Note to my faithful reader(s): I wrote part 1 of this 2-part series as a response to a debate prompt on helium.com, an online writers' community. Imagine my shock when, the very next morning, I saw a new prompt on that same site asking whether further privatization and deregulation of the healthcare system would solve the problem. I was forced to chime in on this, and the following was the result:
Many Americans believe that the solution to our healthcare dilemma is to further privatize and deregulate the system. If we free up the healthcare market, there is some reason to believe that it will behave like other free markets - costs will go down, allowing more people to get insurance, and quality will go up. This is the basis behind most Democrats' plans for what they call universal healthcare. However, this notion fails to take into consideration a few basic aspects of the healthcare system that make further privatization and deregulation a bad idea.
Firstly, the limited market. Let's say you're in the business of selling cars. It can reasonably be assumed that cars will never go out of style, and that, as more and more people around the world reap the benefits of industrialization, one of the things they will buy with their newfound money will be cars. Therefore, in this day and age, the automotive industry has a virtually unlimited market. This causes car companies to compete with each other for the constant stream of new customers. This is one of the prerequisites to a truly successful and beneficial free market: If there is not a growing market, a good deal of the helpful competition simply does not happen. If you've been buying Ford cars your whole life, you're less likely to go out and buy a Chevy, almost entirely regardless of the corporate competition going on. On the other hand, someone who is a first time car buyer reaps the full benefits of capitalism - Ford and Chevy both want them, so they'll both lower their prices and increase the quality of their products to win them over.
Healthcare doesn't work this way. There are a limited number of people in the United States (with a yearly population growth of less than .9%), and an even smaller number of people who are not already insured. Once all of those 40 million or so people got coverage, the burst of corporate competition that brought that about would immediately come to a halt. And after that point, there would be virtually NO market growth, and very limited competition, and corporations would be free to hike up their prices as much as they see fit. If the only two car companies in America were Ford and Chevy, and neither company had any new customers to entice, what's to stop them from both, little by little, increasing their prices?
This leads me nicely toward the second reason further deregulation of healthcare is unfeasible: the obvious greed of the conglomerates which currently have control over the system. If, as in the aforementioned scenario, they became able to raise their prices, they absolutely would. These corporations clearly do not hold themselves to very high moral standards - just watch "Sicko", or ask any of the millions of people who have struggled with their health insurance providers. Corporations that make money based on not giving people healthcare would have no qualms about raising prices, if it was a feasible business practice, which it is now and still would be under a further deregulated system. Even though the initial burst in competition would probably allow many of the currently uninsured people to become insured, eventually corporations would raise their prices again, once again excluding more and more people from the system while keeping corporate profits intact, and even growing.
Even if further deregulation and privatization of healthcare worked, and managed to permanently extend insurance coverage to all Americans, there still exist fundamental flaws in ANY privatized healthcare system. HMOs profit, and the system survives, based on how much healthcare they can deny their customers. This proposed plan would only give that same crappy coverage to everyone. That's like having an automotive industry in which Ford increases its sales and profits by building cars that break down beyond repair at 5,000 miles. And it's even worse, because we're not talking about a luxury, but a basic human right.
Clearly, this proposal is not the right way to handle the healthcare crisis. The best answer to our healthcare woes is not further "freeing up the market", but changing the entire system to a universal, single-payer, and yes, socialized plan.
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7 comments:
I'm impressed. You have the economics vocabulary of a college student. And you definitely know more about the current debate on the topic than I do. I haven't heard the calls for privatization and deregulation, and I'm not sure exactly what is to be deregulated.
Just a few comments and dissents on a few of the details -- as opposed to the overall thrust -- of your discussion. First, factually, I'm not sure that many Ford owners stick with Ford when they buy a new car, just because it's Ford. And if they do, I'm not sure insurance purchasers would do the same. An "efficient market" of course does require that purchasers have all the info needed and that they then make rational choices based on that information.
Second, and related to the above, I don't think that auto sellers compete only for new arrivals in the market, and the same would go for insurance buyers.
Third, if we do have an efficient market for insurance, competition will keep prices as low as possible, permitting only a reasonable return on the company's investment.
Fourth, as someone who works with the insurance industry, I'll just make the point that insurers are willing to extend insurance benefits as broadly as the consumer wishes. But the insurer needs to know the risk beforehand, so it can charge the appropriate premium. Insurance policies that have a large number of exclusions and deductibles are written that way to keep the premiums as low as possible. From the consumer's point of view, he needs to have understandable information so he can compare companies based on price for the same coverage. If all he has is policies written in legalese, with no translation into English, he can't tell whether he is comparing apples with oranges when he buys what he thinks is the least expensive product.
