In the few days since I published my post about the inevitability of a single-payer healthcare system, I’ve gotten a few caustic comments from some of my more conservative friends, and the hairy eyeball from some others, all of whom seem to think that I’ve fallen off the liberal deep end. I haven’t, at least I don’t think so.
I love free markets. I think that much of what the government gets involved in is none of the government’s business. I think that despite good intentions, regulations often do more harm than good. And I think government debt is the biggest drag on the economy.
The issue here is different. Neither healthcare nor health insurance is actually a market. So expecting them to act like markets is fool’s errand.
A true market for health care would exist only if we left everyone to to pay for it on their own, allowing each of us to buy as much healthcare and insurance as we want and can afford. That would result in a large number of people going untreated, which is an outcome that we are highly unlikely to accept. As soon as we decide to subsidize care for anyone, we’re on the steep, slippery slope of taxation and redistribution, regardless of what we choose to call it. Fully in the grip of gravity, we will wind up at the bottom of that slope.
I’m not saying I like this, just that I think it’s the reality. If that’s where we’re going to end up, we should, as my friend Steve Smolinsky says, “Get on with it.”
Just how “non-market” is healthcare? Here’s another example. My insurance company denied the claim for my appendectomy, ostensibly because they didn’t know if I had any other insurance (I don’t). With a single check box, they could have obtained that information during enrollment. Failing that, they could have called me. Instead, they pushed the problem back on the hospital, which tracked me down, got me to call the insurance company and verify that I don’t have any other insurance, so that the hospital could resubmit the claim, which the insurance company says it will take another 3-4 weeks to pay.
The sole benefit of this exercise is to generate a month or more of float. That may be a nominal savings for the insurance company, but it is a net cost to the system. This is a routine practice (shades of “The Rainmaker”). A little quick math suggests that it adds perhaps $1 billion in cost system-wide. This cost is borne by doctors and hospitals, who build it into prices, which ultimately results in larger bills being submitted to. . .insurance companies.
Over the past 20 years or so, every industry has driven time and unproductive cost out of its processes. This is the only case I can think of where an industry has actually added time and cost, and has been able to get away with it.
In true markets, buyers and sellers get to decide who they want to do business with. This drives them to efficiency and equilibrium. In this case, the hospital had no choice. I showed up on their doorstep, the little guy had to come out, they had to do it, and they had to accept my insurance.
If you are a seller of services and you do not have the ability to say no, precisely what kind of market are you in?
7 thoughts on “Gravity – Addendum”
Dan, people don’t “buy” insurance, they sell risk. If the risk is properly priced, the less healthy would be priced out of the market as the healthy are today. I believe the private market is more efficient than the government.
I do not agree with your ineventability conclusion. An alternative is the insured reduce the risk they sell. The market will achieve an equilibrium. As you know appendicitis is a random condition, diabetes is predominantly a lifestyle disease.
It is hard to understand that a basic,.laproscopic, highly repeated procedure costs as much as the old gaping incision. Patient comfort and risk is much better.
Keeping it a free market ensures dynamic access, continued innovation at a value set by a participating market .
A terrific hairy eyeball, Terry. Thanks!
The unhealthy are already priced out of the market. That’s why we have Medicare and employer-sponsored health insurance. The reason the healthy are priced out is that we insist that they subsidize the unhealthy. And the only way that pricing which actually reflects risk could manifest itself in the market would be if we allowed people who are priced out of the market to go without insurance and medical care. I don’t think we, as a society, would allow that. I’ve argued previously that because there is no way for the recipient of medical care to place an economic value on it, there is no natural upper limit on what we would spend. Therefore, some form of exogenous intervention – rationing – will always be necessary. As Steve points out, we ration care today. We just do it through bizarre and complicated means.
I agree that what we pay should reflect lifestyle choices that we make, although I think that could be done through co-pays and reimbursement rates instead of, or in addition to, premiums. Appendicitis is a random event – it gets covered at 100%. Type II Diabetes is a function of choice, so it gets covered at some lower rate. (I should add that I’m not sure monetary incentives would actually change behavior. The school of “behavioral economics” has shown conclusively that we aren’t the rational, money-driven beings that economists have always said we were. In my case, the prospect of blindness, dialysis and amputation was more than enough to scare me into getting my blood sugar in line. Money never entered the picture.)
Lastly, the key point of this post and the previous one is that health care isn’t a market. When you say that the private market is more efficient than the government and that a free market ensures dynamic access, I agree completely. . . in situations where a market actually exists. I just don’t think that’s the case here. I would love to hear reasons why I might be wrong about that.
Nice post Dan, still awoke from Waident but will work on changing my attendance – hope to x paths soon!!
Only people who have money and are able to buy high quality health insurance…or who get it from an employer…think that our private health system works in any rational way. We are the only industrialized country where everyone does not get health care, where large numbers of people go bankrupt due to health care costs, and our medical outcomes are not even close to the best in the world as we so often hear from those defending our current system.
The only reason my father is alive today is because myself and my sister have enough medical knowledge to fight an insurance company bureacrat who had decided he shouldn’t get the only treatment that would fix his condition. That was about 15 years ago and he is in fine health to this day. Our wonderful disease profit industry would have killed him to save a few bucks…the case with many too uneducated or unable for other reasons to fight the insurance companies.
And yet we hear so many decrying the attempt to ration healthcare, create death panels, and so forth while these things happen on a regular basis. It seems as long as a private company makes these decisions it is fine.
And I am someone with healthcare clients…
It is rather interesting that smoking related diseases, some forms of heart disease and type II diabetes, all that should be the bastian of the wealthy and well insured are instead more prevalent in poorer communities.
I believe the real pathology, manifested in the health “insurance” market, sure, but and society in general, is a refusal to accept responsibility, make sound choice and understand that actions have consequences. I’ll take structural inequities in some areas over this blanket coddling of the masses and growing of the spiritually dependent poverty class any day.
It isn’t immediately clear to me why smoking, heart disease and Type II diabetes “should” be the bastion of the wealthy and well insured. Smoking is a discretionary expense, but heart- and pancreas-killing foods have the disadvantages of being both widely available and cheap.
In any case, the presumption here is that spending is driven by diseases that are chronic, lifestyle-driven, and occur disproportionately among the poor. I haven’t seen data supporting that (it may exist, but a quick Google search didn’t turn any up.) According to the data I’ve seen:
• People over 65 consume 4x more healthcare per year than people under 65;
• The higher you go up the age scale, the more lopsided it becomes;
• Healthcare consumption is much more evenly distributed among the elderly than the non-elderly (i.e., most older people have medical problems);
• In any given year, the bulk of spending that is not for the elderly is for treatment of trauma and acute conditions (neither of which, presumably, is lifestyle related);
• People with certain chronic conditions, including those listed above, do consume healthcare disproportionately over time;
• The degree of lifestyle influence on those diseases seems to range quite a bit (i.e., Type II diabetes – high; asthma – low).
The free-market question here is what we should do when a guy shows up at a doctor’s office with a lifestyle illness and not enough money to pay for it. In a truly free market, we would tell him that he’s on his own. That’s a legitimate option, but one that we as a society are unlikely to embrace – unless we start reading Atlas Shrugged to our kids when they’re in kindergarten. There are intermediate steps (like requiring supplemental policies or altering reimbursement rates). That raises the question of whether there’s enough of a market to set those prices. If not, we’re back to exogenous intervention – more gravity.
The broader question of how we can resurrect a society characterized by personal accountability and responsibility are expected is a terrific question. And one for another day.