American Medicine: Free Market?
In a recent editorial in the Washington Post, Walter E. Williams states:
Do we want the government employees who run the troubled Walter Reed Army Medical Center to be in charge of our entire health-care system? Or, would you like the people who deliver our mail to also deliver health-care services? How would you like the people who run the motor vehicles department, the government education system, foreign intelligence and other government agencies to also run our health-care system? After all, they are not motivated by the quest for profits, and that might mean they’re truly wonderful, selfless, caring people.
As for me, I would choose profit-driven people to provide my health-care services, people with motives like those who deliver goods to my supermarket, deliver my overnight mail, produce my computer and software programs, assemble my car and produce a host of other goods and services I use.
His argument is that making the system less free than it presently is will make it even worse, pointing to the Canadian, British, and French system failures.
While I don’t disagree with the specifics of what he is saying, and the examples from other systems do raise the question of whether a single-payer system will really be better, he greatly oversimplifies the issue. Perhaps this is because he is taking one of the most complex problems we have in this country and trying to boil down his commentary to an editorial. Whatever the reason, I think there are some huge facts that he skips over regarding our system and what change would mean.
The market is not free
Physicians don’t set their prices, insurance companies do. Yes, I can set a fee schedule for my procedures, but in general, what I am paid won’t be impacted much by that fee schedule. Patients cannot generally shop for the best price for a product because of this.
The fact is, there are very few within the system who control the cost or spending within the healthcare system. Pharmaceutical companies must negotiate what they get paid for medications. Hospitals are also at the mercy of the reimbursement from the payers.
The only parties in the healthcare equation who have some control are the payers. Insurance companies can raise their premiums and lower or raise reimbursement. They compete for business based on the cost of their product and the quality of their service.
This renders the comparison of the supermarket to the postal service a false comparison. Physicians see a small percent of what the consumer pays, and so are not really motivated to offer better service. The real determining factor on the profits of a physician are the reimbursement rates set by insurers as well as the enormous profits being made off of healthcare by other parties.
The market is not a buyer/seller market.
Williams lays the blame of the non-free market on the presence of government controls:
Our health-care system is hampered by government intervention, and the solution is not more government intervention but less. The tax treatment of health insurance, where premiums are deducted from employees’ pretax income, explains why so many of us rely on our employers to select and pay for health insurance. Since there is a third-party payer, we have little incentive to shop around and wisely use health services.
There are “guaranteed issue” laws that require insurance companies to sell health insurance to any person seeking it. So why not wait until you’re sick before purchasing insurance? Guaranteed issue laws make about as much sense as if you left your house uninsured until you had a fire and then purchased insurance to cover the damage.
Again, I don’t disagree with either of the points, but they do not paint a complete picture. It is the third-party payment system, the lack of system accountability, and the free reign given to the profiteers in the system that make it inefficient. Pulling government restrictions off of insurance companies will simply increase their profits, not lower healthcare cost.
There are many layers that stand between consumers and those who sell their service. A third-party system which is morally obligated to make the highest profit possible off of the system is one that is bound to hurt both consumer and seller of goods. The transaction between doctor and patient is subsidizing the pharmaceutical, insurance, and device industries. This means that a large portion of the healthcare dollar is fixed.
Yes, the intervention of the government into the equation does make it more complex, but the fact remains that Medicare uses each dollar it gets far more efficiently than the insurance industry does. Overhead costs for Medicare are far lower than those of the insurance companies, which is one of the main arguments put forth by those who advocate a single-payer system.
A Free Market In Healthcare is Impossible
Certainly if physicians and hospitals were paid out of pocket by consumers for 100% of their care (like those physicians who no longer accept insurance), it would truly be a free market. I would suspect that this would greatly reduce the cost of healthcare as well, as the overhead of running a medical practice would go down significantly.
Yet there are very powerful factors causing most Americans to reject such a system:
- The poor. Should the poor have little access to healthcare services while those with resources can get what they need? It is one thing to reject a socialized system where there is no way to pay more for better care; it is something completely different to advocate no safety net for the needy at all. This means that some sort of third-party must exist in the system, hence making it a non-free market.
