OP-ED

Why “free market competition” fails in health care

In trying to think about the future of health care, thoughtful, intelligent people often ask, “Why can’t we just let the free market operate in health care? That would drive down costs and drive up quality.” They point to the successes of competition in other industries. But their faith is misplaced, for economic reasons that are peculiar to health care.

More “free market” competition could definitely improve the future of health care in certain areas. But the problems of the sector as a whole will not yield to “free market” ideas – never will, never can – for reasons that are ineluctable, that derive from the core nature of the market. We might parse them out into three:

  1. True medical demand is wildly variable, random, and absolute. Some people get cancer, others don’t. Some keel over from a heart attack, get shot, or fall off a cliff, others are in and out of hospitals for years before they die. Aggregate risk varies by socioeconomic class and age – the older you are, the more likely you are to need medical attention; poor and uneducated people are more likely to get diabetes. Individual risk varies somewhat by lifestyle – people who eat better and exercise have lower risk of some diseases; people who sky dive, ski, or hang out in certain bars have higher risk of trauma. But crucially, risk has no relation to ability to pay. A poor person does not suddenly discover an absolute need to buy a new Jaguar, but may well suddenly discover an absolute need for the services of a neurosurgeon, an oncologist, a cancer center, and everything that goes with it. And the need is truly absolute. The demand is literally, “You obtain this or you die.”
  2. All demand apes this absolute demand. Medicine is a matter of high skill and enormous knowledge. So doctors, by necessity, act as sellers, and agents of other sellers (hospitals, labs, pharmaceutical companies). Buyers must depend on the judgment of sellers as to what is necessary, or even prudent. The phrase “Doctor’s orders” has a peremptory and absolute flavor. For the most part, people do not access health care for fun. Recreational colonoscopies are not big drivers of health care costs. In some cases, such as cosmetic surgery or laser eye corrections, the decision is clearly one the buyer can make. It’s a classic economic decision: “Do I like this enough to pay for it?” But for the most part, people only access health care because they feel they have to. And in most situations, it is difficult for the buyer to differentiate the truly absolute demand (“Do this or you die”) from the optional. Often it is difficult even for the doctor to tell the difference. The doctor may be able truthfully to say, “Get this mitral valve replaced or you will die. Soon.” More often, it’s a judgment call, a matter of probabilities, and a matter of quality of life: “You will likely live longer, and suffer less, if you get a new mitral valve, get a new hip, take this statin. At the same time the doctor, operating both as seller and effectively as agent for the buyer, is often rewarded for selling more (directly through fees and indirectly through ownership of labs and other services), and is not only not rewarded, but actually punished, for doing less (through the loss of business, the threat of malpractice suits, and punishment for insufficiently justifying coding). So the seller is agent for the buyer, the seller is rewarded for doing more and punished for doing less, and neither the buyer nor the seller can easily tell the difference between what is really necessary and what is optional. This is especially true because the consequences of the decision are so often separated from the decision. “Eat your broccoli” may actually be a life-or-death demand; maybe you need to eat more vegetables to avoid a heart attack. But you’re not going to die tonight because you pushed the broccoli around the plate and then hid it under the bread. So, because it is complex and difficult, and because its consequences are often not immediate and obvious, the buy decision is effectively transferred to the seller. We depend on the seller (the doctor) to tell us what we need. Whether we buy or not usually depends almost solely on whether we trust the doctor and believe what the doctor says.
  3. The benefit of medical capacity accrues even to those who do not use it. Imagine a society with no police. Having police benefits you even if you never are the victim of a crime. You benefit from that new bridge even if you never drive over it, because it eases the traffic jams on the roads you do travel, because your customers and employees and co-workers use it, and because development in the whole region benefits from the new bridge. This is the infrastructure argument. Every part of health care, from ambulances and emergency room capacity to public health education to mass vaccinations to cutting-edge medical research, benefits the society as a whole, even those who do not use that particular piece. This is true even of those who do not realize that they benefit from it, even of those who deny that they benefit from it. They benefit from having a healthier work force, from keeping epidemics in check, from the increased development that accrues to a region that has good medical capacity – even from the reduction in medical costs brought about by some medical spending, as when a good diabetes program keeps people from having to use the Emergency Room.

All three of these core factors show why health care is not responsive to classic economic supply-and-demand theory, and why the “free market” is not a satisfactory economic model for health care, even if you are otherwise a believer in it.

Answers for the future of health care?

