By Carter Bundy
Many Americans, including myself, generally believe that strong, competitive, private free markets are effective creators of wealth. In our national health debate, a central question is whether such markets can also solve our access, cost and (to a lesser degree) quality problems.
A key to analyzing whether markets can solve our health issues is to look at whether health systems inherently follow the assumptions necessary for markets to be efficient.
Last column I noted that a major assumption about efficient, effective markets is that consumers have perfect information about themselves and their needs. But no matter how much genealogical research you do, you never really know what kind of health care coverage you and your family will need.
Assumption No. 2: Product information
It’s not just the unpredictability and lack of information about consumers themselves that warps health markets. A second Smithian economics assumption that doesn’t apply to health is the notion that consumers will know what they’re purchasing.
Is there a single reader out there who can tell me which of the four major insurers in New Mexico has the highest cancer remission success rates? Or lowest birth defect rates? Or what the conditions of the patients who make up those statistics were before going in? Do you even know where to find such data? Of course not.
Worse, even if you did know every statistic about treatment, would you have a clue about denial rates, difficulty of getting covered, paperwork and other obstacles to actually getting treatment?
In health care, even if you had a choice of insurer (see below), the lack of transparency and information about performance and coverage renders this critical assumption about the success of markets inapplicable.
Assumption No. 3: Consumers have a choice
There’s a third assumption that underlies market power: competition. Unfortunately, in American private insurance health coverage, this simply doesn’t — and in many ways can’t — exist.
Again, health care is unlike most any other industry. Most folks couldn’t change even if they wanted to, because their employer offers only one, or effectively one, option. Or even if the employer offers more than one choice, geographic and population density realities result in only one realistic choice.
Not only do consumers rarely have a realistic choice at their initial point of purchase — changing private insurance products when you need to most is virtually impossible.
If I’m dissatisfied with Coca-Cola, I choose Pepsi. Or RC. Or the store brand. But if I’m dissatisfied with a big private health insurer, by the time I figure that out I’m locked in.
Let’s say you get some large freckles checked out and it turns out to be skin cancer. Then you find out that your insurer is going to drag its feet on getting you coverage for both the diagnosis and treatment. Does anyone with even remote familiarity with American health care think you can switch insurers at that point? Absolutely not.
A secondary negative aspect of our current system is that once you do the responsible thing and get checked up and find something wrong, then you’re not only locked into your existing insurance for life, you’re probably locked into the same job.
Anyone familiar with the economics of labor markets will tell you that mobility is critical to matching employee skill sets with employer needs. Because of our antiquated, punitive private health insurance system, America also has arguably the least efficient labor markets in the developed world. And we’re supposed to compete in a global economy how?
In short, our current private health insurance system offers very little competition at the point of purchase. It offers zero competition once you start to use a product and become dissatisfied with it.
If there’s a central principle underlying the general truth that markets are efficient, it’s that competition breeds better service and price. But if the practical reality is that there is no choice, then there is no competition and no improvements in service and price. Classic market failure.
Assumption No. 4: Companies are incented to provide good service
Because America’s current private insurance system of health care is a pre-paid insurance service, there is no real incentive, other than fines from government regulators or brutally difficult, expensive and time-consuming lawsuits, for insurance companies to provide the coverage they’ve promised.
In fact, private insurers owe it to their shareholders and owners to maximize profits by cutting service and denying claims as much as possible.
Due to the utter market failures surrounding lack of real competition or ability to change insurers, private insurance companies are able to rake in premiums at virtually any price with little to no accountability, again except by government regulators (who are stretched far too thinly to have any major impact) or difficult-to-pursue legal actions.
If the market doesn’t create incentives for good delivery of promised services by the private insurers, that means yet another central assumption of how markets solve problems is eviscerated when applied to private health insurance.
Ideologues have a solution
Next column I’ll try to address even more market failures that are inherent to a private-only health insurance structure. In the meantime, I have to let as many people as possible hear about this gem from a right-wing business spokesperson defending the current system.
At last week’s annual National Conference of State Legislatures, a representative from the National Federation of Independent Businesses was speaking about current health care reform efforts.
Gamely, realizing that even conservatives and business know how broken our current system is, he offered a few solutions. Sure, he threw out the low-hanging fruit of better information technologies. Great, we found some common ground!
Then in a bizarre tacit admission that our private insurance system has made us a third-world country when it comes to health coverage, he advocated using more medical tourism as a means of alleviating our health crises.
Somehow I think the business members of NFIB would be ashamed both as entrepreneurs and Americans to know that their umbrella organization thinks Mexico offers better health care than our private insurance system. Sadly, though, the spokesperson probably has a decent point. Sporting, if not strange, of him to admit it.
Bundy is the political and legislative director for AFSCME in New Mexico. The opinions in his column are personal and do not necessarily reflect any official AFSCME position. You can learn more about him by clicking here. Contact him at carterbundy@yahoo.com.