I agree. The "everything is a market" ideology had a good run of almost half a century, but it should be heavily criticized in hindsight.
Institutions like healthcare, education, public transport, prisons(!) and so on are more efficient, less corrupt and of higher quality when they are in large parts collectively and democratically organized and funded. The "in large parts" is important here: A community should agree on what that means and let the market play out on the edges, or the bureaucratic costs become too heavy _and_ unfair. Decentralization is key here.
One thing to note about US healthcare is that it seems almost deliberately engineered to not be a market.
I've never received significant health care in another country, so I can't say how the US system differs from others with any expertise. But I can say how US health care differs from just about anything else I spend money on:
1. I don't really get to shop for health insurance providers. My employer picks one, maybe two plans, and I can take it or leave it. If I leave it, I am leaving at least $10,000/year on the table, so I generally take it.
2. Even when I am on the market, the phenomenon in #1 does weird things. Once upon a time, when I was choosing my own health insurance, I started a new job with health insurance benefits that I did choose to take. But my start date was toward the beginning of the month, my old insurance wouldn't let me do a partial month, and the new employer wouldn't let me delay opting for coverage. So I was essentially forced to own two health insurance plans simultaneously for a period of time.
3. Nobody knows what care will cost ahead of time, which makes it impossible for me to make any informed economic decisions. I need to see a physical therapist. I called a few places to shop for prices. They all know what the rate for uninsured people is, but the only way we can find out what it will cost with my insurance is if I receive care, they submit a claim, and then we all find out together what the price was, after the fact.
4. #3 creates a situation where they can hide all sorts of excessive charges. When my first child was born, I got lessons on how to give him a bath and change his diaper. Both of which I already knew; I was really just going along with the lessons to be polite. I certainly wouldn't have said yes if the hospital had been transparent and up-front about the price tag on this lesson: about $2,000.
5. And sure, insurance covered most of it... but that didn't make it free; it just means the price was amortized over a large number of health insurance premiums. Unfortunately, I think that this setup makes it all too easy for us to think of these things as free, which, in turn, reduces public scrutiny over where the money comes from or where it goes.
And it just keeps going like that. Compare with signing up for cell phone service. It's a famously sleazy business, but, even with all the hidden fees they like to tack on, at least they're up-front about the basic price of service. With US health care, every fee is a hidden fee. That makes it impossible for consumers to make free, informed decisions, which is the most fundamental precondition that must be satisfied in order for a capitalist market to form.
All good points. In my mind, a market lets me make informed choices and choose from multiple options for something that meets my needs. As you noted, the only real choice is whatever your employer offers, or something more fantastically expensive. In terms of care, there are lots of choices but not enough information to actually choose. It's more of a choose your own adventure where you have to guess and hope you got it right.
For #4 on your list, I remember the insane bills we got when our first child was born. It was also insane the sheer number of bills that we got.
First we received a bill for the stay in the hospital. And then we received a bill for the doctor performing the delivery. Okay, fine, it makes some amount of sense, that doctor supports multiple hospitals and isn't technically part of the hospital and staff at that maternity ward that is there 100% of the time.
And then the separate bill for lab work, and another for the pediatrician, and another for our baby's stay in the hospital (this one really got me, why?! we were all in the same room), and then another for the lactation consultant, and, and, and...
I don't remember each one specifically at this point, but I believe it was 7 separate bills.
I'm still getting bills from various groups almost a year after having a child. Being so far out from the event always makes me cautious about immediately paying them; I'm rather worried about getting a fraudulent bill that looks real, as many of these bills come from central billing offices several states over. It then takes me time to truly connect the dots from the service and looking at insurance history to ensure this bill is legitimate and that I technically do owe that.
Another sleazy behavior I've noticed is that when I receive care, and state that I'm uninsured, the provide chargers me a different rate then had I handed over my insurance card.
The way this plays out is that if I hand over my insurance card, the provider will attempt to extract as much money as possible and bill an outrageous amount. The insurance provider has maximum limits it's willing to cover for each billing code and so only covers some lesser amount. You pay the difference.
The other side of the "market" is also not very "free". Health care facilities are heavily regulated - and I don't just mean for safety. Try opening an MRI facility or other capital-intensive facility... You'll be required to obtain a certificate of need from a state board. That board will be heavily lobbied by existing supplies to minimize competition from upstart facilities. IIRC, around 2/3 of states have these laws in place.
I would say price discovery is one of the main problems just as you've identified. The other is inelasticity of demand. To put it in a crass way, what's the market value of the morbidity and mortality of your child? I suspect the answer is often all you have and more and I think plenty of actors in the system are happy to take advantage of that.
Many (most? I always take employer-sponsored, not an expert on all plans) health insurance plans in the US have a concept of out-of-pocket max. This is a yearly amount that is essentially your maximum yearly liability. That amount can vary from plan to plan and year to year. Usually a lower out of pocket max means higher premiums, similar to the idea of having a lower car insurance deductible usually means higher premiums.
