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The intractable health-care market

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Wednesday, Jul 29, 2009

I haven’t written much about the health-care-reform debate because it tends to make me irrationally angry. I’m about to lose my health coverage, and it gives me the general feeling that the society in which I live doesn’t really care if I die a preventable death, and that seems like a sucky society to live in. The current American system seems to enshrine the worst aspects of this country’s prevailing ideology—that we regard the idea of collective well-being as a empty notion, and that it’s okay for people to suffer as long as the “free market” says it must be so. Right now, professional standards among doctors—basically their pride in their profession—is all that stands between sick people and their remorseless exploitation, and as economist Kenneth Arrow notes in this interview at The Atlantic‘s site, they are “eroding.”


Some doctors understand that they shouldn’t abuse the system. But you still see problems in the way doctors behave towards patients. They goof off. Sometimes it’s too much work. Some things are difficult and risky to diagnose.


No system will ever remove the inevitability of human error and individual immorality, but certainly we can arrange for a system in which these undesirable behaviors aren’t encouraged. Arrow suggests that the free-floating free-market ideology churned out of the University of Chicago economics department is partly responsible for the current cultural climate, in which profit is seen as the only ethics:


I think there has been a general drift around the country towards the idea that greed is good. Look at Wall Street. All of these industries involve a professional element in which information is flowing. You’re supposed to be constrained to be honest about it. I don’t really know why. But there is now more of an emphasis on popularization, which does improve efficiency but can also lead to an erosion of professional standards. There was this idea that professional standards were a mask for monopoly power—a Chicago theory, which I believe came from George Stigler. I don’t know if they were that influential, but they seemed to be saying a lot of things that people were taking up in practice. I’m not totally sure why these professional standards changed, but it’s more than medical reasons.


Rather than having patients pay for the treatment and resolution of an illness, the American system instead nickels and dimes customers with a bewildering variety of charges for tests, consultations, transportation of samples, X-rays, test analyses, and so on. Having your blood tested for a vitamin deficiency can result in six or seven different bills from a variety of medical-service providers. Insurers are supposed to manage this process so that it doesn’t trouble or confuse the patient, who has his or her health to worry about. But instead this patchwork system has become a chaotic blizzard of invoices that incentivizes doctors to overprescribe and insurance companies to try to deny payment and care. Both are given economic reasons to keep patients ignorant, even as some like Ronald Bailey in this Reason article, argue that customers (i.e. sick people) must be forced to contain health-care costs, implying that it is their fault that spending has gotten out of hand. In the face of all the confusing billing, customers have failed to be “cost conscious” about health care. But it is impossible to know without an absurd amount of investigation and scrutiny what one is even being charged for in the health-care realm; that we would perform price comparisons and veto procedures and tests before the fact over our doctor’s suggestions is a totally unreasonable notion. The insurance market is also notorious for its confusing contracts and for its misleading paperwork, and for denying coverage customers had been led to expect. That’s known as rescission and is just about the worst thing in the medical business. Which is why it shouldn’t be a business. Arrow argues that things like nonprofit hospitals and the eschewing of medical advertising signal the medical community’s commitment to professional standards and its collective effort to correct the inherent market failures, whereas the recent “emphasis on markets and self-aggrandizement in the context of healthcare” undermines those standards and sends the opposite signals. As a result, patients like me get super-paranoid and even less rational in our medical decision-making, worsening the failures that libertarians and liberals alike complain about. Bailey thinks government intervention and regulation has helped cause this problem and only consumers can fix it by being better watchdogs over what they pay for; he alleges that “competition would provide a strong impetus for medical practitioners to provide consumers with good information about the effectiveness of various treatments and drive innovation.” Most liberal analysts believe that patients will always be at an informational disadvantage (not least because being sick renders one vulnerable and incapable of rationally sorting through billing details) and only government intervention can help fix it.


At his NYT blog, Paul Krugman summed up the essential problems facing market-driven health care (and why the American system so badly needs reforming), drawing on this classic paper (pdf) by Arrow. Krugman’s post is worth reading in its entirety, but the gist is this: For-profit insurers “try to deny as many claims as possible, and ... avoid covering people who are actually likely to need care. Both of these strategies use a lot of resources, which is why private insurance has much higher administrative costs than single-payer systems. And since there’s a widespread sense that our fellow citizens should get the care we need—not everyone agrees, but most do—this means that private insurance basically spends a lot of money on socially destructive activities.” Achieving cost-effective treatment can’t be entrusted to for-profit entities, because they will always put profit ahead of your health, defeating the ultimate purpose of medical care in a society. The state has a better chance of organizing workable health-insurance pools without concentrating energy on innovating new ways to deny care to maximize profit. 


This is the point at which conservatives complain of rationing—the government is going to decide who gets what care. This is meant to distract us from the de facto as rationing already in place through unaffordable prices. The current arrangement suggests that we as a society believe the poor should just go get sick and die. Reform efforts are aimed at present a different face of our society, one currently suppressed, in which we collectively face the mortality risk we all share, the thread that unites us all, no matter what other circumstance we may have been born into.

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