I recently remarked on my facebook status that health care reform was doomed in the current intellectual climate, and urged those reading to prove me wrong. Unfortunately, I don't see any evidence that I was wrong yet, perhaps the president's speech on Wednesday will change that view, but I am not holding my breath. There are three excellent articles that capture the essence of my skepticism. Together, they are a whopping 15 pages of prose (that's a lot for news articles). Basically, I have seen three prevailing views on health care reform amongst my friends and my facebook friends:
- We have an obligation to fix the system, support universal health insurance coverage (i.e. support the various Democratic proposals)
- You're crazy to believe that government-run health care is anything other than an IRS agent with a scalpel and the efficiency of the post office, plus it's a violation of privacy rights to turn over health care to the government.
- market-based reforms are the only logical choice (i.e. tax credits for buying insurance, or insurance exchanges, or co-ops, etc.)
Note that I did not include in that list anything about the crazies, because none of my friends are insane. At least not the kind of insanity as represented by Jon Stewart's answer to Barney Frank's question to a constituent at his town hall meeting "On what planet do you spend most of your time?" Stewart's answer: "apparently, a planet where a mixed race president and a gay Jew qualify as Nazis."
No, my friends are rational, primarily college-educated, and mostly split between liberal-leaning musicians and conservative-leaning programmers (that split in itself is interesting to me, but is not relevant to this post). Before I go any further, I should acknowledge that yes, I am a liberal-leaning musician. In my own defense, I am liberal because of my life experiences. I am good friends with someone who was formerly homeless, have been screwed by my health insurance companies, and have lived in poverty in a poor neighborhood, as well as benefiting directly from government student loans. No, I am not a communist, thanks for asking though.
Why is health reform doomed? Not because the crazies are dominating the dialogue, far from it. It is not because the Democratic plan is too expensive, too invasive of privacy, or too government-focused and not enough market-focused. It is because we are asking the wrong questions in order to solve this, and nobody (I'm looking at you, Obama) is correcting us.
I have read large portions of both the contentious H.R. 3200 house bill, as well as nearly the entire H.R. 3400 (a little-known Republican bill that is popular amongst conservatives on facebook as a better way to reform health care). There are some obvious problems in both. Neither fully pays for itself (H.R. 3400 flat out doesn't provide any revenue in the bill, instead relying upon the hope that cutting costs will pay for it). However, the flaws in both bills jump right off of the page when one examines this article by David Goldhill in the September 2009 issue of the Atlantic:
http://www.theatlantic.com/doc/200909/health-care
To summarize the salient points, the health care system does not have any kind of market mechanisms to set prices in place, and this is a direct result of the introduction of comprehensive health insurance in 1954. Unlike other forms of insurance (car insurance, for example), comprehensive insurance pays for the equivalent of oil changes, which both disguises the true cost and encourages severe inflation.
Thus, Goldhill concludes, the problem is not that not everyone has health insurance, it is that we don't pay for health care, our insurers do, and so we have no say in pricing. He also goes on to recommend both mandatory health savings accounts to replace health insurance for predictable expenses such as checkups, the occasional equivalent of a fender-bender for health, and costs associated with aging (with some ideas for managing poverty thrown in), and a mandatory single-payer catastrophic insurance with premiums pinned to age with no other factor taken into account.
At this point, those in the "Obama, get your government out of my [fill-in-the-blank-here]" camp are thinking "single payer? hell no." To you, I suggest reading this editorial:
http://www.nytimes.com/2009/09/03/opinion/03kristof.html
Again, to summarize: government runs several things better than the privately managed things they replaced. The examples in the article are fire departments, police departments, post offices, libraries, and health care (outside the U.S.). I would limit this list to fire fighters and police departments: I doubt that even the most staunch conservative (again, the most staunch sane conservative) would argue that it would be better to outsource firefighting to for-profit corporations. In fact, apparently "In New York City, according to accounts in The New York Times in the
1850s and 1860s, firefighting often descended into chaos, with
drunkenness and looting." Wow.
