Monday, September 14, 2009

Free Markets and Healthcare

After a bunch of Facebook comments back and forth an old friend of mine pointed me to this article...which presents a more market-oriented discussion of possible reforms.

It's interesting, and raises a number of good points. Goldhill's comments on the inefficiency of insurance are, of course, also the selling point for single-payer:

for every two doctors in the U.S., there is now one health-insurance employee—more than 470,000 in total. In 2006, it cost almost $500 per person just to administer health insurance. Much of this enormous cost would simply disappear if we paid routine and predictable health-care expenditures the way we pay for everything else—by ourselves.
Since these costs also go away if the insurance system is simplified. And many of the issues he discusses - IT inefficiencies, study of treatment effectiveness, etc - are in some of all of the current healthcare proposals.

But there some places where Goldhill seems off base - viewing things through a very middle-class eye. The essence of his proposal is savings accounts for health expenses, plus catastrophic insurance with a high cutoff - the current typical $2000 cutoff moved up to $50k or so. But those numbers probably soundsquite different for you and I than for most people - in the US the median household income in the US is about $50k. In fact there have been pre-tax savings accounts for a long time and I don't see they've been much of a help in limited costs.

More fundamentally, I have two misgivings about the approach. Goldhill starts off with philosophy:

based on my own work experience, I also believe that unless we fix the problems at the foundation of our health system—largely problems of incentives—our reforms won’t do much good, and may do harm. To achieve maximum coverage at acceptable cost with acceptable quality, health care will need to become subject to the same forces that have boosted efficiency and value throughout the economy. We will need to reduce, rather than expand, the role of insurance; focus the government’s role exclusively on things that only government can do ... and rely more on ourselves, the consumers, as the ultimate guarantors of good service, reasonable prices, and sensible trade-offs between health-care spending and spending on all the other good things money can buy

Well and good, I suppose, but it's pretty dangerous to start with philosophy rather than actual data about what works and what doesn't. There are indeed some things governments do well, and some things they don't. But a hundred years ago, private fire companies were popular - but the US has long since gone to a government-funded model for that. If you look at the rest of the first world, every single other country has more government involvement than we do--and our current model is hardly free-market, being based heavily on tax incentives with corresponding regulations for employers. And the vast majority spend less and get results that are better than the US on most measurable dimensions.

I believe the flaw in Goldhill's free market argument is illustrated well be his examples. For Lasik surgery, an elective surgery that is seldom covered by insurance, prices have come down over the past few years, in response to market pressures. For his poor Dad's fatal infection, the final bill has an astronomical $600k+ (at least on paper). But people are just not that likely too shop around for the best price in that kind of a medical emergency - due to some combination of pain, panic or unconciousness - so here the hospital is more like a fire company than a Lasik-surgery beautification clinic.

My guess is that expenditures for these sorts of major-illness emergencies swamp the expenses that would be more sensibly allocated with better incentives. (Data, anyone?)

Goldhill admits "Some of the ideas now on the table may well be sensible in the context of our current system" and "These ideas [i.e. in Goldhill's essay] stand well outside the emerging political consensus about reform" other words, he knows he's proposing a fairly radical solution - one that hasn't been tried elsewhere. Honestly, unless you're a philosopher, who would want to take a chance like that? A more rational way of introducing more marketplace into the system would be to try some incremental ways to get more competition, say in a single US state...maybe Massachusetts?...and see how they work before trying them out at scale.

In fact I suspect that a workable government-funded portable the health care plan would be a huge boon to the free market. When a former startup I worked for went bust, I had the delightful experience of needing to find insurance for my family in a hurry (nine days, I still remember) - with no COBRA or any other backup plan to lean on. That experience was been a significant factor in subsequent job decisions I've made. It's a huge distortion of the job market when smaller companies have this sort of handicap to deal with in competing for hires. Pushing for a "free market" approach where it's not appropriate in health - at the expense of biasing the job market against startups and small companies - does not seem like a sensible tack to take.


Anonymous said...
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rlandes said...

Dear William, excuse me for commenting here at your most recent post, but you don't make it easy to contact you directly.
in a 2004 post you spoke about a meme war with islamic terrorism. Robert Wright has just written about such an approach in his piece on Fort Hood, and I've fisked his argument. if you could, i'd much appreciate your thoughts on this.
richard landes