The answer to the first problem, the variability and absolute nature of risk, is clearly to spread the risk over all who share it, even if it is invisible to them. If you drive a car, you must have car insurance, and your gas taxes contribute to maintaining the infrastructure of roads and bridges; if you own a home, you must have fire insurance, and your property taxes pay for the fire department. Because of your ownership and use of these things, you not only must insure yourself against loss, you also must pay part of the infrastructure costs that your use of them occasions. Similarly, all owners and operators of human bodies need to insure against problems that may accrue to their own body, and pay some of the infrastructure costs that their use of that body occasions. However the insurance is structured and paid for, somehow everyone who has a body needs to be insured for it – the cost of the risk must be spread across the population.

Skipping to the third problem, the infrastructure argument, its answer is somewhat similar: To the extent to which health care capacity is infrastructure, like police, fire, ports, highways, and public education, the costs are properly assigned to the society as a whole; they are the type of costs that we normally assign to government, and pay for through taxes, rather than per transaction. In every developed country, including the United States, health care gets large subsidies from government, because it is seen as an infrastructure capacity.

That leaves the second problem, the way in which all demand apes the absolute nature of true demand in health care (“Get this or die”). The answer to this problem is more nuanced, because it is not possible to stop depending on the judgment of physicians. Medical judgment is, in the end, why we have doctors at all. But we can demand that doctors apply not just their own judgment in the moment, but the research and judgment of their profession. This is the argument for evidence-based medicine and comparative effectiveness research. If a knee surgeon wishes to argue that you should have your arthritic knee replaced when, according to the judgment of the profession as a whole, the better answer in your situation is a cortisone shot and gentle daily yoga, the surgeon should have to justify somehow, even if just for the record, why your case is different and special. The physician’s capacity to make a buy decision on your behalf must be restrained at least by the profession’s medical judgment. If the best minds in the profession, publishing in the peer-reviewed literature, have come to the conclusion that a particular procedure is ineffective, unwarranted, or even dangerous, it is reasonable for insurers, public or private, to follow that best medical judgment and stop paying for it.

These three core factors – the absolute and variable nature of health care demand, the complexity of medicine, and the infrastructure-like nature of health care capacity – are all endemic to health care and cannot be separated from it. And all three dictate that health care cannot work as a classic economic response to market demands. Failure to acknowledge these three core factors and structure health care payments around them account for much of the current market’s inability to deliver value. Paying “fee for service,” when the doctor is both the seller and acting as agent for the buyer, and when the doctor is punished for doing less, is a prescription for always doing more, whether “more” delivers more value or not. Paying “fee for service,” unrestrained by any way to make classic value judgments, means that hospitals and medical centers respond to competition by adding capacity and offering more services, whether or not those services are really needed or add value.

For all these reasons, it is vastly more complex to structure a health care market rationally, in a way that delivers real value, than it is to structure any other sector, and simply fostering “free market” competition will not solve the problem.

With nearly 30 years’ experience, Joe Flower has emerged as a premier observer on the deep forces changing healthcare in the United States and around the world. As a healthcare speaker, writer, and consultant, he has explored the future of healthcare with clients ranging from the World Health Organization, the Global Business Network, and the U.K. National Health Service, to the majority of state hospital associations in the U.S.  He has written for a number of healthcare publications including, the Healthcare Forum Journal, Physician Executive, and Wired Magazine.  You can find more of Joe’s work at his website, www.imaginewhatif.com, where this post first appeared.

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32 replies »

  1. Joe, your post misses reality by a solar system, so let me try to bring you back from outer space. President Obama’s economic council in July reported that goverment health care programs do not pay for quality or value, but do pay for poor quality. For many health care providers, government represents 50-70 percent of their revenue meaning the majority of health care provider services are underpaid for excellence and overpaid for failure perverting free market principles. Plus, all discounts government mandates on payments for both failure and excellence are transferred to private insurers artificially inflating premiums perverting the health insurance market. Both the health care delivery system and health insurance industry have experienced what Adam Smith warned, government does not compete when it participates in markets, it manipulates. If this makes no sense to you, then enjoy your trip in the fog of liberal group think you so elequently write about.

