Health Care Debate Warrants Look at Sustainable Structure
Thomas LyonsIn 2006, Massachusetts passed the Massachusetts Health Reform Law. One can read a simple breakdown of the law here.
The Commonwealth of Massachusetts has now decreed, essentially:
a.) That all will spend money on health insurance if they or their employers are not already, their other financial wishes be damned,
b.) The amounts spent by residents and their employers will fall within the Commonwealth’s preset parameters,
c.) That the insurance plan’s deductible, coverage allowances, and out-of-pocket caps must meet the Commonwealth’s satisfaction, and
d.) That – if the Commonwealth decrees you can afford it without their help – you will go to their pre-selected six merchants for one of the 42 pre-selected plans that have received their blessing.
The intent here, it seems, is to ensure that all have the healthcare that statutorily-bound health insurance can buy. Obviously, Massachusetts’s powers-that-be apparently believe that the greater good is to force the issue through political force and Medicare-Part-D-esque market mingling, rather than permit freedom in consumption. Big brother knows best.
In thinking about health care, it seems that we’re given a choice between two competing extremes,
a.) Ensuring, to the ability the government has to ensure anything, that all have access to health care. (We’ll call this Government Run Medicine).
b.) Creating an environment that incentives medical innovation and disincentives demand for preventable health care. (We’ll call this the Free Market).
Follow both to their respective logical extremes.
Government run medicine grants us a world where no one becomes sick or dead due to lack of access to health care. It removes all pressure to reduce costs, though, and relies on altruism to advance new medical technologies. Should we run with the assumption that altruism is insufficient, government ran health care inevitably falls behind its place relative to its potential for new innovations. Additionally, as the industry is effectively socialized, there is no burden to keep costs low, as consumers are permitted infinite demand of health care products and services.
Free market healthcare makes no such guarantee of society-wide care. The potential may exist, through charitable endeavors, to considerably reduce those that go without care, but this goes without the universal charge of government decree. New technologies are advanced in pursuit of the almighty dollar, and with sufficient competition there is a burden to minimize costs. In America today, we have some sort of compromised hodgepodge of the two. The government is quite active already in the health insurance market, i.e. Medicare and other state programs, though private for-profit insurers rule the day. It’s universally known that heightened competition is best for consumers in all industries, yet considerable financial and regulatory hurdles must be crossed for a new insurer to enter a market. As opposed to a truly free competitive open market, we see today a regulated oligopoly.
When we think about most types of insurance – property, casualty, life, auto, business, etc. – we think of protection against catastrophic circumstances that might otherwise ruin us or our livelihoods. The one exception to this thinking, though, is health insurance. It is commonly expected that routine physicals, dental checkups, annual routine visits, prescription medicines, and other forms of treatment that are both entirely predictable and not financially calamitous ought to be covered by a third party; we’ve created an expectation that someone else should pay for these routine procedures in the minds of insured parties everywhere.
A brief word on socialism’s infinite demand can be best illustrated by looking at other markets. Americans do not universally drive Lamborghinis, or live in mansions. The reason is obvious, of course, as the exorbitant price of these luxuries price out most prospective consumers. Price, it seems, is the gateway that forces us to evaluate our housing decision-making and examine what we really need in light of what is affordable.
We all need housing and transportation, just as we all need healthcare. And yet, beyond a few state-sponsored programs for 1st time homebuyers, or benefits given to veterans, or a public bus system, there is almost no cry for socializing these industries or socializing their respective buying power as there is for healthcare. In fact, consider the ramifications of granting each American a “housing voucher.” Though largely unnecessary today, the voucher would be a government guarantee for a 1500 square foot single family home to be available to its politically-favored holder. The result, of course, would be the underlying price of these properties would skyrocket, and those who are neither among the politically-favored, nor wealthy enough to afford housing would become the next housing underclass.
