Will Free Markets Work for US Health Care Reform (Post ACA)?

The Emperor’s New Clothes 

On the eve of being sworn in as the 45^th President of the United States – Donald Trump has promised a replacement plan for ACA that will provide “insurance for everybody” that is “much less expensive.” This pledge contradicts Republican proposals which prioritize consumer choice over universal insurance. GOP lawmakers said the President had meant to promise “access” to insurance for everyone. 

Harkening back to Hans Christian Andersen’s original tale about the Emperor from 1837 – are people who question this highly ambiguous position “unfit for their positions, stupid or incompetent?” 

Maybe Trump will help clarify all this with a few tweets sometime soon.

  

The Republicans are now focusing on market-friendly mechanisms to reform health care. But what exactly are free markets in the context of health care?

Back in 1973 the US Supreme Court defined "fair market value" as "the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant fact." How many of us have "reasonable knowledge" of medical procedures or costs? 

This begs several obvious questions: Are there any parts of the current health care market that actually operate this way?

As the NY Times reported recently “As you know, the American health care system is not like a normal market. When you make most health care decisions you don’t get much information on comparative cost and quality; the personal bill you get is only vaguely related to the services; the expense is often determined by how many procedures are done, not whether the problem is fixed…The Republicans are going to try to introduce more normal market incentives into the process. They are probably going to rely on refundable tax credits and health savings accounts so everybody can afford to shop for their own insurance and care.”

Will Market Incentives Work in Health Care?

This question actually begs several questions: From an economic standpoint - will market mechanisms improve quality and reduce costs? And a behavioral one – will most people be willing and able to shop effectively (if at all) for health care insurance,? Or do they want someone else (like their employer or a government agency) to make the decision for them?

Free markets don’t work in Health Care for several reasons:

In a completely unregulated market – healthy people will not buy health insurance plans as often as sick people will. Insurance companies exist because some people get sick, but they make money because more people (in theory) don’t. As the Congressional Budget office observed in their recent report -  the repeal of ACA will drive the cost of health insurance up as insurers try to pay for the costs of the sick people they cover, further pricing out healthy people whom the insurers need to keep the costs down. 

This can lead to an untenable downward spiral: The whole market falls apart because they are too few healthy, less expensive people paying insurance premiums to cover the costs of the sick, more expensive ones.

Second there is the issue of incomplete information, especially compared with how most people go about buying just about anything else. When people get sick and go to a doctor, do they know that the doctor has their best interests in mind? Do most people have any idea of what the “right price” for a given problem / procedure is? Are they give a choice of treatments with clear cost / benefit comparisons? Under current policies prices for medical services are generally confidential. 

One can call hospitals or health insurers to ask for the cost of a stand medical procedure say knee replacement or cataract surgery, but they’re likely to be told that price information is proprietary – until they get the bill.

Most of us take our doctors at their word, undergo the prescribed treatment or procedure, hope for the best outcome and pray that most or all of the medical bills will be covered by insurance.

Next there is the problem that access to care in a free market system for many is completely contingent on one’s ability to pay for it, or be lucky enough to have employer-sponsored health insurance or qualify for Medicare or Medicaid. If we collectively believe health care insurance is a right, and that it is immoral to allow sick people to suffer, a free market system that leaves 50 million+ Americans without insurance is complicity in that immorality. Add this dilemma that medical studies show that the poorest people are also the sickest, and this “new and improved” approach will deny health care to the people who need it the most.

Consider a prototypical family of four living in Illinois. Both parents work for small companies that don’t offer health care insurance. They work hard, but without advanced degrees they pull in $55,000 in annual household income. Too much to qualify for Medicaid, yet after taxes, housing, transportation, food and other basic living expense they can hardly afford the $16,500 per year health care insurance bill, even with ACA tax credits and CHIP (Children’s Health Insurance Program).  

Finally, American health care costs are completely out of line with the rest of the developed world, and free-markets will not fix this problem. In France the average daily cost of a hospital stay is $853, in the US it is $4287. An MRI costs on average $335 in the UK, $363 in France but $1121 in the US. These and other price variations are detailed in the 2012 Comparative Pricing Report of the International Federation of Health Plans – a trade association for health insurance companies.

Our universal single-payer health-care plan for older Americans, Medicare, has lower costs and lower overhead than the system serving those under age 65. We should take this “blinding glimpse of the obvious” at face value and consider a similar single-payer health-care plan for all Americans?

 

Healthcare Insurance: It’s Really Complicated!

President Trump, meeting with the nation's governors at the end of February conceded that he had not been aware of the complexities of health care policy making: "I have to tell you, it;s an unbelievably complex subject. Nobody knew that health care could be so complicated." This may qualify as Trump's most profound observation to date. 

As we have advocated previously - Why not take the elements of Obamacare that work and then take the time to properly study appropriate alternative approaches over the next four years rather than undertake a knee-jerk partisan effort to kill off the entirety of ACA?

Why not aim for a genuine re-tool of US health care by 2020 and work towards the goal of providing universal health care for all Americans versus providing it only to those who can get it from their employer or the government, or afford to pay for it themselves – leaving an estimated 60 million people in the lurch of being uninsured?