  2. I hope to be as courteous as possible here:
    1. “True medical demand is wildly variable, random, and absolute.” It certainly is: just like death, car crashes, or house fires, but insurance markets have developed to deal with those risks. As for the need being “absolute”, that is not a meaningful adjective. While nobody needs a Jaguar, most people would argue that an adult “needs” a car if he’s going to live a middle-class life. One hundred years ago, only very rich people could afford cars, and it would have been unimaginable to most people that the masses would every acquire them. Thanks to free markets, middle-class American high-school kids now have cars. If the federal government circa 1900 had “guaranteed universal access to transportation”, 90% of the U.S. population today would be limited to public mass transit, with only the very rich being able to afford private automobiles. On the other side of the coin, the “need” for medical care cannot be “absolute” in the sense that if you don’t get it, you die. We are all going to die anyway, and Homo Sapiens existed for 50,000 years without access to medical care as we understand it today. If we are to stare truth in the face, we’ve got to admit that medical care is completely discretionary.
    2. “All demand apes this absolute demand.” This is the old trope that individuals are not capable of making informed decisions about the medical care they get, because of the “do this or die” element of it. That may be true for strokes or getting hit by a bus, but it’s certainly not true for most health care: chronic illness, wellness, and prevention, where becoming well informed is necessary to make the right decision. In any case, if the individual is too stupid to make a decision about which medical services to acquire, that leads to a dead end, not the conclusion that the government should take over his access to medical services. Obviously, if the individual cannot chose medical services himself, he cannot choose to elect politicians who will make the right decisions about his access to medical services, nor will he be able to monitor the government’s decisions and hold it accountable. Furthermore, if the government is to take the individual’s sovereignty away because the doctor is so much better informed than the patient, it should do that in every case where the individual relies on expert advice. You should not be allowed to choose your own lawyer, auto mechanic, veterinarian, accountant, etc. Indeed, we live in a world of increasing specialization, where much of our self-directed spending is paid to experts to guide our choices.
    3. “The benefit of medical capacity accrues even to those who do not use it.” This is the old “fire department” argument, which I have addressed elsewhere (http://tinyurl.com/lez8nr). It is an utterly misleading analogy, confusing public health with private health. Only the most extreme libertarian would argue against a role for government in public health, i.e. reducing the risk of spreading communicable diseases. Until the early 20th century, this was a very big deal. Typhoid, typhus, etc., were the reasons immigrants were quarantined. Today, swine flu is the primary example. So, the public-health department (if it sticks to classically defined public-health issues) is comparable to the fire department. But once your house burns down, despite the efforts of the fire department, you don’t go the the fire department with a claim to indemnify you for the value of your house and possessions. You submit a claim to your private insurer. If the government did insure your private property as well as provide the fire department, it would dictate the type of house you live in and what furniture you can have in it. (Mr. Flowers alludes to mandatory private homeowners’ insurance, but that’s not quite right. The government does not mandate insurance, the mortgage lender does, and that is a free-market transaction.)

  3. Piles,
    In your opinion is US healthcare an example of free market healthcare? If so, why do you think it isn’t successful and if not what are your examples of failed attempts?

  4. There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn’t work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.

  5. It’s not only that health care is not a free market, it is immoral for it to be so.
    It is immoral for people to be able to buy health and years of life, according to their financial means and station in life.
    The only other “industry” where “buy or die” is the modus operandi is the mostly defunct “protection” industry.
    Once a free society reaches the conclusion that a market, or trade practice, is immoral, it will eventually eradicate it, regardless of financial considerations.
    Most other free societies have made that discovery years ago. I guess it is taking us a bit longer, but we’re headed in the same direction.

  6. Peter,
    Please re-articulate your last post, it makes no sense. You just said that every-time a single-pay system uses the “free market” it gets more expensive. How could a singe-pay system use the free market? It’s a non-sequitur.
    Seriously, every time you respond to one of my posts you base your rebuttal on a factual error or misunderstanding of the argument.
    Your claim about elective surgery is so wrong. Hospital’s don’t “accept” reimbursement rates, the live with them as dictated by CMS and every private payor. I’m guessing that the cost of elective surgery has gone down while the quality has gone up precisely because it is one area that *is* essentially free market.

  7. “elective surgery that is not covered by insurance, for example”
    Yes, at 3 to 4 times the rate that a hospital would accept from an insurance carrier. If I paid in chickens would I get a better rate?
    “Someone else is dictating the services you can purchase
    Someone else is dictating price and allowable profit margin…”
    Jim, if you look at single-pay systems in the industrialized world you will find that the more they use the “free market” the more expensive the system.