It looks like all plans sold through the healthcare.gov marketplace is required to have out of pocket maximums.
Trick question...
- Some policies have a cap on benefits. So, your max out-of-pocket might be $10,000/person, but there's also a max benefit of $2,000,000 (made up numbers). This type of plan language was mostly banned with the ACA (Obamacare), but there are some grandfathered plans.
- Balance billing - there is no guarantee that the insurance provider will actually pay what the hospital bills. Insurance companies usually have negotiated rates with some providers. So, if you end up at an ER that's out of network (no negotiated rates), your insurance might pay what they think is reasonable and the hospital bills you the excess. Several California-based hospitals are notorious for this. It also happens with helicopter ambulance transport - frequently, they'll bill $50,000 for a ride, insurance covers $25,000, and the patient is stuck with a $25,000 balance (again, made up numbers).
Though the practice is now largely prohibited, there are instances where insurers will have caps on how much they will pay out, either over a lifetime or within a year.
So it is not an absolutely hard limit in all cases, no.
There are probably ways that we could combine aspects of greater and lesser privatization to achieve the best of both worlds. I have some thoughts that I've been mulling around for a while:
1. Expand the government to achieve universal healthcare coverage.
-- a. ACA public option.
-- b. A conservative UBI, with the twist that uninsured individuals would be automatically enrolled in the public option and have their premiums taken out of their UBI. (Tangentially, for similar reasons, also pay out a portion of each UBI disbursement in the form of food stamps rather than cash.)
2. Shrink the government and quasi-public entities (insurance providers) to unshackle the invisible hand.
-- a. New regulation to ban copays and set a mandatory floor on deductibles (say, $10k). While major emergencies still need to be covered, and while there still needs to be an entity in between the patient and provider eating the risk of non-payment, it's also desirable from an efficiency perspective for patients to be kept aware of the costs of their care — and therefore incentivized to select more cost-efficient options. The market would then naturally find a more reasonable equilibrium without the need for price fixing, in theory.
-- b. Set up a system of tax deductions and credits for out-of-pocket medical costs. (Preferably such that the poorest would have their costs fully covered in most or all cases, depending on what's fiscally realistic.) This must strike a balance between non-disruption of market forces and ensuring that the poorest in society aren't shy about seeking the care they need. My thinking is that the annual nature of tax filings would be enough to address the former, as patients would still be be out of pocket for up to a year waiting on their refunds, representing an opportunity cost that would be difficult to ignore. To address the latter point, set up a standardized/regulated process for the insurer to send the patient something resembling a credit card bill, which they could pay either up front or up to a year later with accumulated interest.
Parts 1 and 2 are essentially unrelated, and could hypothetically be implemented independently of each other. However, #1 on its own doesn't attempt to address the efficiency issue (thus saddling the government with even greater new expenditures), and #2 on its own doesn't address what happens or who gets left holding the bag when an uninsured patient can't pay their bill (which wouldn't be an issue with truly universal coverage).
I also have a lot to say about what the state should and shouldn't be doing to maximize the general health/nutrition/fitness of the population, but we can leave that for another post :).
> New regulation to ban copays and set a mandatory floor on deductibles (say, $10k)
I like everything here except this. Won't a significant amount of healthcare (grouped by specialization, hospital, etc) still be funded by insurance and be outside the reach of market forces?
I am also curious whether there are barriers to producers of medicine, healthcare supply, etc from disrupting existing overpriced producers.
Possibly; I'm not at all an expert on the subject. My goal more directly with that was to ensure that insurance premiums would ultimately be used only to pay for emergency care rather than routine/preventive or elective care. Someone with deeper subject matter knowledge might be able to tweak or flesh it out to better achieve the intended purpose.
Re: prisons - This isn't necessarily the case. Florida's private prisons have air conditioning and the public ones don't in part because of democratic control and the private ones have fewer deaths from heat stroke as a result.
>>> Institutions like healthcare, education, public transport, prisons(!) and so on are more efficient, less corrupt and of higher quality when they are in large parts collectively and democratically organized and funded.
>> Re: prisons - This isn't necessarily the case. Florida's private prisons have air conditioning and the public ones don't in part because of democratic control and the private ones have fewer deaths from heat stroke as a result.
> Extremely suspicious comment. Please elaborate on “democratic control.”
Yeah. Also the GP weirdly collapses "more efficient, less corrupt and of higher quality" into "has air conditioning: Y/N." You have to evaluate those things holistically, and it's quite possible that he holistically-better solution is actually worse in some specific areas.
Also I don't have any specific knowledge about Florida prisons, but private prisons are a new(ish) phenomena [1], and "hav[ing] air conditioning" might simply be an unintended consequence of that, because building standards have changed.
[1] You know what I mean, don't nitpick with some ancient example.
> But I imagine the majority of externalities could be accounted for if we tried.