- The high cost of care. Since care itself can be so expensive due to the explosion of technology, even those rich enough to afford a medical catastrophe would not want to foot the bill entirely. I daresay that most wealthy people still carry insurance on their homes and on their cars. The risk of a financial devastation from medical costs is far greater than the risk from home or car catastrophes.
- No clear concept of “value” in healthcare. What value is it to get a physical? What should preventive services be worth? What are emergency services or hospitalizations worth? How do you quantify them and say what the cost for these should be? Since there are many workers within the healthcare system providing value, it is far different from accounting or law, which are often used as the contrast to the payment system in medicine. When you pay for an attorney, you are paying for their service and perhaps that of their clerical staff. When you pay for a hospital stay, you are paying for physicians, nurses, medications, pharmacists, administrators, and all sorts of other people (hopefully) adding value to what you get.
- A poor concept of quality. One of the big cries against the whole concept of pay for performance is the idea of measuring medical quality. People can’t agree on what quality is and who should measure it. Even if it were defined, few physicians have the data collection and reporting capability to make it work (this is why the default measurement of quality so far has been done by the insurance industry).
It is now a big Political Issue
Unfortunately, the healthcare industry has not been able to come to a good solution on its own, so it will be a major issue in the upcoming presidential election (perhaps second only to Iraq). Politicians will be the ones to decide. Republicans tend to favor a “free” market where the private insurance is made available to all, while democrats tend to favor a more government-run approach.
The problem is that nobody is going after the root causes of the spiraling cost of care. To simply call for “more free market” or a “single-payer system” without addressing the incredible waste, lack of accountability, and profiteering by third-parties is simply re-arranging chairs on the Titanic. It is the unfortunate nature of politicians to take a politically-motivated veneer and layer it on top of a broken system and call it fixed.
The argument over free-market and government-run healthcare is for the pundits. The role of the healthcare community should be to turn the focus away from these no-win arguments and to the issues that are really killing healthcare. If we don’t engage the argument as a group, we’ll end up with the worst possible solution: a political one.
I am very interested to know what you think. Am I right that the captain of the ship is not as important as its seaworthiness? If so, what are the real issues?
July 30th, 2007 at 12:45 am
I recommend doing some research on Singapore’s health care system. Over 70% of health care expenses are paid out of pocket in Singapore and it has led to impressive results. I’d consider it the best health care system in the world. \
The U.S. government has crippled the health care market by not taxing health insurance as normal income. If this did not occur consumers would likely purchase HSA’s causing the consumer to be more concerned with the price of treatment. This would then force the health care market to provide more cost effective treatments.
July 30th, 2007 at 7:41 am
Dr Rob,
Not even sure how much influence the patient (insurance consumer) has anymore, as they (insurance companies) often “cherry pick” or place riders on pre-exising conditions leaving patients unwilling or unable to go looking for another policy/insurance company.
Nice post.
July 30th, 2007 at 9:00 am
REM (a good band, by the way):
The point of the post was that the system in the US makes it impossible to have a truly “free market” approach (as widespread use of HSA’s would cause). Singapore may be a great system, but the demographics and politics of Singapore are vastly different from the US. Most studies on HSA’s say that they encourage under-utilization - especially of preventive services.
Perhaps taxing the benefit would change things some, but I don’t think you escape the shell-game of moving money from here to there without addressing the root causes of the problems within the healthcare system. Any way you finance a bad system, it is still bad.
rlbates: Agree 100%
July 30th, 2007 at 9:49 am
Great post, Rob. One small point of interest. Charlie Baker had some interesting things to say about whether or not Medicare actually does have lower overhead costs:
“The two things I always hear about why it’s a good idea are — Medicare has lower Administrative costs than private health plans and they’re a “better” payer than the private plans. Hmmm…Let’s take the first one. What I’ve heard before is that Medicare only spends 4% of its money on a per beneficiary basis on administration, while the plans spend 14% per member on administration — a big difference. This is interesting, but misleading. Medicare beneficiaries are over the age of 65. They spend almost three times as much money on health care as a typical private plan member — most of whom are under the age of 65. If the Medicare member typically spends $800 per month on health care, and 4% of that is spent on administration, that’s $32 a month on administration. If the private health plan member typically spends $300 per month on health care, and 14% of that is spent on administration, that’s $42 a month — a much smaller difference. But we’re not done yet. Medicare is part of the federal government, so its capital costs (buildings, IT, etc.) and benefit costs (health insurance for its employees and retirees (!), pension benefits, etc.) are funded somewhere else in the federal budget, not in the Medicare administrative budget. Private plans have to pay for these items themselves. That’s worth about $5-6 per member per month, and needs to come out of the health plan number for a fair comparison. Now we’re almost even. And finally, Medicare doesn’t actually process and pay claims for all of its beneficiaries. It contracts with health plans around the country to do much of this for them. That’s not in their administrative number, either — and it is, needless to say, in the private health plan number.