Is not Medicare a “healthcare voucher” for politically favored seniors, which resulted in the underlying skyrocketing of price of healthcare, creating the aforementioned underclass who are neither seniors nor wealthy? Does not the weight of additional regulatory climate only further burden a market from reaching all? Certainly there are other factors contributing to healthcare’s cost increases, but would not further government involvement in healthcare do the same?
To hear discussion of aiding the healthcare crisis through deregulation – not government action – is almost unheard of in today’s political climate. And yet, it may very well be the only effective means to reduce costs while still encouraging medical innovation.
One might certainly argue that a climate of price ignorance and escalation is a fair cost of guaranteeing coverage for all. That logic, though, leads to an unsustainable system long term which can provide adequate coverage for no one.
The current dialogue largely centers around increasing access to health care. Any new system, though, needs to factor in a plan to reduce costs, else it won’t be sustainable long-term. Pursuits of government involvement in health-care – even socializing the industry – are not sustainable for this very reason
September 4th, 2007 at 4:51 pm
I think an important aspect of the health care debate is the stakes at risk. A person’s health is rarely something they are willing to risk. I think the stakes significantly impact free market economics. In a free market for goods, the expensive, low-quality goods will not have a market and will disappear because they are not necessary for survival, when push comes to shove. But when it comes to health care, there are many situations where a person will not “go without” the necessary care even if it is faulty and/or expensive. In an ideal free market, there would be another better health care provider, and the system would work. But in reality, that provider often does not exist and the provider that ought to die off survives on the desperation of the consumers. The difficulty seems to come from the impossibility to assign a dollar value to a life or the impossibility of talking about what someone can afford for their life. Of course, not all health care is a life or death situation, but to the degree that it is, health care seems to have some distinctly unique characteristics.
September 6th, 2007 at 8:51 am
John, I think you’re misunderstanding what Tom’s saying. His point does not seem to be so much that people should not go to the doctor when they’re ill, or even that they shouldn’t get good preventative health care. His point seems to be more that health insurance is the only type of insurance where people have been conditioned to want everything covered, and this is one major reason why health insurance costs more than car or home owner’s insurance. If we were conditioned to expect a trip to the mechanic to replace a burned out light bulb to be covered by our insurance, a trip to the mechanic would be three or four times more expensive and a cheap car insurance plan would cost us several thousand dollars a year. Likewise, if we were conditioned to only expect insurance to cover the more expensive costs of health care, a trip to the doctor would once again cost relatively little and an average health care plan would not cost a whole lot.
So much money in health care is lost to two major sources: state-by-state regulation and lawsuits. If I live in Arizona, I can get a really cheap, high-quality private plan. If I live in New Jersey or California, I can’t. The biggest single reason for this difference is the scores of coverage mandates in the latter two states. If I sign up for a health care plan in California (or New Jersey, or Massachusetts, or Delaware, or Connecticut) I have to also sign up for coverage for a host of procedures that I don’t want and will literally never use — fertility treatments, hair loss treatments, etc. I literally cannot find a plan without coverage for those types of procedures because the state in question requires any insurance company licensed to do business in there to cover them. And, because I am required to buy insurance only from a company licensed to operate in my state, I can’t buy a cheap policy from a company based in, say, Arizona if I live in New Jersey or California. Hell, I can’t even buy a policy from a company in Arizona if I live a mile across the border in New Mexico. There’s no free market because the market in each state is limited only to that state. (It’s the same with car insurance, yes, but as I mentioned above, we don’t expect insurance to cover most of the regular maintenance that keeps our cars running well in the first place. That makes a big difference in keeping the cost down.)
