Category Archives: Government vs Markets
I wrote in Part 1 that medical care is an economic good. More specifically, it is a consumer good delivered directly to patients, primarily in the form of services. Experience has taught us that the most effective, efficient, and fair way to create and distribute consumer goods and services is through open consumer markets that allow each customer to determine a product’s value before deciding whether to purchase it with her limited available funds. Such value assessments require consumers to consider the answers to two fundamental questions:
- Which sellers’ are offering me products and services that will provide the best quality for my needs?
- Of those best sellers, which offers the lowest price?
In (slightly) technical terms, value equals quality divided by price, meaning that the higher the quality and/or the lower the price, the higher the resulting value. The challenge in getting higher quality, lower priced health care, therefore, lies in creating a consumer market for it. Actually, it means creating two markets, one for health insurance and one for medical services. But if we do the insurance market right, the second will naturally follow.
As a proponent of market-based health care reform, I’m often accused of believing that free markets will cure what ails our broken health care system and that we just need to get government out of the way to make it all better. I believe no such thing. And I almost never use the term “free markets.” It too often connotes that markets can operate in the absence of government regulation. That’s not how it works.
I understand why so many people believe in “free” markets, because markets themselves are a natural phenomenon arising from fundamental human behavior. Certainly no government ever invented them. Markets just happened, because people want things they lack, and they have found they can get them in return for their own labor and produce. No one really understands why markets work, because they are such indescribably complex, nonlinear, adaptive systems. But somehow they do. They’re messy as hell, but they perform well enough to allow a paraphrase of Churchill’s famous comment on democracy: Market capitalism is the worst form of economic organization—except for all the others that have been tried.
Thursday’s (10/08/09) much heralded CBO report telling us that the Senate Finance Committee health care reform bill will cut the federal deficit by $81 billion over the next ten years is a diversion at best and accounting fiction at worst. Any way you slice it, this health reform bill is going to cost you more.
First of all, any second year accounting student could drive a homecoming float through the loopholes in the CBO’s numbers. Just one example: the analysis includes ten years of increased government taxes and fees, but only six years of health reform expenses. It also assumes that Medicare will cut Medicare doctor fees by a whopping 25% in 2011 and then make below-inflation-rate adjustments after that. The reality is that the Congress has scheduled cuts every year since 2003 but has cancelled them all at the last minute in the face of massive physician lobbying. But what if this time is different and these cuts actually do go through? If past is prologue, then doctors will simply intensify what many have already done in the face of Medicare’s increasingly punitive reimbursement rates:
I never had much hope that Senator Max Baucus’ Finance Committee would bring forth a sensible anodyne to the House’s fatally toxic Affordable Health Choices Act, although I admit that his earlier markup had some promising features. While it didn’t have anything that would ever bend the cost curve in any direction but skyward, there were some aspects of his approach to the insurance exchange that showed at least a modicum of respect for market realities—unlike Speaker Pelosi’s risible public option. But all that vanished yesterday with the Senator’s new markup.
I’m still wading through the bill, but one conclusion stands out: the insurance exchange, as described in the bill, will fail. Or more accurately, any private insurer or member-owned co-op that offers individual health insurance through the exchange will be quickly bankrupted unless it can get massive subsidies from the government.
My “Lies, Damned Lies, and Statistics Award—Health Care Division” goes to the Wall Street Journal. Today’s (09/14/09) six-column, page A4 article by Jane Zhang, “Maryland Reins In Hospital Costs By Setting Rates,” is accompanied by a graph labeled “Keeping Costs Down.” It shows one line of data labeled “U.S.” that shows a steep increase from about 20% in 1980 to more than 150% now, and a second line labeled “Maryland” that, over the same period, indicates a far more gradual increase from about 10% to a bit over 20%. The pictorial difference is dramatic and strongly suggests that the state’s bureaucratic controls on hospital rates have been fantastically successful in “Keeping Costs Down.” Actually, they haven’t done any such thing.
As America’s six million small business employers (1-499 employees) increasingly struggle to stay afloat during the worst economic downturn since the Great Depression, the President and U.S. Congress are working hard to saddle them with new health insurance mandates that will sink many and force many more to lay off workers. The proposed legislation—named without a whiff of intended irony The Affordable Health Choices Act—will require all but the smallest employers to offer massively rich health benefits that far exceed what most provide today.
Besides the benefits, the bill requires employers to directly shoulder 72.5% of single and 65% of family premiums—far more than many pay now. Any company that fails to comply will be forced to pay a fine to the government of up to 8% of total payroll—money that will not be available for their own employees to buy insurance. Instead the funds will flow into the federal till to help subsidize American families making up to $88,000 per year—instantly converting much of the country’s middle class into a new welfare class.
I recently posted a blog on why government rationing of health care is utterly unnecessary, not to mention immoral. I’ve also written about how the current House version of health reform, supported by the President and the AMA, will inevitably herd us into a government-run health care system that is more restrictive than even the British single-payer National Health Service.
Now comes Zane F. Pollard, MD, a doctor of many decades practice who has personally experienced the heavy hand of U.S. government rationing on a first-person basis. I checked out Dr. Pollard on HealthGrades and he’s the real deal. In his posting, he relates example after example of government intrusion into medical care that is both an indictment of it and a testament to the determination of American doctors to do the right thing despite it. And if you’re one of those people who tends to be suspicious of anecdotal accounts, check out the doctor comments accompanying his telling story. The clear message is that we simply cannot rely on current government programs, much less proposed ones, to get us out of the health care mess we’re in.
In a previous posting, I proposed eight essential goals for American health reform. How do the various reform proposals stack up against these goals? Here’s a summary of my analysis of six of them.
They range from my own American Choice Health Plan, to various congressional approaches from both sides of the aisle, to the AMA’s proposal. If you have a favorite you don’t see here, send me a link to the most comprehensive description you can find and I’ll try to add it. If I’ve mischaracterized any aspects of any of them, please comment below and I’ll make appropriate corrections.
House Speaker Nancy Pelosi has taken the gloves off with her tirades against “immoral” health insurance “villains” and the “un-American” citizen protesters who object to her taking over American health care. By my count (and Gallup’s), that adds up to more than 150 million concerned Americans who Ms. Pelosi says should shut up, sit down, and just pay for her unworkable, unaffordable “Affordable Health Choices Act”—and for several more ultra-luxury Gulfstream G-5 executive jets, so she can avoid mixing with her benighted constituents in those awkward airport security lines or being crammed into airline seats too narrow for her ample ego.
The Speaker apparently thinks she’s living in an alternate universe from the rest of us. How else to explain her utter tone-deafness to the voice of the majority of Americans who actually like their health insurance while so few of them believe Congress is doing a good job?
A health economist acquaintance of mine likes to joke that Paul Krugman is the first economist in history to receive the Nobel Prize posthumously. Since the award is given only to living recipients, his point is that Mr. Krugman’s apparent second incarnation as New York Times columnist and self-professed liberal-with-a-conscience shows no evidence of the intellectual rigor that enrobed him on the Stockholm stage. Even the Times’ own former ombudsman has lamented Mr. Krugman’s “disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults.”
Mr. Krugman continued to prove this point in a recent Times column that purports to explain “Why Markets Can’t Cure Healthcare.” In it, he leans heavily on a 1963 paper by Kenneth Arrow (another Nobel laureate) entitled, “Uncertainty and the Welfare Economics of Medical Care.” Mr. Krugman said this paper “demonstrated—decisively, I and many others believe—that health care can’t be marketed like bread or TVs,” and that markets cannot be the answer to our health care problems.