The Debate About Health Care Reform Is Not About Health Care
In the report that the President received from his Council of Economic Advisers, beginning on page 13 and following, we can read:
At a fundamental level, the inefficiencies stem from the fact that health care is very different from conventional goods and services. The markets for health insurance and medical care are classic examples of markets in which asymmetric information is important -- that is, where one party to a transaction is likely to have more information than another. In health insurance markets, asymmetric information can lead to adverse selection, whereby individuals who know they are likely to have high health care costs are more likely to seek health insurance. Information asymmetries also lead to moral hazard, where insurance coverage may insulate patients from cost consciousness and promote unnecessary care.
For those who did not catch the ideological meaning behind this statement, let me explain that scientists noticed that the free markets are never perfectly free. Usually one party of a transaction has better information then the other one. For instance, a used car dealer can hide information about known defects. Car mechanics, plumbers, or physicians usually know better than their clients or patients what the best solution is. However, they might use this information for their financial benefit by recommending repairs or treatments more expensive than necessary. Similarly, a person buying health insurance may withhold information about existing illnesses. In extreme instances, there always will be people selling the Brooklyn Bridge, and they will find buyers. (Bernard Madoff almost literally sold the Brooklyn Bridge many times).
One can calmly look at this scientific observation, understanding that nothing is perfect on Earth. Ultimate perfection is in heaven, but aside from suicide bombers, no one is eager to go there voluntarily. Furthermore, one can see that in a small community the asymmetry of information is a lesser burden, as people learn fast about their dishonest neighbors. In a big city, one can endlessly prey on under-informed clients or patients. For this reason, we have many consumer protection laws. However, even the best legislation cannot protect people from their own negligence regarding getting information before entering into a contract. In the extreme, even if the government would take excessive measures to protect us from buying the Brooklyn Bridge, the con artists would prosper selling the Statue of Liberty.
One may notice as well, that with the internet, the customer or patient can easily find information about car mechanics, plumbers, or doctors. There is always a risk that in an emergency, we may have no chance to verify the information they feed us. However, this is only a small fraction of all consumer contracts, which include medical services as well. Nevertheless, we can complain afterwards, forming community pressure to discourage dishonest car mechanics, plumbers, or physicians from taking advantage of our misfortune.
There are people who do not believe in the free market. Some of them cling desperately to the information asymmetry that always exist in real life free market transactions, and consider this as an evidence of the systematic inefficiency of the free market system. For them it is scientific proof that the free market does not work and government involvement is necessary. At best, this is just a hypothesis that still needs to be verified in practice.
In practice, so far, the wealth and strength of America has been built on the concept of the free market. Hence, if someone wants to reform the U.S. on the opposite concept, that the free market does not work, that person has a lot of explaining to do. This seems not be of any concern of the Council of Economic Advisers. Without hesitation, they write:
In considerable part because of these market failures, government programs and policies play a large role in health care. This means that in many cases incentives are not determined by market forces.
This report is not about what is wrong with our health care system and how to reform it. It is about using our health care crisis as an opportunity for promoting increased government regulation that would replace the free market, or whatever is still left of it.
There is a whole chapter (beginning page 16) stating that market failures lead to high numbers of uninsured. We know the names of the members of the Council of Economic Advisers. However, none of them put her or his name on the report. None of them wanted their academic credentials tarnished with ignoring the big elephant in the room, by dismissing the opposite view that the free market in health care failed not because of some of its innate shortcomings, but because of immense government interventions. The free market in health care failed not due to information asymmetry or adverse selections but because - for all practical reasons - it does not exist.
Our health care is heavily regulated, because our government cares about us. After all, health care is important. As a result, the health care industry became a quasi-monopoly, entangled with the government. Simultaneously, they enjoy both, the power of the wealth of private industry and the political strength of the government, as government is the largest client, paying for 46% of all health care in the country.
When complaining about the excessive profits of health insurance companies, about their greed, about denying service or dropping for pre-existing conditions, President Obama conveniently forgets that they do it because they can, as they have no competition offering better service. They do all these evil things because their lobbyists paid heavily for regulations allowing them to do so, free from competition. As government is the largest payer, the lion's share of the money that lobbyists spend comes from overcharging the government at the first place. Just in the second quarter of this year, they spent $133,271,660.00 for lobbying. I did not spend a dime. How much did you spend? Our interests in Washington are represented according to these numbers. We can have our interests protected only by the free market, as the fewer government regulations we have, the less influence lobbyists can buy.
Alternatively to an increased government role in the health care industry, we may select the path similar to what we started in telecommunication in 1983 by breaking the monopoly of AT&T, and the deregulation of the industry that followed. With very limited government regulations, prices went down, quality improved, and affordability reached every nook of society. Should we at least consider using the same approach in addressing our health care crisis?
