OK, I’ll admit that I’m stumped on this one. It’s starting to look like we’re actually going to get some sort of healthcare reform which, at least in general terms, I believe is a good idea. If you think what we’re doing now is working, read the first paragraph of this article. We spend more to get less than just about anybody else.
In my mind, it’s not acceptable for a nation as affluent (at least for now) as we are to have a fifth of its people uninsured. I understand that “uninsured” is not the same as undoctored. But it doesn’t make sense to me that the right way for millions of people to get healthcare is to wait until their needs are dire and then seek care in the most expensive possible venue – the emergency room.
That said, there’s a serious problem in the debate. We have the Republicans decrying government intervention and insisting that the market can deliver. With equal vehemence, the Democrats are defending a highly intrusive government role while claiming that there will be no rationing of healthcare.
As best I can tell, everybody’s wrong here.
The core underlying problem with healthcare is that it’s not actually a market. A market is a place where multiple buyers and sellers come together, each with enough information to make at least somewhat informed decisions and with multiple options, including the option not to buy. This is the infamous invisible hand – the natural mechanism for controlling the amount of demand for a product or service.
Healthcare doesn’t work that way. First off, instead of a buyer and a seller, most transactions involve three parties, a seller (doctor), a user (patient) and a payer (insurance company). The interests of the payer are diametrically opposed to those of the user. Meanwhile, the user has the most to gain/lose, the least information, the least power and the fewest options. These dynamics mean that normal buyer-seller equilibrium does not occur.
Moreover, one of the keys to market behavior is the ability of buyers to place a monetary value on the benefits delivered by the product or service. This is essentially impossible with medical care. There simply is no way to decide how much is too much for a treatment that will save or significantly improve your life. Consequently, there is no natural upper bound on the demand for healthcare, which is why US healthcare spending is growing at nearly 7% per year in an economy with little or no inflation.
The implication is pretty obvious. With no market to regulate demand, there has to be some externally imposed limit or we will spend ourselves into oblivion, which we’re already trying to do. Call it what you will, it amounts to rationing.
We currently ration healthcare mostly based on the ability to pay, and to a lesser extent on the ability of doctors to talk insurance companies into paying for things they don’t want to pay for. We also engage in a lot of cost-shifting (i.e., part of your health insurance premium pays for uninsured people to be treated in ERs), which limits transparency and manageability.
Other approaches have been tried. The state of Oregon (formerly known affectionately as the Soviet of Oregon) explicitly rations healthcare by simply refusing to cover some treatments. Maryland tries to strengthen the market by, perversely, mandating reimbursement rates for all healthcare providers and insurers in the state. The idea is to eliminate the ability of large insurers to negotiate lower prices from providers, which should keep more insurance companies alive and create a better market for consumers. How well either approach works is something I can’t say.
I don’t pretend to know what the right answer is. I do know that pretending healthcare is a market like any other won’t get us there.
Oh, and one other thing. . .the plan that eventually passes is going to cost a trillion dollars or so that we don’t have.