  8. Peter,
    There is no claim that there aren’t parts of healthcare that operate in a free market way — elective surgery that is not covered by insurance, for example.
    But, fundamentally, US healthcare is not a free market system. That is a fact. One can argue about whether that is a good thing or a bad thing, but arguing that US healthcare is an example of a free market system is like arguing the world is flat because parts of it are flat.
    A root cause of the problems with healthcare is the way in which free market forces are disabled within healthcare.
    Someone else is dictating the services you can purchase
    Someone else is dictating price and allowable profit margin
    Cost, effectiveness and quality are hidden from the consumer
    Said another way, demand and quality have no effect on price.

  9. “Let me say that again, WE DO NOT HAVE A FREE MARKET HEALTHCARE SYSTEM.”
    As in we don’t have a free market anything because government is involved to some extent in everything we do? I guess the FDA trying the ensure we have safe drugs makes healthcare not a free market system because in a true free market system people dying from dangerous drugs would be handled by free market forces that would punish drug makers in the market if they killed people selling un/under tested drugs to make a profit. Isn’t medical malpractice the free market in action – doc screws up, patient hires lawyer to sue for damages doc created, jury of patient’s peers judges validity of law suit. How come docs (and others) want the government to intervene in the legal free market with tort reform? What century do you want healthcare to revert back to?

  10. Peter I see you shoveling your stupidity again, if you didn’t say so many ignorant things my post wouldn’t be so long.
    Starters BS most consumers, roughly 80%, can pay 100% of their HC out of pocket. Unless you now define 20% as most you are wrong.
    Next I can’t sell insurance without a license, the state and federal government tell me what type of insurance I can sell and what it will cover. In some cases they tell me how much i can charge, how I can market it, and to whom I can market it. They even go so far as to tell me what my applciations and forms will look like. I could continue but any educated person would get the point by now that we haven’t had a free market in 44+ years. Unfortunetly we still have a lot of Peters in the world.
    LOL please share with us peter how your last pilot performed, mechanic did his job, does your telephone work, or do you have a degree in advanced physics and a minor in fiber materials you used to choose your telecommunications provider? I assume the computer you use to access the internet was only bought after you reviewed the chip arcutecture and relied on your knowledge of polymer science for the plastic casing.
    Your always good for a laugh peter, I rather by the blog windbag then blog jester.

  11. Peter,
    You are confused on a number of points
    1) I was not defending free market healthcare, I was criticizing Joe’s argument that a free market healthcare system won’t work because of intrinsic healthcare characteristics. I systematically went through the 3 claims Joe makes and showed how, in each case, they do not substantiate his claim that free market forces won’t work “ for reasons that are ineluctable, that derive from the core nature of the market.“ Joe made a claim and presented an argument in an attempt to substantiate his claim. I demonstrated that the argument does not support the claim. I did not set out to prove an alternative claim…
    2) We do NOT have a free market healthcare system. Let me say that again, WE DO NOT HAVE A FREE MARKET HEALTHCARE SYSTEM. This is a fact, not an opinion. Thus, your comment that “if a free market system could work, why hasn’t it” is based on a flawed assumption (see http://dialoguesinhealthcare.blogspot.com/2009/10/absence-of-market-capitalism-broke.html if you care to learn more about this.
    3) While you may have good reason to think I am dumb, you have no reason to think me a liar. When I said that I didn’t post my full response because I was concerned about etiquette when having such a large reply, I was being honest. I have no trouble asking people to go to my blog (see #2 above). I am new to this forum and don’t know Nate
    http://bit.ly/XRPOF

  12. should read “quality surveys” above.
    Islands of excellence in a sea of mediocrity.

  13. Healthcare in America will never be competitive and never efficient. There are too many variables and therefore too easy for doctors, hospitals, testing companies, pharma, and insurance companies to game the system. Plus you are dealing with a highly emotional service, where efficient decision making is often neglected.
    It needs to be dramatically simplified. Single-payer has proven to be the most efficient system in the world. It cuts out an entire bureaucracy and keeps the doctor closer to the patient.
    There is no real market economics involved in the U.S. system. Customers are disconnected from what they buy. There is no ability for a healthcare customer to see price lists or any kind of doctor or hospital quality services. AMA keeps that from happening. Customers/patients blindly buy healthcare in this country. It is a big money making system that often puts the service last and the money making first. It is a corrupt system that is often more of a monopoly or oligopoly for healthcare consumers.

