THE BLOG
01/27/2014 12:48 pm ET Updated Mar 29, 2014

Cheap Wine and Expensive Health Care

I was slogging through an interminable New York Times article on health care. Plenty of facts -- how scrupulous are these journalists! -- but the article displayed absolutely no comprehension of the basics of cause and effect. I was left wondering about the whole point.

The article details how the health care system rewards specialists to an extraordinary extent, how if you want a minor dermatological operation, you end up paying a half a dozen different layers of service providers. You end up coughing up thousands for a very simple operation, and have no choice and are offered no explanation. The article recounts examples: $915.46 for wart removal, $25K for the removal of a white spot, $14,470 for a tiny scar removal.

It seems like what it is: racket.

But how does this happen and why? The article is overtly silent. But the deeper overtone here is that we need some kind of regulation to stop this patient exploitation. After all, how else can we stop different layers of production from charging tremendous amounts for their services even as the customer feels helpless to stop this practice?

Well, maybe there is something we can learn from the restaurant industry here, a sector where there are just as many production layers and potential specialists, and yet, somehow, mysteriously and magically, prices keep falling.

So let me tell you the story of lunch that same day. I'm at a startup luncheon spot. The waiter came over and announced that the place was offering a special that day: $5 bottles of wine.

I almost couldn't believe my ears. You can't even get a bottle of wine at the store for that low price! Why not just come to this place instead of going to the store? Remarkable.

How can they make this work? The waiter's theory was surely wrong. He said that they sell tons of it every Sunday -- making up in volume what they lose per unit. On this particular point, it's a good thing he is not in charge. You lose more on volume if you lose any per unit! More likely the wine is "loss leader," something that draws people in who spend on food. Somehow they make it work.

I'm not too fussy about wine but this stuff turned out to be pretty grim. Even for me, it was rough. Of course I could have sent it back and paid for a $20 bottle like most places sell. did I? Nope. I was too intrigued by the wonderful reality that I had received a full bottle of wine for $5! I wasn't going to let that opportunity pass me by.

In any case, whenever I have a bad wine, I reflect on how little we actually know about how wine tasted in centuries past. Did the King of France in the 14th century have access to as high a quality of wine that we have today? Or was his best wine the equivalent of a screw-top jug today? Hard to say really. Maybe our worst wine was his best wine. We really can't know for sure.

As for Biblical times, there is just no way to know. When Jesus turned the water to wine, how did the results compare to what we can grab from the shelves of the grocery store today?

Wine in ages past served many different functions beyond its status as a luxury good for cleansing the palate or getting tipsy. It was essential to health. Mostly you would dare not drink the water unless it was from a fresh source, and, if you did, it was wise to purify it with wine to kill the germs and dangers lurking therein.

All kinds of modern science has shown that the old intuition was exactly right: wine is a killer of bacteria. When it is a matter of life and death, you just can't be too fussy about the flavor.

I began to think about the strange reality: consistently clean water is a 20th century thing, unavailable to most all people in all times and places. Thank god for wine! It is probably the reason that you and I even exist. These days, we face infinite choice between terrible and amazing. It is up to the customer.

Then it was time for food. I ordered a burger. The price was posted: $7. I could have bought a more expensive burger but didn't. So the total tab: $12. Again, this is for a bottle of wine and a burger. The result was an extremely happy mouth.

Now, let's just replay this situation according to modern health-care rules, which is to pretend that the the food market plays by the same rules as the medical market.

Imagine with me. I walk in and ask about the special of the day. The waiter wants to see my food insurance card. I dig around and find one. He points out that I have a high deductible. This means that I have a minimum amount to pay if I happen to order anything that is not covered on my food plan. But I don't happen to have my food plan with me and I really don't know if burgers and wine are covered.

In any case, I order wine. There is only one kind available. I ask the price. They don't know. They are stunned that I would ask. It will show up on the final bill and much of how much I pay depends on my food planners and the plan to which I happened to subscribe. I would like to assess the trade off between price and quality. Why would I do such a thing? Is not the need for wine a fundamental human right that is not subject to crude economic considerations?

Fine. Let's move on to the meal. I would like a burger but I need to know the various options. Again, the waiter points out that the need for me to have a burger is a matter of human dignity and such a core need of human beings cannot and should not be tainted by issues of choice over what I am willing to pay for. This is why we have food insurance: so that no one may ever go hungry.

But wait just a minute. I'm actually extremely concerned that I will get too much to eat. I'm not that hungry. I only want something small. What's the point of paying for tons of things you don't actually want?

Plus, the only cheese I truly love is pepper jack. I've tried cheddar, provolone, American, Swiss, and all the rest, but I only actually connect at a deeper level with pepper jack. Criticize me if you want. It's just the way it is.

The waiter rolls his eyes: the burger experts know what is best. He has no idea why I'm being such a problem eater. I should be a "good eater" just like "good patients" in hospitals and just accept what is coming to them. This is how we go about doing our part to serve the common good.

I order and eat and it's a suitable meal. But then several months later, I see the bill, part of which is paid by my food insurer and part of which is paid out of pocket. The hamburger fryer has his bill. The mayonnaise spreader has a bill. The pickle chopper has a bill, as does the bun person, the tomato person, the lettuce person, to say nothing of the onion slicer, and the bun toaster, and, of course, the waiter.

There are huge amounts of specialists involved here! We dare not deny them their income else we will find ourselves without food! Never mind that the bill is through the roof. Hundreds of dollars, even thousands.

What does this scene have in common with the way American health care operates? Many things. It is not a competitive market. It is something else. It is subsidized, truncated, planned, protected from competition, replete with scams and rackets, and walled off from actual consumer choice.

How to fix the problems with American health care? The last thing we need is another government plan. We need to completely blow up the current system, removing every aspect of compulsion from it and unleashing the forces of the market to make sense of the entire sector. Until we do that, none of it will make sense, costs will keep rising, service will grow worse, innovation will suffer, and consumers will not be in charge.

Now, I'm quite sure that the reporters for the New York Times have gone out to eat in New York City from time to time. There is a menu. There are prices. The consumers pay. The producers serve.

This is how the world works. It's how we do. So how can these same people write on health care and not notice the extent to which the health-care market is not an authentic market at all? If you imposed this system on any sector of life, you will make a terrible mess. That is exactly what we have in healthcare today.