{"id":1903,"date":"2007-06-27T08:24:00","date_gmt":"2007-06-27T14:24:00","guid":{"rendered":"http:\/\/www.nmpolitics.net\/index\/2007\/06\/health-insurance-market-a-private-fantasy\/"},"modified":"2009-08-22T14:10:54","modified_gmt":"2009-08-22T20:10:54","slug":"health-insurance-market-a-private-fantasy","status":"publish","type":"post","link":"https:\/\/nmpolitics.net\/index\/2007\/06\/health-insurance-market-a-private-fantasy\/","title":{"rendered":"Health insurance market: a private fantasy"},"content":{"rendered":"

\"\"<\/a>By Carter Bundy<\/span> <\/p>\n

<\/o:p><\/p>\n

You know who I love? Adam Smith<\/a>. Yup. Father of modern capitalism, or at least of laissez-faire economic theory. It\u2019s my dirty little secret, what with my being a union goon and all.<\/p>\n

<\/o:p><\/p>\n

You know why I love Smith? Because he\u2019s right. When markets flow freely, with competition\/choice, transparency, perfect information, relatively equal bargaining strength and true allocation of costs, Smith\u2019s invisible hand works quite nicely for consumers, business and even workers and society.<\/p>\n

<\/o:p><\/p>\n

Some of Smith\u2019s loudest followers have taken his work to mean that the private sector holds all of our answers, notably the late Milton Friedman<\/a>.<\/p>\n

<\/o:p><\/p>\n

So how can Friedman and someone like me who still believes that the private sector doesn\u2019t always do it best admire the same giant? Easy. Friedman applies Smith\u2019s principles to every market, regardless of conditions. Milty\u2019s blanket ideology still tricks kids from the University<\/st1:placetype> of Chicago<\/st1:placename><\/st1:place> into their own private fantasy, in which the private sector alone cures all our ills. But markets do differ, both in design and execution. Here are two.<\/p>\n

<\/o:p><\/p>\n

Adam Smith\u2019s happy market: refreshing beverages<\/span><\/p>\n

<\/o:p><\/p>\n

If your Coca-Cola tastes like it was made with special sauce from Portales or Blacksburg<\/st1:city><\/st1:place> (cow towns both), your business goes to Pepsi. Or RC. Or Shasta. Knowing that, Coca-Cola has a big incentive to deliver a great product. Coke doesn\u2019t make money off the first can; it makes it off repeat business. You\u2019ve seen the cute polar bears sliding around drinking Coke, and Mean Joe Greene likes it, so you have all the information you need. You have ready competition from which to choose, and you, the consumer, bear (most) of the costs associated with the production of the beverage.<\/p>\n

<\/o:p><\/p>\n

Here\u2019s the refreshing beverage market in another setting: When you walk into the Kwik-E-Mart, you know what you need. A squishee. Apu<\/a> is happy to provide it to you for a fee. You can usually guess your thirst level pretty well, and buy an appropriate amount of product. Even if you screw up and get too little, you can always buy more. Everybody wins. You\u2019re also in a good bargaining position with Apu, because if his squishee isn\u2019t satisfying, your next drink comes from Moe Szyslak<\/a>, and Apu\u2019s business suffers.<\/p>\n

<\/o:p><\/p>\n

Milty Friedman\u2019s fantasy market: health insurance<\/span><\/p>\n

<\/o:p><\/p>\n

Not every market, however, has those same happy ingredients of competition\/choice, transparency, information, equal bargaining strength and accurate allocation of costs. Take private health insurance. Please.<\/p>\n

<\/o:p><\/p>\n

Is there good competition and choice? Many employers only offer one insurance company, so no choice there. Other employers offer plans from two or three companies, but the family doctor is in only one of them, or there are geographical restrictions that effectively eliminate choice.<\/p>\n

<\/o:p><\/p>\n

But let\u2019s say you find an insurance company that you think offers good, comprehensive insurance. You\u2019ve purchased the product, but don\u2019t use it for a while. Finally, eventually, you need health care. Great! That\u2019s what you\u2019ve been buying for years! So is there competition at the most important point in the health insurance transaction \u2013 the point when you need care? <\/p>\n

<\/o:p><\/p>\n

No. That\u2019s when competition is at its most non-existent in health insurance. Compare the markets: If Apu doesn\u2019t fill up your squishee cup, you take your money, walk out, go to Moe\u2019s, and Apu is holding a gross, unusable cup of blue goo. If your insurance company doesn\u2019t satisfy you, where do you go? Competing insurers won\u2019t touch you with a 10-foot catheter. You\u2019ve got about as many options as the 2007 Cleveland Cavaliers.<\/p>\n

<\/o:p><\/p>\n

Oh sure, you could scrounge up a couple hundred thousand dollars for a team of lawyers to match the insurance company lawyers deposition for deposition. Even then, you\u2019d probably find out that another market flaw \u2013 lack of transparency in the initial contracting \u2013 does you in anyhow. You ever see one of those contracts they send you? Lawyers make millions trying to make them a) indecipherable and b) bulletproof. They owe it to the shareholders.<\/p>\n

<\/o:p><\/p>\n

Many individuals in the world of private health insurance are caring, dedicated professionals \u2013 I met some of them on the Health Coverage for New Mexicans Committee<\/a> \u2013 but the very nature of the health insurance market skews their companies\u2019 actions against full, transparent coverage.<\/p>\n

<\/o:p><\/p>\n

What about information? Well, in health insurance, that might be the most damning flaw of all. I\u2019m young and healthy (just play along). Probably makes perfect actuarial sense to buy a plan with no catastrophic coverage. But not one of us really knows what we\u2019ll need when it comes to health insurance. I\u2019ve lost several close friends to cancer \u2013 one at 17, one at 35. Never saw it coming. Completely imperfect information. Lack of information is a major reason why the health insurance market isn\u2019t rational even when each individual acts rationally.<\/p>\n

<\/o:p><\/p>\n

Here\u2019s the worst part: The insurance market doesn\u2019t let you buy more product when you need it most. Apu and Moe would never do that to you. Maybe you can get emergency room treatment, which shifts the costs of your treatment onto the guy who is trying to get covered in the first place. That\u2019s another major health insurance market flaw: We have uninsured and underinsured people whose costs \u2013 always higher because they only get care when they\u2019re very ill \u2013 are transferred to the rest of us.<\/p>\n

<\/o:p><\/p>\n

The health insurance market by its very nature lacks competition and choice, is rarely transparent, creates unequal bargaining power at the most crucial times, has an impossible information component, and irrationally transfers significant costs to others. Milton Friedman, as talented as he was, was wrong to assume the private sector was best for every market. Adam Smith would have called it a fantasy.<\/p>\n

<\/o:p><\/p>\n

Bundy is the political and legislative director for AFSCME<\/a> in New Mexico<\/st1:state><\/st1:place>. The opinions in his column are personal and in no way reflect any official AFSCME position. You can learn more about him by clicking here<\/a>. Contact him at carterbundy@yahoo.com<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Carter Bundy You know who I love? Adam Smith. Yup. Father of modern capitalism, or at least of laissez-faire economic theory. It\u2019s my dirty little secret, what with my being a union goon and all. You know why I love Smith? Because he\u2019s right. When markets flow freely, with competition\/choice, transparency, perfect information, relatively […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-1903","post","type-post","status-publish","format-standard","hentry","category-bundy-columns"],"_links":{"self":[{"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/posts\/1903","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/comments?post=1903"}],"version-history":[{"count":0,"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/posts\/1903\/revisions"}],"wp:attachment":[{"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/media?parent=1903"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/categories?post=1903"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/tags?post=1903"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}