Tuesday, May 27, 2008

Health Care "Markets"

The health care system in the US is broken. Anyone who tells you otherwise is selling something. And that, I think, is part of the problem. Our health care system has been dominated by a market philosophy which simply doesn't work.

Why doesn't free-market philosophy apply to health care? Because in order for market forces to do their job, sellers have to have discretion over what they offer at what price, and buyers have to have discretion over what they buy and when. Under those circumstances, if a particular seller is charging more than the market will bear, buyers go somewhere else or hold out until the price drops. If the quality from one provider is insufficient to satisfy the demands of the buyers, they'll look for higher quality elsewhere (even for a premium price).

So, what are the factors in the health care world that break this model:

1) Limited choice of insurers: Generally, due to the employment-based foundation of the health insurance system, people have little or no choice about what insurance provider or policy to take. Pretty much, it's a take-it-or-leave-it proposition. Technically, one could waive the employer-provided insurance and buy separate insurance out of pocket, but between the tax incentives and the employer contributions, it is simply not an option for the vast majority of people. So instead you get a single choice negotiated by the employer.

2) Limited choice of medical providers: Once you get outside a major metropolitan area, the number of potential providers drops to the point where there is very little competition. In rural areas, there may only be one hospital in any sort of reasonable distance. Maybe there's only one local doctor, or a single local group practice.

3) No basis for comparison. How can you evaluate the quality of care from various providers? The information on care quality is difficult to find, especially in meaningful form. Patient confidentiality means there's no easy way to change that, too.

4) "The best for everyone." Here we get into some of the squishy cultural issues. There is a desire in our culture to provide everyone with the top-notch care available. Everyone wants the best, newest, most effective treatment option. I'm not saying they shouldn't -- I certainly would. However, often the newest, best, most effective treatment option is much more expensive than the basic version. Compare the cost of a 10-day course of penecillin or another generic antibiotic to a 10-day course of one of the newer, name brand versions. Maybe the name-brand is time-released so you only have to take it twice a day instead of four times. Or maybe you only take a 5-day course instead of 10. But for how much more cost? For me, not much, because I'm lucky enough to have a good plan that has fairly low co-pays on prescriptions. But if I was paying cash and had to choose between $200 for the high-end and $5 for 40 tabs of penicillin? I'd have to think about that. It's a tough issue. Insurance obscures the true costs so people have no incentive to make reasonable decisions. When you're sitting in the doctor's office, the focus is on the medical side, not the financial side. The doctor may or may not know offhand what the relative prices are, and a lot of people are probably not going to feel comfortable saying, "gee doc, is that expensive? Is there a cheaper option that will get the job done?"

What else is out there?