Health Care Redux

Health care seems to be the hot topic, so let me take another hack at this. Any viable solution to our problem, and I don’t find many people nowadays denying that there is a problem, must include a robust government option. Let’s keep this really brief:

1. There are circumstances in every economy where ‘market forces’ do not deliver efficient solutions. I take this as axiomatic, others have a very hard time grasping it. There is no longer any credible evidence that suggests that in every circumstance there exists a ‘market provided’ solution such that no ‘government provided’ solution is more efficient. Consequently government intervention can have beneficial effects under some, restricted, circumstances.
2. Health care is one of those situations.
3. This is a result of the asymmetrical nature of the doctor/hospital [‘providers’] to patient relationship, augmented by the simple fact that treatment costs tend to be unsustainable by individual consumers. We need an insurance style solution where costs are borne by a group of subscribers rather than the individuals themselves.
4. The asymmetry drives providers, in a market setting, to escalate costs in search of profit: extra treatments, tests etc regardless of the impact on outcomes. More to the point there is no incentive to enforce a strict ‘cost/benefit’ relationship: the marginal value of that extra test may well be below its impact, but because it generates profit it is prescribed anyway.
5. So costs are driven up.
6. But there is no countervailing force: patients have no idea about the marginal values of tests etc, so they are forced to accept the advice of the providers – who in hospital settings often control the flow of activity regardless of patient input since the patient is often incapacitated. Patients cannot thus push back, or shop around, in order to force providers to stop profiteering.
7. Furthermore patients do not, nor can they, bear the full cost of treatments etc. This dulls their incentive to push back even when they feel able to.
8. So market forces are rendered useless. The health care system is inherently unstable with an upward bias for costs.
9. The only way to stop the spiral upward of costs that this instability entails is to enforce arbitrary limits, and to exploit the advantages of the largest possible actuarial population for insurance purposes.
10. This is the government.

Most often the argument against government intervention is simply an ideological one: government is ‘bad’. This is untenable in health care both due to the argument above and the fact that the most trusted and appreciated health care system in the US is government run: the VA system, which consistently outperforms private systems in patient appreciation and outcome surveys. The government delivers the best system in the country if these surveys have meaning. Nonetheless opponents of government systems will overlook this evidence and bombard us with politically motivated, rather than economically motivated, arguments.

Paul Krugman does a good job of summarizing the politics this morning.

So it behooves those of us trying to find a solution to the cost crisis that threatens to swamp health care in this country to avoid ideologically based arguments and, instead, to keep hammering home the more simple and non-ideological truth: cost control in health care depends upon the provision of a government alternative.

One last point: Krugman pokes at Senator Nelson of Nebraska who makes a typically shallow defense of the non-government argument. Nelson calls a government option unfair for insurance companies. As Krugman points out: the focus of the system is on patients not on insurance companies. It is this argument from within the existing system that prevents proper analysis. The whole and single minded focus of a health care system is on patients. The providers and the insurance mechanisms should be constructed around that goal. If we also add in the notion of maximum coverage, which allows us to extend the insurance pool more widely and thus lower costs even further, then the case for the government only gets stronger. Who cares if the insurance companies or the providers have to adapt their behavior?

That adaptation is exactly what we are trying to achieve. The current set of behaviors are producing egregious and unsustainable costs. So someone in the system has to change.

This really isn’t difficult once we all realize that markets don’t work well all the time.

Really.