Tuesday, May 2, 2017

The Philosophical Premise of Market-Oriented Healthcare Reform


What is the goal of market-based healthcare reform?



Any honest reform proposal should specify its objective in terms specific enough that its success can be empirically evaluated moving forward.  This, in turn, requires an operating theory of what the problem is, what’s causing it, what the solution is, and the intended results of this solution.


For example, the operating theory of those advocating single-payer goes something like this:



·       The problem with the US healthcare system is that it treats healthcare like a product or service, instead of as a universal human right.

·       The cause of the problem is that powerful, connected people in the private sector are getting rich by putting “profits before people,” – which is to say, exploiting sick or injured Americans’ inability to meaningfully choose to go without healthcare – through exorbitant price markups which are completely severed from the cost of provision.

·       The result of this problem is that millions of people are being deprived of their “right” to as much healthcare as they need, resulting in both lower public health and ultimately higher healthcare costs for our country in the aggregate.

·       The solution to the problem is to provide universal health insurance coverage at taxpayer expense so that nobody is denied healthcare access due to inability to pay, and then allow government to negotiate with healthcare providers directly to reign-in costs.

·       The intended outcome of this solution is that all Americans will have access to as much healthcare as they need, resulting in longer life expectancy, happier citizens, and ultimately lower healthcare costs.



Although I disagree with much of this theory, I do appreciate its specificity.  Neither of our two most recent legislative proposals had such a specific theory.  Trump’s American Health Care Act was nothing more than a series of miscellaneous tweaks, which were not organized around a central premise and which nobody pretended were a comprehensive solution.  It’s only real goal was to repeal and replace Obamacare, for the sake of having repealed and replaced Obamacare. Americans saw through that.  Inversely, Obamacare itself may have had too many goals, paradoxically trying to both mandate increased access to care while also decreasing its price.  As the system is currently organized, those things can’t both happen at the same time.  Predictably, the results have been mixed, and since the law provided no benchmark for what success looked like it’s passage has merely prolonged the squabble over whether it was good or bad.



The operating theory for market oriented healthcare reform is as follows:



·       The problem with the US healthcare system is simply that healthcare is too expensive.



·       The cause of this problem is that nearly a century of government intervention has completely severed healthcare prices from the market forces which ordinarily keep prices in check, both restricting supply and inflating demand to result in artificially high prices.



·       The result of this problem is that millions of Americans are unable to afford the healthcare or health insurance they need, while millions more are forced to make sobering tradeoffs in other areas of life to pay off these inflated healthcare costs.



·       The solution to this problem is to remove the impediments to healthy market pricing which currently inflate the price of healthcare so far beyond the reach of ordinary Americans.



·       The intended outcome of this solution is that the price of both healthcare and health insurance will sharply decrease, such that many more Americans will be able to purchase healthcare and health insurance if they choose to.*



In short, the goal is to reduce the cost of healthcare.  It is a very simple and very important goal, with the benefit of being plainly quantifiable.



The goal is NOT, by contrast, any of the following:

·       Ensure universal access to certain healthcare products or services

·       Increase the life expectancy of American citizens

·       Increase public health generally

·       Ensure minimum health insurance coverage standards

·       Ensure nobody is denied health insurance coverage due to preexisting medical conditions

·       Ensure nobody ever dies due to inability to afford a healthcare product or service that might have saved them.



Not all of the goals listed above are even possible.  Certainly, not all of them are possible at the same time. And most importantly, none of them fall within the proper role of coercive government.  Some of them may be worth pursuing outside of government, perhaps through voluntary charities or NGOs.  And, to be clear, I think it likely that market-oriented healthcare reform will incidentally accomplish several of these competing goals as well.  But if so, that will be a happy coincidence.  The only thing government is obligated and justified to do is to stop driving up the price of an important set of products and services through violent intervention in the market.





Why should we prioritize decreasing cost over guaranteeing universal access?



Before I continue, I want to reiterate that I do not believe these two goals are necessarily contradictory.  The reason not everyone has access to healthcare is that it’s too expensive, and the best way to increase the number who have access is make it less expensive.  Many libertarians believe we can make it so much less expensive that, in conjunction with private charity efforts, essentially nobody would be denied any vital healthcare treatment.  Nationally syndicated libertarian Sheldon Richman argues, “universal and affordable health care is both a noble objective and a practical goal. All we need do to achieve it is sweep away the political privileges and free people from the impositions of politicians, bureaucrats, and their “private sector” patrons.”



But even supposing that Richman is wrong and decreasing the cost through deregulation is not "all we need" for universal access, none of this makes universal access any more sensible a starting point than it is for other things the UN recognizes as human rights.


When it comes to sustenance, we recognize that the supply of food is scarce but elastic.  We have discovered that stretching that supply as far as we can to feed many people as possible on Earth requires globalized economies of scale operating within a competitive capitalist marketplace.  We resign ourselves to the reality that some people will starve to death each year, in order to maximize the number of people who DON’T starve to death.



When it comes to housing, we recognize that the supply of land and materials are scarce but elastic.  We have discovered that stretching that supply as far as we can to house as many people as possible on Earth requires globalized economies of scale operating within a competitive capitalist marketplace.  We resign ourselves to the reality that some people will go homeless each year, in order to maximize the number of homes we provide.



So must it be with healthcare.  You can imagine it’s a “right” all you like, just as the UN now calls food and housing “human rights.”  But no terminology can change the underlying math problem of how to provide as much of it as possible – of how to stretch scarce resources as far as they can possibly go.  The simplest answer to that math problem is “efficiency,” and our healthcare system is in dire need of some.



Healthcare reform should prioritize efficiency over universal provision for the same reason we should prioritize efficiency over universal provision in all other industries: it maximizes the number of people who get that thing.  It is better to have a world with seven billion people – even if only five billion of them can be provided with plentiful food, water, housing and healthcare – than a world which fully provides for each of just four billion people.  If you disagree, you’re entitled to your opinion – but not entitled to impose it on the rest of the world with the force of the state.  And if you agree, the question before us should not be “how do we ensure universal provision of X?” but rather “how do we provide as much X to as many people as possible?”  There are lots of potential answers to the first question, but the second has one answer for all values of X: global economies of scale operating on a free and competitive marketplace.

It’s time for healthcare humanitarians to get serious about building and restoring that market.  My next post will give ten ways to get started.

TL;DR – the way to fix healthcare is simply to make it much cheaper.  Here’s how to make it cheaper.

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