The irony is if you actually came close to achieving that (e.g. accounting for all externalities in the market price), you'd have something like central planning. That's why externalities are usually managed through other mechanisms.
Also, externalities are only one kind of market failure.
Employer-based healthcare was won by an alliance of corporate and healthcare industry lobbies against a state healthcare plan in the 1950s when the so-called “free market” healthcare system was failing the public. Prices were increasing and the New Deal corporate powers pacified the public with social security and employer-based healthcare.
In the US healthcare was intentionally tied to employment as a means of controlling wage inflation during the 1950s by Eisenhower. He had pushed for the "middle way" of private nonprofit health insurance that could be purchased individually or by employers. As inflation began to spike, the administration added new tax benefits to encourage employers to compete on providing benefits rather than higher base salaries.
Roosevelt also tried to institute a national scheme in the 30s but labor unions were split on notional vs. employer provided and it became a wedge issue that scuttled the plan. Truman's push for that same national health insurance plan was shot down in ~1949, partially killed by AMA lobbying.
It's not Eisenhower's administration that's to blame, it's FDR's. Employer based healthcare is a result of the stabilization act of 1942. Health benefits were offered as incentives to workers because employers could not raise wages.
> Employer based healthcare is a result of the stabilization act of 1942. Health benefits were offered as incentives to workers because employers could not raise wages.
Employers can raise wages, and have been able to for some time, so that's not why we still have it.
We still have it because of tax and other incentives, and because government keeps making policy decisions to protect, and even extend it (e.g., the ACA employer mandate), not because of the employers need to offer health benefits to compete because they can't offer more wages because of WWII-era wage controls.
Employers love employer-based healthcare because it gives them insane amounts of control over their employees’ livelihoods. And as a result, wage competition is far less influential.
The fear of losing healthcare coverage a severe fear that people in other countries don’t have to worry about.
I think a lot of employers find it to be a giant headache. It’s expensive and tricky to administer and has nothing to do with your core competency as a business.
I did not state that this is why we currently have employer based health insurance, just why it came into existence. Many consider this to be the "original sin" of US healthcare policy.
You’re right. It was earlier than I thought. I updated my comment per your reply.
Heaven forbid “wage inflation!”
Was the AFL pushing for employer-based and the CIO pushing for national? I don’t even know where to find history like this. It’s virtually impossible for an average person to learn about the history of the American labor movement.
I realized after double checking that it was actually a 1942 Roosevelt bill, and they were trying to figure out how to keep a lid on rising prices during the war. It's also not uniformly good if prices also rise quickly. Inflationary spirals are real, and very bad for regular people.
> Was the AFL pushing for employer-based and the CIO pushing for national?
I'd have to double check.
> It’s virtually impossible for an average person to learn about the history of the American labor movement.
A bunch of this stuff is available in more popular history and online now. "The Devil Is Here in These Hills" is supposed to be good, but I haven't read it.
> I suspect the argument is "Healthcare has never been allowed to be a market" Given how many legal restrictions are placed on it, I tend to agree.
Emergency services aren't a good fit for markets. For markets to work, people really need the luxury to shop around with some leisure.
Wasn't there some Roman oligarch that ran a private fire department, and basically just used it to extort property owners when they had a fire? Truly market based emergency medical care without legal restrictions would likely frequently resemble that with some frequency.
> The first ever Roman fire brigade was created by Marcus Licinius Crassus. He took advantage of the fact that Rome had no fire department, by creating his own brigade—500 men strong—which rushed to burning buildings at the first cry of alarm. Upon arriving at the scene, however, the firefighters did nothing while Crassus offered to buy the burning building from the distressed property owner, at a miserable price. If the owner agreed to sell the property, his men would put out the fire, if the owner refused, then they would simply let the structure burn to the ground.
I will also comment that when we talk about "healthcare being a market", we need to separate out providers of healthcare, with insurers of healthcare. Insurers of healthcare are much closer to a market (in that I can generally find out what the cost of the insurance is, and what it covers), but providers aren't (in that prices lists are hidden, it's not clear what is covered vs what isn't, etc). We talk about the cost of the insurance, but that's artificially high because of the practices of the providers (themselves incentivized to behave that way because of the insurers).
And that's the open market; it gets even more cloudy when we talk about employers being involved, so we have an agency problem as well.
It's a system unlike any other, and I don't think general theories really apply very well as such.
Here's a theory: Insurance companies argue and refuse to pay out to hospitals because it's an adversarial relationship.
Hospitals increase rates to cover the overhead of dealing with hostile insurance companies. Insurance companies raise rates to match increased hospital billing. Ironically both industries are incentivized to raise rates on customers while trying to gouge each other.
Institutions like healthcare, education, public transport, prisons(!) and so on are more efficient, less corrupt and of higher quality when they are in large parts collectively and democratically organized and funded. The "in large parts" is important here: A community should agree on what that means and let the market play out on the edges, or the bureaucratic costs become too heavy _and_ unfair. Decentralization is key here.