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Sunday, July 26, 2009

Of Markets, Healthcare, And The Divide Between Them

Downpage some, a friend of mine from some year back and I got into a very detailed discussion of not only the cost of healthcare but how it could even possibly exist in the intangible space known as "the free market".

While the standard positions on both our parts revolved around cost, availability, and quality, the talk revolved primarily around the perception of "the free market" and what it really is.

My friend states of this invisible space as follows:

In a truly free market, you would have, at minimum, the following: property rights protections, including an ability to sue for actual harm done, information transparency (clear and accurate labelling laws), and laws against initiation of force and use of fraud.

Competition would drive down prices, because with competition, you can shop around for the cheapest price. Of course, insurance (both private and government) in no small part prevents that from happening, so in reality something has to be done about insurance to keep them from driving up costs, as they do.

While all of this sounds like a fantastic concept, the keystone of "free market" theory is that if there is competition, then prices will be driven down.

That's when I ran across a new piece by Economist Paul Krugman that postulates that "free market" theory can work with certain aspects of society ( ie shopping for groceries or a car ) but healthcare cannot and will not be able to survive in the realm of "free market" philosophy:

There are two strongly distinctive aspects of health care. One is that you don’t know when or whether you’ll need care — but if you do, the care can be extremely expensive. The big bucks are in triple coronary bypass surgery, not routine visits to the doctor’s office; and very, very few people can afford to pay major medical costs out of pocket.

This tells you right away that health care can’t be sold like bread. It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy. Consumer choice is nonsense when it comes to health care. And you can’t just trust insurance companies either — they’re not in business for their health, or yours.

After reading this, I noticed somewhat of a connection between what Krugman was stating and why my friend had said about healthcare. The subject was "catastrophic care".

Ideally, if one could eliminate all health insurance as it currently works and only have catastrophic insurance (like the kind you have for your house), that would cause people to shop around, driving down costs. If you insist on a safety net, one could set up health care savings accounts that you could contribute to, and in which the government could put money to ensure that everyone has money available for regular healthcare costs.

While it seems, on the surface, that there is a partial agrement with how insurance works ( between my friend and Krugman ) the "shopping aroud" aspect is still quite vague. At what point is a certain form of healthcare classified as "catastrophic"? Who would make that choice?

It is here that we find an example of their being someone in between you and your healthcare choices, something that Republicans and many Blue Dog Democrats are using to stoke fear within the winds of Americans. They say that this would be a major problem with a universal or single payer system. The only problem to their hysterical fear-mongering is that this already happens, a lot.

Also, this idea of healthcare savings accounts sounds a lot like Social Security, an entitlement program that many ( if not most ) Republicans take massive issue with. If we are to put money into this hypothetical program ( with government matching a set percentage of contributions by the taxpayer ) wouldn't this be a "socialistic" style of providing afordable healthcare?

But, back to the "free market" issue.

If this style of economic thinking relys on competition, how will that competition be drawn to a specific area? How does one ensure that there will be competition in a specific county or region of a state. The illusion or perception of "choice" begins to dwindle when one realizes that in certian ares of the US have only one hospital as a choice. When and if there is a competative market set up in "Anytown, USA" could take years if not decades.

From my perspective, in the discussion with my friend, I talked about a local hospital that essentially has a monopoly on care for not just my county, but surrounding counties as well. It is widely seen by not only myself, but many, that it is not the ideal healthcare provider nor employs he best doctors in the region. My small city has a population of just over 19,000 - a negative shift of 1% since the year 2000. While there is choice for specific, standard, care ( i.e. doctors that will give yearly physicals, write standard scrips like blood-pressure medication or allergy medication, or administer necessary booster shots for children ) there is literally NO CHOICE when it comes to having surgery or other, less serious, care that would fall between the "catastrophic" catagory and non-serious, or standard, catagory. That is, unless one has the ability to travel outside the county and possibly even the state.

So, what is there about my community that would bring in competition? This is one of the flaws in the "free market" argument. It would seem that the success model of "location, location, location" is seen here as well, only in a sort of reversed prism.

Krugman continues:

The second thing about health care is that it’s complicated, and you can’t rely on experience or comparison shopping. (”I hear they’ve got a real deal on stents over at St. Mary’s!”) That’s why doctors are supposed to follow an ethical code, why we expect more from them than from bakers or grocery store owners.

You could rely on a health maintenance organization to make the hard choices and do the cost management, and to some extent we do. But HMOs have been highly limited in their ability to achieve cost-effectiveness because people don’t trust them — they’re profit-making institutions, and your treatment is their cost.

And perhaps my ultimate standpoint is this - people that live in smaller communities already lack the ability to shop-around for healthcare sevices ( dependant on what those services may be ) and there appears to be virtually no incentive for healthcare providers to move into those areas.

But, this isn't to say that a "free market" doesn't exist and isn't successful for certain aspects of our society. My friend points out the example of movies:

Movies are a good example of a free market good, by the way. And boy are they cheap to consume, whether at the cinema, at places like Blockbuster, or online. In theory, for less than a dollar a movie, through places like, I could watch a movie a day for under a dollar a day.

The only problem with this example is that you are placing the choice of what big budget film staring Will Smith you want to watch on the same playing field as finding the cheapest doctor around to take out you apendix. Sure, you can find "I Am Legend" on Netflix or your local video stry anytime you want. You can even watch it at the same time that someone else is, as multiple copies are readily available. But, if left up to the devices of the alleged "free market" you might have to travel 2 hours to find that reputable doctor that will take out your apendix at the best price. And if you didn't have the luxury of medical-tourism on your side, you would be forced with your limited options, if there even were any.

But let's say we let the healthcare industry operate in the "free market" environment. How long would it take for these chioces to appear in your city, your county, your state? Then we get into the waiting game - another meme of the Right that they don't seem to think exists in the current American system.

Krugman ends his piece:

All of this doesn’t necessarily mean that socialized medicine, or even single-payer, is the only way to go. There are a number of successful health-care systems, at least as measured by pretty good care much cheaper than here, and they are quite different from each other. 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.

In the end the alleged "free market" ( as it would relate to healthcare ) would provide no solution to the problems we are currently facing. And, from Kugman's piece, it is shown that the "free market" wouldn't work on any level. Living in larger, urban, settings does provide covering fire for those that espouse "free market" ideals based explicitly on the fact that they are surrounded by illusion of medical choice already.

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