Just by reading the opinions presented at Huffington Post, one sees that many Americans distrust the free market and prefer more government intervention in the economy. In the health care reform debate, so-called liberals or progressives are for more government regulations, when the so-called conservatives are against it. However, in lingering around corner immigration reform, the many of the same conservatives are for more government involvement in controlling the labor market, which is clearly socialistic, when liberals are for less government control. This observation alone can raise suspicion that people voice their opinion for or against more government regulation not based on the good understanding how the free market operates, but based on ideological prejudices.
Observing people's behavior, one can see that greed is a basic human trait. Most political systems around the world are built around a noble concept that greed of an individual should be circumvented for the good of the society as a whole. The American political system is an exception; it is built on the concept that the good of the society as a whole would be achieved the best when individuals have the freedom to pursue profits. This is how America became America. This is why our ancestors built such a powerful and rich country.
The debate about health care reform sometimes becomes so much irrational because it is not about health care at all. (Similarly, as the debate about immigration reform is not about immigration.) It is about the underlying concepts of our political system. Do we want to stick to the concepts that made America strong and rich? Or, do we want abandon them, and experiment with new political concepts? Do we want more of the free market or less of it? To the best of my reading of opinion polls, Americans are split half-and-half between these two options. This is our most important problem.
President Obama is right that the health care crisis can lead our nation to financial collapse. The bad news is that this is not the worst dilemma we face. Even worse is that no one is addressing our main problem directly.
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What's wrong with this paragraph?
Observing people's behavior, one can see that greed is a basic human trait. Most political systems around the world are built around a noble concept that greed of an individual should be circumvented for the good of the society as a whole. The American political system is an exception; it is built on the concept that the good of the society as a whole would be achieved the best when individuals have the freedom to pursue profits. This is how America became America. This is why our ancestors built such a powerful and rich country.
A whole lot is wrong with it. It is simplistic and shallow. There is a point where reasonable profits become irrational greed to the point where it is a serious addiction. An addiction is a self-destructive sickness that addicts don't recognize nor do they recognize the damage they are doing to others.
Don't look now, but this country is being run by financial addicts. Financial addicts look for the quick fix.
This is what we are seeing on Wall Street, in Defense, in Health Care and in many other areas of our society. Wall Street is not about finance it is about greed. Defense is not defense it is about greed. Health Care is not about health care it is about greed.
Those who are not addicted are recognizing the problem and are meaning to do something about it before the addicts destroy the country.
For whom it is to decide when greed becomes a dangerous addiction? You advocate for legislating morality.
BTW, food addiction is self destructive for an individual and costly to the society as a whole, as a big portion of our health care is for covering sicknesses caused by obesity. Following your logic, we should have laws punishing people for being overweight.
I'm tired of everyones opinion so I'll post my facts.I'm 50. I paid into health care most of my adult life.I'm uninsured now.I've never been admitted to a hospital.I
When you had your “health insurance,” it was not health insurance; it was a health maintenance plan with insurance for one year only. We all need health risk insurance, as I described it in my two previous texts posted at HP.
Profit is not a goal. It is recognition that doctors are people as we are, motivated as we are. Out of this conclusion, we can draft a health care system, covering practically everyone by privately run clinics and hospitals and with very little government involvement. My texts show how it could be done.
Nah, this one gets a B at best. It's a well-written opinion, but it doesn't prove anything. As to the success of the Telecom breakup, all I see are little puddles of mercury reforming into a big one. Where I live, Bellsouth has been bought by AT&T. Also, in case you haven't been to a gas station lately, J.D. Rockefeller's empire is reforming. Trust busting is an illusion. So one company can't control all the oil, but a handful of companies can? I guess it all depends on how you define competition, eh?
Yo, BobN, I've been left entirely to myself, and I can't find a solution. I'm as in favor of personal responsibility as you or anyone else, but that grand ideal is entirely irrelevant here. All my love of personal responsibility does not insure my wife. My wife's chronic condition, the one no one will insure, is genetic, not caused by any choice she made. She's ill, and under the current system, nobody will cover her because nobody has to. Treatments to keep her alive cost 5K a week. Now, on your marks, get set, go: come up with an all-American, Ronald Reagan-approved solution for me. Show me how the world's greatest country boasting the world's greatest healthcare has a solution for me, if I'll only look for it.
My wife is waiting.
Your comment, confirms that my text proves that Americans are split roughly half-and half between proponents and opponents of the free market. Health care crisis is a result of this split. Impasse on the immigration issue is another consequence of the same division.
Economy is an ever-evolving live organism. Similarly, as almost every person wants to maximize income, almost every business gravitates toward monopoly. One way of doing so is by invoking government regulations making life harder for competitors, particularly for entrepreneurs. All consumer protection laws are two-side sword. On one side, they protect public from some actual or potential abuses. On the other side, they form a net of bureaucratic constrains, which make it harder for entrepreneurs to challenge existing businesses.
Trying to have a system that combines the free market with heavy-handed regulations, is as having the rules of traffic with some cars driving on the left and some on the right side of the road.