The private insurance industry is able to serve the needs of the public for reasonably priced auto insurance, because the policies are relatively simple, and the consumer knows what he's buying. I suspect that private industry can do the same for health insurance if government requires standardized policies so you know what you're buying. Then it's up to you to decide if you want to pay a higher policy with no pre-existing condition exclusion, for example, or a lower price and live with the exclusion.
Fifth (or wherever we are), and related to that last sentence, an efficient market does not solve one major problem. It permits insurers to divide the market up into categories of healthy, less healthy, unhealthy, etc. consumers. As a matter of policy, we may wish the industry to require healthy consumers to subsidize unhealthy consumers by charging them all the same premium. We can do this by regulation, but it's a question of imposing public policy over the normal practice of a free market. This isn't bad, just so we realize what we're doing.
Anyway, these are all details that occurred to me. I could comment more intelligently on your basic ideas if I'd been keeping up on the current debate, which I realize I haven't been. :P
Anyway, thanks for a thought provoking post. I'll have to check out helium.com some time and see what it's all about.
--A Faithful Reader
I would say I have the economics vocabulary of a college student...but one who is majoring in liberal arts. :P I don't really know as much about it as I pretend to, and a lot of what I say just comes from my common sense.
The plans for further privatizing healthcare that I have heard of call for Medicare and such to be privatized, and also for additional subsidies for health insurance companies. I guess the basic premise is: Give what's left of the government's share of the system over to the free market, and make it easier for insurance companies to insure more people.
Now onto your points:
1) If no one ever stuck with Ford because they trusted the name, despite better options being available, Ford wouldn't sell many cars. :P
2 (and a more serious reaction to 1)) I didn't say they only compete for new customers. I said that a large portion of the competition is for new customers. If there are no new customers to woo, the only competition is based on enticing other companies' customer bases. It can reasonably be assumed that those other companies are not going to just give up, so that competition would just go back and forth, ad nauseum, with very little benefit for either side. No reasonable company wants to lower its prices if it doesn't benefit them. So I think when a company competes for customers, the majority of their focus is toward new customers.
2 1/2 - 3) The point of this article is that the healthcare industry doesn't really behave like other markets. The car company examples were a bad idea, but then, I wrote this in about 30 minutes at around 6 AM and didn't give it much more than a quick once-over edit. Yes, in a normal free market system, competition tends to keep prices down. But we've seen, from 30-odd years of experience with HMOs, that something rather ironic happens with free markets in healthcare: Prices go up over time. Privatizing what's left of the more sane portion of the system would only compound this odd occurence, and subsidies have been proven by economic minds far more powerful than my own to simply not help.
4) This just highlights the basic flaw with privatized medicine in general: All the bargaining focuses on the patient's ability to pay, rather than how much they need the care. And forcing health insurance companies to conform to policy standards and the like is certainly not further privatizing and deregulating the system. :P
5) You've described perfectly a) the problem we're trying to fix, and b) a mild version of a socialist system.
Looking back on what I wrote, it's painfully obvious to me that I didn't put nearly enough thought into it. Usually when I'm writing about something, and I don't know exactly how I feel about it without thinking, I let it sit in my head for a few days before I write something fully out like this. It was a bad call. :P
Don't be so hard on yourself! Even half-baked ideas are worth tossing out and letting people consider them and argue with them. This isn't a scholarly journal and none of your reader(s) is an expert on anything you're writing about.
Perfectionists sometimes get paralyzed for fear of making a mistake.
I enjoyed both your healthcare posts and had fun replying. I'm still mulling over your latest remarks.
Just looking at my point #5, and your response -- why not just have the government prohibit policies that contain pre-existing condition or other exclusions that segment the market by health?
Insurance is a heavily regulated business in just about every state. At least in Washington, both the language in the insurance contract and the rates charged have to be approved by the Insurance Commissioner, an elected official. It would be easy to refuse to approve use of policy language that denies coverage to unhealthy customers, or charges them more than healthy ones. It wouldn't be politically popular, because healthy people would have to subsidize unhealthy ones, but there are lots of governmental subsidies that do similar things in other areas.
Companies would still compete to get business based on the quality of the service they provide and the amount of premiums they charge.
This brings me back to the introduction to my previous post, promoting single-payer care (there, I didn't say socialist). Why should we fuss over all the details that would have to fall perfectly into place for a free-market healthcare system to work, when there's already a pre-packaged solution to all of it? All we have to do is copy one of the more successful single-payer systems, with a few necessary modifications to make it work for us. That, I think, would be a lot easier than making a bunch of economic conjectures and hoping it all works out.
I can't really disagree with you. I'm just trying to think of ways of accomplishing the same objectives with less trauma -- not wiping out the existing health insurance companies. (Which have employees, shareholders, etc. etc.)
Hey, stranger ... I like your new MySpace background. Looks very sharp, and makes your text a lot easier to read. Anyway, I'm a sucker for big, full moons.
Hope all's going well. How are your college plans shaking out?
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