  14. Jim, first the rebuttal was not too long for posting, especially given the length of our longest winded poster, Nate. I think you just wanted to draw eyeballs to your web site.
    Second it is you that failed to argue any point that says Joe Flower’s conclusion is unsubstantiated. In fact you make no specific arguments as to why the so called “free market” hasn’t already driven down costs and prices – certainly it has time to do so if it had any incentive. You simply state general free market principles and ideology to make “a point” but fail to get to specifics of real world implimentation. The free market might be able to work for healthcare if treatment and outcomes were known absolutes that could easily be quoted and if the consumer could take their provider for a test drive before buying. It is also important to point out that due to the cost of treatments and even known outcomes, it is impossible for a most consumers to pay with their own out of pocket costs, which would help make them better overseeers of cost verse quality/need – if they could intelligently assess true need based on medical need not financial affordability. Don’t we educate (for many years) and pay docs to learn and apply proper medical need anyway? Tell me Jim how good do you think you’d be in choosing a contractor to work on your house – given that you’d never needed one before, had no experience with building and structural engineering, or could not assess the final outcome because the problem (only applicable to your house) would have to be fully uncovered before knowing all the labor and materials needed?

  15. MOborn, you write: “My doctor has little incentive to keep me healthy in the long-term because I do not keep the doctor for very long.”
    Are your physicians capitated? If, as I suspect, they are instead FFS physicians then even if you stuck with them for 20 years they would have no (financial) incentive to keep you healthy. In fact, their financial incentive is to let you develop a chronic disease so that you come to see them more often. Not to say they actually want you to get a chronic disease, especially not if they get to know you. But that is the incentive in a FFS system.
    Any market system that lowers costs will have to address this.

  16. Free market competition is what has caused steady inflation of health care costs: we have put a tight sphincter around supply, mostly for reasons of quality, while not restricting prices in the private sector (and while tightly restricting prices in the public sector).
    There is and cannot be a free market in health care.

  17. Perhaps we could expand use of the free-market in some aspects of healthcare that lend themselves to it, and not others. Certainly inpatient treatment isn’t subject to the supply-and-demand model. But an improved market would help lower my health costs and spending, absolutely.
    I’m speaking as someone who is usually insured and moderately healthy with several chronic conditions on my horizon (and closer than I’d like). I’ve had a new plan, meaning a new doctor, almost every year. I have a decent amount of quality information on which to base a choice of doctor and hospital, which I use, although I’d like to see more peer and patient ratings on them. I have zero price information on those doctors and hospitals. My doctor has little incentive to keep me healthy in the long-term because I do not keep the doctor for very long. My medical needs currently consist of an annual exam and someone to give me a prescription for assorted ailments, both one-off and chronic. I would LOVE to skip paying for and using insurance for these problems, and instead have the resources to know how much each doc visit cost and each medication cost vs. the generic, and then pay for them myself. I enjoyed having my insurance cover giving birth to my children, but if I knew when my pregnancies began that I’d have to save up each month to pay for the delivery, I would have done so, and it would have been much cheaper than paying my insurance premiums and deductible.
    Now, if I’m in a car wreck, or if I develop cancer, my demand for health services would be completely inelastic and market forces would do nothing to change that demand. These are the situations where the non-market-based insurance and provider/payor negotiations discussed in this article come into play. I think we should consider an “all of the above” approach to reducing health care costs in this country, which will include insurance reform as well as care delivery reform and increased health care capacity. But the market has a role to play here, even if it is not the sole mechanism.