People push and pull these numbers all the time, and there may be “some” difference between Medicare and the private health plans on administrative spending as a percent of total spending. But it’s not huge, if you try to compare apples to apples.”
http://www.letstalkhealthcare.org/?p=105
July 30th, 2007 at 5:05 pm
Val: Charlie hits the nail on the head. I have honestly always suspected that the numbers quoted about Medicare were somehow inaccurate. It never made sense to me that the government was better at something than private industry.
July 31st, 2007 at 11:53 am
Rob: this is an excellent summary. As one who has argued for single-payer, I also find the comment by Val very interesting, pointing out things I’d not thought of. I suppose that the ability to lay things out in a clear-headed way, as you have done, is a needed first step. But, despite having “proposed” solutions myself, I think the reality is that nothing will really happen until the system collapses under its own weight, and by then it’ll be too late. On the other hand, I think the last few years have headed the whole country toward ruin, so it’ll be moot before we have to get around to health care. Good news.
August 1st, 2007 at 12:29 pm
What are the issues that are really killing healthcare? You indicate that it is the high and spiraling cost, and then mention some root causes of the cost: the incredible waste, lack of accountability, and profiteering by third-parties.
You ask some great questions about the poor, about value, about quality. (Are these last two distinquishable?)
Doesn’t this all boil down to who gets to answer these questions and how–by what standard?
An useful article on “The Unfreedom of the Free Market” http://tinyurl.com/2dbwez discusses these issues in a general way. I am not yet sure how it applies to medicine.
You assume that we cannot have a free market in medicine. Though in the fullest sense you are right, an increasing number of doctors in AAPS are practicing private medicine, free of coercion from third parties.
But the main issue still is whether we really know what we think we know. Are we prepared to submit to God’s revelation, or to man’s fallen reason? That will help as we determine value and quality, and as we practice compassion on the poor and needy.
August 1st, 2007 at 12:57 pm
I should also point out that Starr dealt with these issues (free market and medicine) in his excellent historical discussion, The Social Transformation of Medicine.
But all this talk of free market value assumes the efficacy of modern medicine, which is an illusion, as many have demonstrated well (particularly Leonard Sagan and Ivan Illich, but more recently Kaufmann, Donald Miller, etc.).
Not that I don’t see value in what you and I do. But that value is in the relationship with the suffering person, utilizing our skill and sometimes our knowledge.
August 1st, 2007 at 3:25 pm
Very good points, Robert. I especially like the last paragraph of your first comment.
Quality is part of the idea of Value, but value is an economic term, where quality is independent of economics (although still important).
This whole discussion is mainly economic, as the idea of “free market” is regarding the payment structure of healthcare. My main complaint has been that people look at care and somehow say that you can make the payment system to be a “free market one.” The problem is that the value to society goes beyond a regular commodity, and hits more important issues (as you touched on) regarding the meaning of suffering and the dignity of addressing it. That is why people look at the importance of giving healthcare to the poor and elderly while not feeling society owes these groups a free plasma screen TV.
I would be careful saying that the efficacy of healthcare is an “illusion.” Again, it depends what the end you are trying to accomplish. Do we reduce suffering in certain circumstances? Obviously we do. Do we decrease the overall suffering in the world? I am not sure of that.
August 1st, 2007 at 5:49 pm
Agreed. Modern medicine is a marvel in the relief of much suffering, to the point that we often expect more of it than it can deliver.
We can relieve suffering, which we are called to do. But we are not good at extending life, which only God can do. Medicine’s net benefit there may well be negative.