Fixing Health Care With Socialism.

Somewhere in a musty box in my mom’s garage is, hopefully, a red folder with pages and pages of notes I took as an undergraduate abroad in London in a class called “Economics of the Public Sector.” (I can’t promise it’s actually there, because the decisions I make on what old papers to keep and what to throw away have a lot to do with what’s in front of me when I’m in the mood to clean and not a lot to do with considering what I might need at some point later in life.)

Either way, I wish I had it in front of me right now, because all the graphs and scribbles I took as a jaunty little Scottish man jabbered away in an entirely incomprehensible accent boil down to one idea that I’m going to have to hope you’ll trust I could convince you of if I had the graphs and scribbles to do it:  private insurance markets always break.

Why? Because there’s imperfect information. A necessary condition for the rational decision-making suppliers and demanders do to force the invisible hand to this neat little point on the graph where all needs meet is that everyone involved knows what they want, who will provide it, how much it’s worth to them, and where they can shop for it. Obviously, that’s an oversimplification. But if you think about the kind of consumption you do on a daily basis, it makes a little sense. If I go into Starbuck’s, I know that a croissant would increase the calories in my belly by about 400, that it usually costs me less than $3, and that there are other stores that also sell croissants. Now I can make a decision about how happy the croissant would make me, where to get the best deal and whether it’s worth the cost.

We know people aren’t always that rational, and that crazy things like whether my friends are eating croissants might make more of a difference, but that’s what the 101 version of economics accepts as true. And that’s the crazy thing. Even the most economic view of health insurance markets acknowledges that health insurance markets have problems because people don’t have that kind of information they need to make those kinds of choices.

I’ll leave it to the Planet Money podcasts to explain the information problems way better than I ever could, but you get the idea. The problem is, there’s no free-market solution to something that is a free-market problem. You have to sidestep capitalism, the way we do often, like with railroads and the beginning of AT&T and cable companies now (though that’s changing). The government’s going to have to step in. And you know what, the crazy people at town halls are probably right about one thing; it kind of is socialism. And any public option probably really is a Trojan horse for government-provided health insurance with an individual mandate, because that’s the only thing that’s ever going to really work.

Among the proposals out there are those that posit a health care market somewhat devoid of insurance. That is, everyone is forced to save a certain amount and then buy most of their health care on their own, and the government or private insurers would kick in for the really unforseeable events like car accidents. But there are information problems here, too. You’re never going to know as much about disease as your doctor, and there are really high educational barriers to learning about medicine. If you’re poor and the money you don’t spend on health care is given back to you at the end of the year or the end of your life, you’re less likely to see a doctor for a mole or bump that’s possibly nothing but could be a big expensive something if you didn’t see your doctor. And if you know about a test that only saves 1 in 100,000 lives, you might overvalue that test if you think it could be your life.*

It also leaves out a really important information problem. You don’t know what’s going to happen to you in your life. If you knew, you could properly save the amount of money you’ll need for your health care costs. But neither you nor anyone else knows. That’s why we have insurance in the first place. While we don’t know what’s going to happen to us, we have a pretty good idea of what’s going to happen to the entire country’s population, i.e., that a certain percentage will have heart attacks, over time, and have a pretty good idea about how much that would cost. So, if everyone’s in the pool, we can predict costs more accurately and save the right amount of money, together.

Also, those health care market solutions are probably way too expensive. We want to have enough money to spend in other markets, and we’d all save a lot more money on health care if we were in it together, and had a government willing to bargain down the price from pharmaceutical companies that are now incentivized to invent diseases so that we will buy the medicine for the condition that nearly everyone probably thinks they have because the description of it is so broad. Remember those commercials for Zoloft? I mean, everyone feels down sometimes. Of course, you maybe believe that technological innovation in the drug industry is an unalloyed good that will be stifled without the kinds of high prices we’re seeing now. That’s one free-market argument that’s been out there for awhile: American innovation has been feeding countries with national health care systems better tools for a long time. That’s not something I entirely know how to argue against, because it may be somewhat true. I’m inclined to think that there are other motivations for scientists, like the integrity of the scientific process and the thrill of discovery. But, especially with drugs, we’d probably all be better off if we made the kinds of lifestyle choices that prevented us from having to ever take them in the first place.

