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private insurance needs reform as well

Free Market Health Care

An excellent brief summary of the problem with a free market approach to health care from James Kwak, May 2009: 

(Note:  This is an common viewpoint, that the free market could not solve the cost of care for folks needing a large amount of care.   Certainly an insurance industry for autos seems to be a case where the cost of the insurance paid can be much less than the cost of repairs.  The point being that the healthcare insurance industry can make money with creative means, and at the same time carry high risk folks.   The cost should however vary with the risk.)

I happen to think that a free market for insurance works pretty well in most circumstances (and I did co-found an insurance software company); for example, if you can afford the house, you can generally afford the insurance for the house.  But it doesn’t work very well for health care, because many people are simply uninsurable under free market principles (expected health care costs exceed their income, let alone their ability to pay), and hence would be left to die.   We think we have a private, for-profit insurance system today, but we can only avoid its disturbing implications by hedging it in with public backstops and regulations.

Since nobody is proposing a true free market system, we tend not to dwell on these facts. But I think they’re more important than people realize. If you think about free markets’ ability to, say, deliver falling prices for high-definition televisions I think you’ll quickly see that one key element of the process is that our society is very sincerely prepared to say that if you can’t afford an HDTV, you’re going to have to do without one. Consequently, when the technology is introduced you wind up with a larger number of people who would buy the HDTV at some price but not at the price being asked. This creates a large market incentive for someone to come up with a lower price point for HDTVs, and to invest in technical research that will make it profitable to sell cheap HDTVs.

This process works really well. But when you replace “has to watch the game at a friend’s house if he wants to see it in HD” with “gets sick and dies” then suddenly the process looks not-so-good. But absent a strong and firm social commitment to the “gets sick and dies” part of the equation, the whole process starts looking different. You wind up with a scenario where there’s a strong case for much more systematic government intervention, because whatever kind of “market” dynamic you’re willing to unleash on the health care sector is going to be substantially distorted by the baseline government interventions needed to meet our core social values.

A related part of this is that medicine has never really been understood as a commercial enterprise. A doctor is, in our social understanding, not a “medical treatments salesman” any more than a soldier is a mercenary.

 

One comment written in response to the above:

My experience with free-market healthcare: I went to the hospital and told them I didn’t have insurance and couldn’t afford treatment. They said, you need treatment and we won’t let you leave. So they gave me the treatment and a bill for $15,000. That’s the free market! 

Note:  If one replaces this broken system, brought to you by the folks who want to do it to you again, the big G, with the single payer system, then the last line would read “gave me the treatment and then sent the taxpayers a bill for $30,000.