Now as for Goldhill's conclusion of how to solve the problems, there is a flaw in his reasoning as well. To get at the core, we have to examine some of his assertions:
The housing bubble offers some important lessons for health-care
policy. The claim that something—whether housing or health care—is an
undersupplied social good is commonly used to justify government
intervention, and policy makers have long striven to make housing more
affordable. But by making housing investments eligible for special tax
benefits and subsidized borrowing rates, the government has stimulated
not only the construction of more houses but also the willingness of
people to borrow and spend more on houses than they otherwise would
have. The result is now tragically clear.
This paints a simple cause-and-effect picture that doesn't even begin to capture the problem. His tidy explanation doesn't explain why lenders such as Wells Fargo singled out poor people illegally to net them into sub-prime loans, or why the market of derivatives caused what should have been a localized collapse to poison the entire economy. He also states:
Accidentally, but relentlessly, America has built a health-care system
with incentives that inexorably generate terrible and perverse results.
Incentives that emphasize health care over any other aspect of
health and well-being. That emphasize treatment over prevention. That
disguise true costs. That favor complexity, and discourage transparent
competition based on price or quality. That result in a generational
pyramid scheme rather than sustainable financing. And that—most
important—remove consumers from our irreplaceable role as the ultimate
ensurer of value.
I don't doubt that pretty much everyone agrees with the description of how health care pricing works. The part that I want to emphasize is in bold (my emphasis, not Goldhill's) In the previous sentence, Goldhill uses this language to describe the doctors/insurers: "They all want to serve patients well. But they also all behave
rationally in response to the economic incentives those distortions
create."
This language reflects a world view of a businessman who has faith in the power of the free market. Under ordinary circumstances, this is the right view, our history shows that markets very often set the best price, and everyone wins. Unfortunately, the so-called Great Recession we are currently in did not result, as Goldhill seems to be claiming, from people making rational decisions, and markets do not solve all problems. Put on your reading glasses, this next article is the long one:
http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html
This article by Nobel-prize winning economist Paul Krugman is by the guy one could argue is the smartest of the three whose articles I've quoted. Although you absolutely must read the whole article - especially if you have "faith in the market" - I will try to summarize it:
You can't have 100% faith in the market because people are intrinsically irrational, and occasionally the government probably must play a role in stabilizing a market before it spirals into a depression. In short: Keynesian economics was more right than the stuff we've been using to set public policy since the 1970s.
The solution Goldhill proposes for controlling health care costs makes an assumption that people will rationally choose the best price for health care, and bases this assertion upon evidence in fields such as Lasik vision correction, which has had a price drop as the rest of health care prices have skyrocketed. This is a compelling argument, and one I believe is a very good one, but it is flawed for handling all kinds of health care.
People who are under physical or emotional stress very rarely make rational decisions, and when you are having severe chest pains, you are going to do whatever the doctor tells you to do. If the doc says get angioplasty, you get it. If the doc says we're going to open up the chest right now, you do it. Very few people will whip out the "could I see your competitor's prices?" line while clutching their chests in pain. Put simply, emergency care cannot be rationally priced by the consumers of the care. Perhaps emergency care simply cannot have a free market to set prices. This greatly complicates the issue unless one simply decides that the catastrophic insurance would have to cover certain emergency procedures with a deductible, much like what we have now (those of us with insurance, of course).
The non-emergency care portion of health care would respond quite well to a free market, but I would question whether certain procedures wouldn't suffer from the effects of things like positional monopolies (really sick people can't travel to get lower prices).
A bigger flaw is that there is no way to transition from our current system into the new one without horribly disrupting health care for at least some people. The potential for unintended consequences is horrendous, and this will be impossible to navigate politically.
So what kind of questions should we be asking? For one, how can we transform our comprehensive health insurance system into one that does is not comprehensive? After changing this, how do we provide a safety net for people who get too sick to work, for people who are too poor to pay premiums or contributes to HSAs? How can we use government to manage the market breakdowns that will occur with our irrational behavior in things like emergency health care pricing in a market-based health care economy?
As long as the question being asked is simply "How do we provide the existing insurance to everyone?" health care reform doesn't stand a chance.