  18. anon, the fact that a recent trend has made the outpatient part of our excess costs pull away from the rest of the world faster than our other medical costs doesn’t matter.
    It remains true that inpatient costs in the US are far higher than other nations and have been for 30 years. Same for drug costs. Skeptikus is completely wrong to blame outpatient costs entirely, which is what he actually does. Does the data even support the claim that 25% of our extra cost comes from outpatient services (as opposed to Rx, devices, inpatient, long-term care and physician office)? I doubt it, but I’m sure skillful googling could find the answer.
    People seem to be missing one of the nice parts of Flowers’ piece. He rightly points out that people often don’t understand whether a procedure/treatment is necessary or not, or whether they are being irresponsible or stupid not to have some procedure done. It really isn’t like buying a car or TV.
    I think Flowers may overemphasize how the necessity of care in some circumstances gets transferred to the perception of necessity in other cases where unneccessary care is delivered. Sometimes, you just feel like the doctor knows better and trust authority, as Flowers reminds us. Other times, we act because we want to believe that we can feel better and are eager to overestimate the chances of success and ignore the odds of failure. In fact, lots of people don’t even seek that information about outcomes because they want to live in hope.
    Hope can be good, but our system does a terrible job of counteracting that tendency when it becomes counterproductive. Just as it does a terrible job of counteracting the trust in authority of physicians even when physicians either don’t know the effect of their recommendations or have compromised interests in making their recommendations. Just as it does a terrible job of promoting non-medical interventions and lifestyle changes when a medical intervention exists that is far more lucrative…even when that medical intervention is known in the long run to be less effective than lifestyle change, or is not known to be any better.
    Insurers/payors are structurally set up in our system to be the “bad cop” and provide constraints to counteract these tendencies among patients and providers/suppliers. But, of course, their badge was taken away around 1999 and because of all the hyperbolic rhetoric about denials and vast profit margins insurers now live in fear of aggravating the provider lobbies, so they do not make big moves to control costs and utilization.
    All of this has very little to do with whether we are dealing with outpatient care or something else.
    Everyone who talks so highly of consumerism and cost-sharing needs to remember that we started with high out of pocket costs. The failure of that system to control costs is what led us to managed care and first dollar coverage. The annual medical cost trend was higher back in the days of major medical indemnity insurance in the 40s through 80s than it has been in the managed care era (which I’d say begins around 1993, but will settle for 1990.)
    Oh, and the thing that blows me away about this debate of free market vs. government controls in healthcare is that stripping away all the niceties and subtleties, the pro-government side is overwhelmingly superior. It isn’t even a contest. The nations with heavy government controls have the lowest costs and equivalent quality. The correlation is almost perfect. You couldn’t hope for better evidence. People like skeptikus and Nate are reduced to refusing to compare us to other nations in the end.

  19. Anon – But that always happens to some degree in the U.S. health care system as the “whack-a-mole” strategy and counter-strategy plays out about between providers and payers.

  20. MG
    What streptikus might have meant is excess costs on outpatient side are accelerating and are greater than on inpatient side, and other domains. This is true.
    Brad F
    ps–common bar graph that has been circulating this year (Kaiser, NEJM)

  21. IMHO, this post is only half right. The key points, I think are, “individual variability” and “local supply” -I don’t know of many other fields of service that is so highly individual and so complex; maybe defense for a jury trial is a similar complex multispecialty undertaking that involves a concert of people with specialty expertise. And it is local because except for some chronic conditions, you have to go with what is local. Your grandma with CA pneumonia living in Crytal Lake, IL is not going to the Mayo Clinic or Kaiser Perm. So how could there be reasonable competition?
    Now, if you look at some of the few “easy”, highly standardized HC product such as MRIs (although there is high variability in the quality of exams and or the reading that is not obvious to the nonspecialist) or Lasik sx, there could be reasonable competition on price. I have nothing against bringing MRI prices down by competition, if minimum quality standards are enforced, and there is in fact some room for savings.

  22. As for the “free market is the magical elixir” to a almost all of the healthcare system woes on costs, I don’t want to hear a complaint then when you get sick and can’t get coverage in the individual policy market or you simply can’t afford access due to high costs.
    There is certainly a roll for the free market in healthcare but I don’t get this “free market solves all” nonsense that you constantly hear in health care especially on the insurance side. Its bunk.
    Its like the same nonsense you hear about the battle over financial regulation reform right now. It isn’t about debating legitimate topics (e.g., concentrating too much regulatory authority including regarding systematic risk with Fed, breaking up larger banks or making it onerous for them to have such concentrated power, separating certain banking functions) but these imaginary/ridiculous arguments about how if we had less financial regulation and no interference from Congress then the markets would have magically would have functioned properly and made everything better.

  23. skeptikus – You need some more healthcare econ classes. Healthcare costs in the US is much higher than their counterparts for several reasons but the supply input costs are higher across the board. It just isn’t because of the cost of outpatient procedures.
    As for warranties, it is a start in some cases but again is an oversimplified and simplistic solution to a complex problem/issue. What types of conditions do you offer a warranty? What types of procedures? What types of patients?
    Healthcare has no relationship at all to health outcomes? That is one of the dumbest things I have ever seen posted on here.
    It is one thing to have a reasonable discussion and other to post nonsense/drivel. You fall in the later category.