Lastly, the instances as your wife, in the market based health care system should be covered by the health risk insurance, which I explain in my open letter to President Obama, dated July 22.
Why do you keep saying its split roughly half and half? Did teh rethugs get 50% of the vote in Nov 08? No. And is the difference between the winner (Pres. Obama) and the loser (Insane MaCain) a negligible one? No.
The vast majority of the american people, want health care reform, such that neither the insurance company execs nor the government is standing between you and your doctor.
This article is absolutely disingenuous. Health care does not allow a free market solution. Claiming it does ignores the simplifications and assumptions that lie behind elementary economic analysis. A fundamental assumption is that there are both an infinite (or at least very large) number of both consumers and suppliers. Secondly, that the commodity being studied is undifferentiated -- that what every supplier provided is exactly the same as what every other supplier provides. Neither of these assumptions apply in the case of health care.
In almost every geographic area there are only one or two insurance providers. This leads to an effective lack of competition. If I live in Detroit, I can't buy insurance from Blue Cross/Blue Shield of Virginia, even if they offer a better plan.
Due to their capital requirements, hospitals are nearly "natural monopolies
People who need health care are not in a position to choose the provider who best fits their needs on price and quality of care. Furthermore, demand is naturally inelastic. If some surgeon has a lower price for bypass surgery it doesn't mean people who will one day need bypass surgery are going to get it now to take advantage of the lower price.
Your comment confirms my point that most Americans do not understand the free market. In particular, in Detroit you cannot buy health insurance plans offered in Virginia. Why, because this lack of interstate competition is in the best interest of the insurance industry. They influenced the government to issue regulations prohibiting you from buying your health insurance from out of state provider. This proves my point that the less government can regulate, the less big business can buy.
This logic applies to your other examples as well.
More free market gibberish. For those who favor a rapacious, exploitative megalomaniacal society like unto a primitive jungle: e. g., anarchy, oligarchy or fascism, free-market, laissez-faire capitalism is just the ticket. No economic or governmental system is perfect, since it is conducted by essentially flawed human beings. But we have seen, clearly and in spades, just what the so-called free-market (which is by NO means free) and laissez-faire capitalism has done to people all over the world.
It is past time to adopt another model -- one which subordinates economic activity to serving people and communities, rather than structured for people to serve the economy. European Social Democracies approach, but do not yet quite reach the ideal -- but come much closer than the US model. Laissez-fa
Standard 'free marketer" fantasy here, in this case the big lie is that telecom de-regulation was the source of the current standard of technology, price, and service in the telecom marketplace. The current state of telecom is directly related to ending the free market status of AT&T and its MONOPOLY on telecom. Once that monopoly was broken up by application of regulations - competition began-on price, equipment, technology, &service. The REGULATION of an entire market segment created the telecom revolution - not the other way around.
In contrast the Cable Privacy Act of 1996 - (marketed as "deregulation") created the current cable debacle wherein two major cable companies now control the vast majority of the cable marketplace; resulting in rates out pacing inflation while service, satisfaction, Internet access and speed decline relative to the rest of the world. The free market turns has birthed the inevitable monopolies and consequences thereof.
The application of the "free market" is what got us to this point in the Health Care debate. A medical association that PROHIBITS its members from competing by advertising their rates, a code of silence that would rather raise a negligent practitioners mal practice insurance rate than bar them from harming another human being, all in all a system that actively works to limit access and increase costs. That is your free market at work in health care and its killing people.
Free markets are, I would argue, not only amoral but immoral when applied to human beings.
If free markets are amoral and immoral, please tell me which political system is better. I have to warn you, that I have experienced systems build on concepts opposite to the free market.
There is a difference between political systems and economic systems. You are conflating the two. Capitalism does not equal democracy, and democracy does not equal capitalism.
The market has never been free, it has always been manipulated by the players to their own advantage. This country prospered the most from the 40's through the 80's, before deregulation gave the markets back to the players. Is it a coincidence that one or two insurers dominate every single major market in the US, when we have all but stopped enforcing the laws against monopoly? And is it a coincidence that health insurance prices have risen multiple times faster than inflation in the same period? I think not. Is it a coincidence that deregulation and tax rate decreases preceded another period where the distribution of wealth is more skewed now than at any time since pre-Depression? I think not. Take your stupid "free market" someplace where the populace hasn't figured out yet what a filthy sham it is.
When you will be able to reconcile your views with those of BobN1952, below, our country will be in much better shape. This is all what I tried to say in my text.
Sorry, but there is no reconciliation. I've explored both sides, am informed about options and their consequences. Most of the American populace is living with the proof of your failed philosophy. Take it somewhere else.
I say leave people alone and they will find solutions to their problems. The problem with liberals is that 'personal responsibility' is conditiona
Please do not preach to the choir. Try to say it to propitiousmoment, above, and do it the way that you both can reach some common ground.
Excellent article.
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