The second big money hole here is litigation, which negatively affects the health care market in two ways. First, the threat of litigation requires health care providers to get increasingly expensive malpractice insurance plans that cost them literally tens of thousands of dollars a year. (This is on top of the ridiculous bills most of them are paying of for college and medical school.) That’s not an expense that they’re just going to eat; they’re going to pass at least a good portion of it off to their patients, which means that the price for going to any doctor — from your local pediatrician to an optometrist to something more specialized like an oncologist or a neurologist — goes up. A lot. Moreover, the threat of litigation further effects the health care market negatively in two more ways. It forces practicing doctors to stop practicing because they don’t want to spend so much on malpractice insurance and it makes aspiring doctors less willing (or even unwilling) to start practicing, for fear that they could lose everything over a mistake (or even a perceived mistake). (This, of course, applies to the valid concern that you raise over the lack of quality health care providers in many areas.)
As to the other concerns you raise: I don’t think that assigning a dollar value to human life is a major problem, at least as far as this issue is concerned. That’s a problem when passing laws. It’s not a problem for medical practitioners (who are more worried about serving their patients or, in the case of emergency responders, identifying and focusing on those for whom their efforts pay off most), drug companies (who price their products mostly based on what their research tells them the market will bear, and only secondarily on their research or marketing costs), or health insurance companies (who price their packages based mostly on the presence of state mandates and the actuarial tables).
September 6th, 2007 at 8:10 pm
Consider the “better provider” dilemna.
Will a profit-centric, greedy capitalist health care investor more quickly deliver this provider? Or the government acting in a closed market?
The answer, of course, is the former, provided Big Brother gets out of the way.
September 7th, 2007 at 1:34 pm
Good points. I’m skeptical of Paul’s assertion that he won’t ever be tempted to take advantaged of covered hair loss treatments.
The real problems appear to be two. The first and biggest problem is the three-party system. In the ways Paul and Tom detailed, a lot of bad things economically happen when the person paying for something isn’t the person deciding what, when, and how much of that thing to buy.
The second problem is litigation. Literally every player in the health market builds litigation costs into their charges, and the cumulative effect is devastating. Medical device manufacturers build litigation costs (not only for products liability, but also the even more expensive proposition of patent infringement litigation) into their products, so that a $.50 syringe is sold for $5.00. Hospitals and doctors not only pay that 1000% premium on the tools of their trade, they also must buy medical malpractice insurance (which can run into the hundreds of thousands of dollars, even for a “low-risk” provider).
These problems are, however, really massive aggravations of a more fundamental dilemma–we believe that we are entitled to health care without regard to cost. We assert it as a moral right, the same way we assert a moral right to food. As a result, massive demand for these (involuntarily) incredibly overpriced goods and services exists, and the demand is completely insensitive to price.
Auto insurance would be as expensive as health care if everyone believed that State Farm ought to buy them a Mercedes and maintenance for it for life. The price of Oil changes would doubtless skyrocket, and insurers would start micromanaging when exactly a car should have its air filter replaced.
Although obviously effective solutions (like HSAs and medical malpractice tort recovery caps) exist, they are only stop-gap measures. Any real solution will have to reestablish a link between price and demand in the medical market, and, to do that, we have to stop considering medical care a fundamental right.
September 14th, 2007 at 8:51 pm
you are so smart
July 12th, 2008 at 12:33 am
That last comment, months old, was a family member making a mistake. Apologies.
Paul: I’m not sure how health insurance law works, but life insurance policies are regulated by the state in which,
a.) the application is completed, and
b.) the policy is delivered,
NOT the state of residency of the insured. If health insurance law is similiar in this respect to life insurance, you may just find yourself able to purchase a policy in Arizona.
July 12th, 2008 at 10:52 pm
Health insurance is regulated by the state in which the insured resides, unfortunately. At least it was three years ago when I studied it in grad school. That’s one of the reasons why heath insurance premiums are so insanely high in certain states: the excessive mandates state governments put on insurance companies (including, in states like New Jersey and New York, the requirement that insurance companies must cover everyone who applies to them for help) coupled with an inability to buy insurance from elsewhere leaves consumers (including small and mid-sized businesses) with nowhere to turn. It’s a sort of racket and the consumer is the one who loses.