  24. Sorry, wrong on all three counts.
    1. Yes, some medical demand is inelastic. (emergency, life saving surgery) Most is not. As the McKinsey Foundation healthcare survey shows year after year, US healthcare is more expensive than international comparisons because of the cost of OUTPATIENT PROCEDURES, i.e., non-urgent doctor care. Let markets work on that sector of demand.
    2. Doctors have incentives to do too much because they are paid for failure. Require them to offer warranties (like trial attorneys) and you’ll see rational behavior.
    3. Healthcare as a postivie externality!!!! HA, HA, HA.
    Albania has a average lifespan nearly equaling our own. Healthcare spending has no relationship to healthcare outcomes, except for maybe vaccines . . .

  25. Unlike other segments of the economy we are not willing consumers of health care. In other sectors we pay for the USE of a product or service. We desire the product or service and value is delivered when we consume it.
    When we USE health care our desires and our needs conflict. We don’t desire to go to the doctor, buy drugs or go to the hospital, but we often need those things. Health care providers act on our behalf when they minimize our USE of health care. In our current system our health care providers are rewarded by maximizing our USE of health care.
    Capitalism works when providers are rewarded for minimizing our USE of health care and fulfilling our need for health care. This can be done by rewarding providers for ACCESS to, not USE of their products and services. When we buy insurance we are paying to ACCESS the health care system. When that payment is immediately received by the health care system irregardless of USE, the health care system has enough cash to fulfill all of our societies health care needs. USE of the health care is minimized because the more we USE the system, the less money providers make.
    If we use some formula of global payments to reward providers, there will always be inequities in distribution of the cash. The health care system becomes socialistic in nature. Rewards are capped and their is no reward for delivering better quality.
    There is a simple resolution. Providers sell solutions not services and they set their own prices. The solutions are always structured to accept fees for ACCESS never for USE. In this way, distribution of cash is determined by market forces. Providers are rewared for quality and efficiency. They work to minimize USE because that leaves more cash for the them.
    Capitalism works, but only when we change the system one doctor, one patient at a time.

  26. “variability of risk”…blah, blah,blah.
    It would operate like a free market if it WERE a free market.
    CONSUMER
    The consumer is completely disconnected from the price of healthcare.
    PROVIDER
    The provider has been allowed, even encouraged, by Medicare for its 1st 20 years to bloat its pricing which they call “costs”. Although it is true that since the mid-80’s that Medicare has been reined in somewhat by DRGs, 20 years of healthcare bloat had already occured. Across the country there is hug variability in what Medicare pays…HUGE…The healthcare industry has NO IDEA of the incremental cost of a patient. They completely overstate this because since 1964 they have had no contact with the Free Market.
    PAYOR
    The payor (Medicare & Insurance) gets NO benefit from the service provided. Healthcare is only a cost (expense). I say we put control of the healthcare dollar in the hands of the consumer and that the govt’s role is to ensure that we receive well-vetted peer-reviewed reports on efficacy of various medical procedures. For example, how much bypass operations add to longevity…perhaps not at all…is that possible?

  27. Joe,
    A good post. Almost convincing. Except you use to many one-off arguments for coverage in other circumstances. For example, you are not required to have insurance if you drive a car. You are required to have insurance if you own a car. You are not required to have fire insurance if you own a house. You are required to have fire insurance if it is mortgaged. You are not required to insure your body, simply because you have one. Yours might not be worth insuring.
    Why don’t you advocare for universal life insurance coverage. That way someone could leverage their life insurance death benefit to pay for healthcare, if they needed it, and not pay for healthcare if they did not.
    Your infrastructure argument is interesting. It is all the unnecessary MRI studies that pay for the machine to be their and avaiable in the first place when someone really needs one. Without all the discretionary use, each scan would be very expensive, and the expertise to read it would be far inferior to the skills possessed now by our radiologists who read them all day long.
    If only you were not advocating for a political body to impose a new version of healthcare deform. They (Congress) cannot possibly get it right, because they are a political body, not an ethical body and not a scientific body and not a compassionate body and not even an insurable body.
    After tonights elections, I’d say a lot of them in Congress are ininsurable, if not on life support already.

  28. Bravo: a home run Joe!
    Lovin’ this piece: ‘..[health] risk has no relation to ability to pay’. Nailed it!
    Christensen deems general hospitals as unsustainable, and moreover tantamount to business model malpractice; yet life goes on unabated in our cathedrals of medicine.
    Thanks for the context.

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