As an observer of politics who has a general disposition to be more agreeable to economic positions slightly right of center, I am fascinated with the ongoing debate on healthcare. Leaving aside the right or privilege issue, I just think that trying to use markets as the mechanism to manage healthcare services is like trying to fit a square peg in a round hole. Healthcare services are just not amenable to markets. For market forces to be at play to drive down prices and improve innovation and quality, certain conditions need to be in place. First, consumers need to be able to discern alternative service providers. Second, they need to be able to have a common currency to compare these providers. And thirdly, they should have the freedom to make a choice. Under these conditions, providers compete for the consumer dollar and work to improve their price-quality-innovation ratios in order to woo the consumer or lose the sale to a competitor. In the case of healthcare services, these conditions rarely hold. The human body is a complex machine and medical services are often idiosyncratic to the individual and their context — which undermines the efficiency of markets.
Take the case of primary care. Individuals have a trust level in their doctor. This predisposes them to lock into the person they trust – preventing market forces to work. The lock-in relationship then extends to the network of providers (specialists, hospitals) that are recommended by the focal doctor, further undermining all the conditions necessary for markets to work. In the case of a medical exigency like a car accident – as the consumer is lying on the ground vacillating between life and death, it is very difficult for them to shop around for the best provider. Market forces just cannot work here. Even in the case of surgery, it is possible for consumers to have some leeway in making choices, but they have to fight the lock-in relationship in place and then identify the common currency through which they can compare surgeons, and then have the discretion to make the choice, amid constraints of networks and geography. Indeed, a tough job.
The problem is not so dire when it comes to use of diagnostic services. Getting an MRI and having it read, is largely a commodity service that can be shopped around for. However, these are only a part of the medical services ecosystem. The problems of markets are compounded when the insurance company layer is added. As a profit taking entity, this layer with its own provider networks and service (payment) caps adds to the complexity of medical service markets as they further constrain consumer choices. Further, left to their own devices, insurance, by definition, is always going to be higher for high risk consumers, those that are older and sicker (with preexisting conditions) – raising affordability issues and necessitating government investments or (just) letting people suffer and die.
So, as a society do we want to force this square peg into a round hole? Even if we hammer it in, it will be an arduous process. The alternative of having government run healthcare is an anathema to the right and can be demonized a socialized medicine……but is it a round peg that fits a little better?
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