Thursday, October 11, 2012

More Reflection on Health Care and the Market

While I'm not watching the Vice Presidential Debate....

There are two things that bother me when anyone speaks optimistically about how a market approach and competition will solve problems of access to health care (whether in response to the Affordable Care Act, or as a means for changing Medicare). One is that those persons either don't know how the market for health care actually works, or they hope that we don't know.

The second is that we have seen how the market and competition will (or won't) work in providing access to health care. We have a long tradition of treating access to health care (not to say health itself) as a retail commodity. In private practice, each physician practice is a small business. It stands or falls on whether it makes enough revenue to pay the physician and all the physician's employees and all the business' expenses. That is, the physician practice needs to make a profit. 

The same is true of institutions. Oh, there are not-for-profit institutions; but they still have to keep ahead of the cost of living. Call it "margin" instead of "profit;" but the institution has to accomplish it. As the not-for-profit folks remind themselves, "no margin, no mission." For-profit institutions, like any other for-profit businesses, are accountable to their owners and investors to be profitable.

The same is true of insurance companies. Certainly, there are several important government insurance programs - Medicare, Medicaid, and TriCare - but the vast majority of insurers are for-profit corporations. The negotiations that happen, whether between individual and agent or between corporate  benefits departments and brokers, involve striking a balance between service and price. It's really not that different, really, from leasing a car.

Now, those negotiations rarely happen at "point of sale." That's because we do participate in groups to purchase access to health care. So, others do the negotiating on our behalf. So, maybe it's not retail. If not, though, it's wholesale, just as GM and Ford negotiate with their parts suppliers, and the person who purchases the car doesn't get to negotiate for one starter motor over another. Nobody questions that the wholesale process is a market process with a lot of competition involved.

Now, some might say that the government insurance programs have totally changed the market. I would suggest that they haven't for two reasons. The first is that most of us get our insurance, our access to health care, through an employer, whether our own or a family member's; and most of us don't work for government (including all the various governmental levels and bodies). The second is that the not-for-profit players haven't affected the ability of the for-profit players to make a profit. Sure, there are some insurers who don't have members because those members are covered by government; but all those government insurers are still doing business with physicians, institutions, pharmaceutical companies, etc, that are not government institutions, and most are making a reasonable and healthy profit.

There was, however, a time when we did have an entirely market orientation to health care. It lasted until the establishment of Medicare in 1967. Last weekend I spoke to nurses who graduated from nursing school well before that date. I was young then, but I still remember the public service announcements focusing on how many of our elderly were impoverished. One of the consequences of that poverty was that many couldn't afford health care. In recent years we've been concerned about seniors being faced with a choice between food and medicine. In those days it was also an issue - there just weren't as many medications available. Medicare wasn't created on a whim. It was created because this was a real problem, and people were suffering and dying for lack of care. The same is true of Medicaid. Medicare and Medicaid were developed because in a market approach to health care, competition wasn't working. If competition were going to work now, why wasn't it working then?

Now, some might ask about employer-based health care. Actually, employer-based health care was a result of competition in the market. In World War II there was a shortage of labor - more jobs than employees, what with so many in the military, and the demand so great for war materiel. However, wages were frozen, in an effort to control costs. So, employers had to find a new way to compete for employees. They started offering new benefits, including health insurance that the employer helped provide. So, employer-based health insurance did come as a result of a market.

But, that was a different market indeed. We're nowhere near the demand for labor that we knew in the War Years, or even in the Post-war Years. If health insurance grew as a benefit because there were more jobs than workers, what can we expect when there are more workers than jobs? See, that's the other problem with trusting competition to solve the issue. That works in the individual's favor when the market is up and tight, but the market isn't always up and tight. Indeed, it's not realistic to imagine that it will always be up and tight, or even much more than half the time. But, as we will remember if we remember what it was like before Medicare for seniors, or before the expansion that came with the Second World War, there were an awful lot of folks who couldn't afford health care. A market approach and competition just weren't getting the job done.

So, no, I'm not prepared to leave it to the market, or to trust competition to address the problem. It didn't it before. Indeed, it isn't doing it now, even with government programs to cover an awful lot of the most vulnerable, the least insurable. Based on history, on our national experience, I have no hope that it will work in the future.

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