A capitalist solution: free health care
June 05, 2009
– Comments (37)
Just wanted to make a point that will surely be anathema to our free-marketers, and to take my share of flak for it: a government-run health care system will not only be a good solution, but will also be MORE CAPITALIST than what we have now.
Why is that? Because the very idea of free market IMPLIES that every good or service has a known price. That has been true for most market transactions, and it is the reason why the market can work in the first place. So when the free-market fundamentalists say that health care has got to be market-based, you imagine something like a market for air travel: you make your travel plans, go to Travelocity or Expedia, research prices, make reservations, and enjor the benefits of competition between various airlines. Now, I am going to argue that this glorious picture is entirely bogus, and that health care is a very different case.
First off, the average customer has no medical knowledge. That means that when he walks into the doctor's office, the customer has no idea what treatment will be necessary. So rather than shopping in the market for medical services, as the Economy 101 textbook case would have it, the customer's role is to purchase a bundle of services assembled for him by the seller, without any idea about their effectiveness. In addition, the seller can always reshuffle the bundle as he sees fit. Just when the customer thought the course of treatment has been outlined more or less crearly, the "seller" can change his mind in a moment, and all of a sudden the customer's tour through the shopping mall aquires an entirely different direction. So the contents of that tour that you order is, by definition, unpredictable. To use the airline analogy, you just let Expedia design your tour without any idea whether they'll send you to Alaska or to Brazil.
Secondly, in the travel industry, you are always told the price of the tickets in advance. When you order a $500 ticket, you know that the airline will charge you exactly $500, and not a cent more. In the health care industry, on the other hand, the assumption is that the hospital will carry out every procedure that is deemed necessary during the operation, and your signature constitutes the agreement to pay an undisclosed amount, whatever it may be. Hmmm, that does sound like some crucial piece of information is missing, does it not?
The third difference is that a free market usually implies that you can reserch prices for free, or, in some rare cases, for a small fee. In contrast, health care system is a kind of "market" where the price quote can only be given to you after the diagnostics, which itself amounts to a lion's share of the total bill. In other words, by the time you get to look at your itinerary, and to find out that it will cost you $10,000, you're already on hook for $5,000 and there is no longer any point in changing your plans.
Fourth, market participants are normally expected to make decisions while they are in a conscious state, and also any agreement will be considered null and void if it turns out that the buyer's signature was obtained under torture. I am afraid that too many visits to the hospital or to the emergency room fall under that category. Those who present this kind of transactions as a case of free market forces at work are carrying their market analogies a bit too far.
It also bears mentioning that a patient having a medical emergency does not have the luxury to take his time to be transported to a different facility, so if it's a market, then at any rate it's the kind of market where buyers have literally a few seconds to complete their shopping. If the typical customer is always rushed to a facility that is geographically closest, perhaps it wouldn't be an overstretch to describe the system of emergency health care as feudal, where every health care executive enjoying unlimited power in his little fiefdom. Where is the competition that free-market advocates are talking about?
All things considered, I think we must reject free-market allusions as largely irrelevant, and admit the simple truth that THERE CAN BE NO FREE MARKET IN HEALTH CARE. (For those who want a relevant model, I can suggest Clausewitz's "fog of war". Military analogies seem to be particularly suitable for describing customer experience in this industry, especially such attributes of warfafe as ambushes, minefields, requisitions, surrender ultimatums, and prisoner camps for the capitulating combatants). That is, there can be no free healthcare market on the individual level, just like there can be no notion of temperature for an individual molecule.
However, if we abandon attempts to track individual molecules, and focus on the aggregate, then we can in fact obtain enough information to make informed choices.
A government body that has pricing power and access to statistical data can build its relationship with medical providers on a totally different basis - on a socialist basis. Those who associate socialist health care with the Obamination that comes from the left wing of the Democratic party, are as detached from reality as the free-market fundamentalists. A socialized health care system does not mean another $1 trillion of handouts to HMOs, which the Illinois demagogue would like to accomplish. What it means it this: the payment system deals with aggregates only. No attempt is made to track expenses on the individual level. Medical providers are asked to treat everybody who comes to the clinic in exchange for a fixed annual payment from the government which covers their average operating costs for the year. Yes, taxpayers have to pay for this. But the amount of savings available to the taxpayers in the aggregate is staggering when you compare it to the savings available to them as individuals (even as motivated individuals making all the right choices). These savings come from 3 sources:
1) complete elimination of insurance companies (they are free of course to offer premium health care at a premium price, serving those who like to pay up for quality, but they have no role to play in the government-run hospital network),
2) complete elimination of billing departments, coding departments, collection departments, payment processing services, and other such clerical workers (once it's decided that government pays the hospital a fixed amount, nobody is interested to know if Smith should be charged more than Jones, or Jones more than Smith), and
3) elimination of unnecessary treatments that hospitals perform routinely in an attempt to milk the insurance companies.
This is the cheapest and by far the best solution. Gone is the problem of location-based monopolies: the government can break up such a monopoly by setting up its own hospital or simply by threatening to do so. Gone is the problem of hospitals who like to accept patients in the unconscious state to charge them $100,000 for an operation: the government can simply make a deal with a different hospital and then let those overly enterprizing individuals look for customers on their own. Finally, gone is the problem of HMOs working to deny services: Health Ministry officials receive their bonuses by meeting targets such as life expectancy and mortality rates, rather than by the number of patients denied treatment.
And now comes the crucial point: this socialist system is closer to the ideals of Adam Smith than the one we currently have. Under a socialist system the customers (taxpayers in the aggregate) possess more information than these same customers could ever gather on an individual basis, and have more power to resist monopolization than a bunch of free market agents screaming from pain in the ambulance car. Moreover, far from destroying competition, this system takes competition to a new level. In addition to the intra-species competition between private specialists that we have now, there will be an inter-species competition between the private and state-run health care - a competition that will give private providers quite a run for their money. They will be facing a new kind of competitor they never saw before - a competitor that does not need to keep track of coding and billing and payment processing, a competititor that does not have to employ a horde of clerks to coordinate its every step with insurance companies. This is the kind of competition that quickly flushes out mediocre private practices, leaving only the best and the brightest. At the same time the better part of the private sector that survives will keep the state officials in check, supplementing for the shortcomings of the official medicine, and offering consumers a choice between free treatment in a government clinic and a premium-quality treatment in a private clinic. And on top of that, there will be another intra-species competition, this time between different state-run clinics, competing for better medical statistics in their respective districts. And increased competition is always an excellent news for customers. The cries of indignation from our dedicated health care enterpreneurs only prove the validity of this suggestion: when you expose the corporate welfare types to the real market, and hear them scream, you know that you're doing something right.
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