And why isn’t this paternalistic as well? Forcing everyone to save a certain amount of their income for health care? It sounds even more controlling than requiring everyone get the kind of insurance plan they want or pay a fine.

I suspect no one talks about the economic problems because it’s a really boring topic. Death  panels are, frankly, more exciting to make fun of or believe, depending on your point of view. It took a few semesters of more basic classes to get to this class, and even my professor’s cool accent didn’t get me to become an econ major.

Maybe that’s why the Obama folks didn’t have a good response ready. There’s nothing really they can say. I’m inclined to think Obama’s treating the health care problems that have developed over the August recess the same ways he treated campaign problems that got the chatto-sphere all atwitter before the election: Cool as a cucumber, and then wait ’til it dies down and real work can be done. Maybe he’ll even start over.

*I’m a perfect example of this. Just about every year I imagine I have a new kind of cancer despite all odds against it. This year? Cancer of the hair. Honestly. I shed hair like a puppy in summer. Why is it coming out???

6 thoughts on “Fixing Health Care With Socialism.

  1. G.D. September 2, 2009 at 2:02 pm Reply

    blackink and i were just talking about this yesterday. One of the reasons free-market arguments against health care reform are always so underwhelming is that health insurance doesn’t bear much resemblance to any other market. It’s not like when your phone company does something janky and you threaten to switch providers and suddenly your cellphone carrier is kissing your ass and trying placate you. With health insurance, the threat of changing carriers would be so cumbersome for the customer that your insurer wouldn’t have to do a better job. What if you like your doctor and she doesn’t take your new insurance? What if your kids really like their pediatrician? What if your wife is currently pregnant and you can’t risk discontinuing your service for even a second? What if your job only has open enrollment periods for different carriers five months from now? All that shit would take a lot of time, and you’d have to be especially motivated to take your dollars elsewhere.

    There’s also no good way to compare one insurance provider with the others, and your options are not limited to what’s out there but by who can feasibly insure you.

    There just isn’t much choice involved in health insurance decisions, as the system currently works. I’ve not heard one way to address this from free marketers.

  2. Wellescent Health Blog September 2, 2009 at 4:28 pm Reply

    An interesting discussion on the economics of health insurance that G.D. alludes to points out how much the health insurance industry is not operating in a purely economic manner. The barriers that exist to finding better insurers and better rates are not economic in nature. They tie into affiliations and differences at many different levels that ultimately reduce the possibilities for those seeking the best insurance for themselves. As mentioned, the complexity in comparing plans is also quite high and beyond many people so there is an education and knowledge barrier to switching plans. If your employer has a plan that you like and you are let go, you may not even have the option to retain the plan. Add to that that having a preexisting condition means that many insurers can avoid touching you and it is clear that choice that we value in the economic system goes out the window as far as many aspects of current health insurance are concerned.

  3. Jeremy September 3, 2009 at 8:08 pm Reply

    quad, you had me at “imperfect information.” I’m a little late on this, but *yes.*

  4. G.D. September 4, 2009 at 12:04 am Reply

    I was wondering what you thought of the argument that David Goldhill made on Planet Money (http://www.npr.org/blogs/money/2009/08/) about the idea that if we had to use HSAs, the market would reward health care providers who did the best job with information transparency.

    • quadmoniker September 4, 2009 at 6:57 am Reply

      I still think it’s too much money. He’s taking the figures we all spend over our lifetimes now. He doesn’t say how it will be provides.

      Plus, the mortgage market is private, and it didn’t reward people who had the best information transparency . . . you know? It would just be easier and cheaper to provide insurance. I think. I don’t know why all these elaborate ideas try to get around it. Also, I don’t necessarily buy that people would always be motivated not to spend if they thought their lives were in danger.

  5. PostBourgie November 2, 2009 at 3:04 pm Reply

    […] I predicted this story a few months ago; a grudging acknowledgment that President Barack Obama’s hands-off approach on health care might have been the right one after all. It’s not that I necessarily think it’s better that Obama let Congress hash out the health care plan and then let the town hall hysteria boil and dissipate on national television. It’s just that a kind of coolness and steadiness has always been his strategy, and so far it has worked. […]

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