder and chairman of Rise Capital, a private equity firm. He served on the UNC Board of Governors for nearly seven years, including as chair of the Budget and Finance Committee, and as vice chairperson and chairperson of the Board.