A Market Approach to Health Care

As regular readers know, I am focused on health care reform and am frustrated by the general dysfunctionality of the American health care system. My few posts have approached the problem from the perspective of working within the system we have, in particular by pushing doctors to emphasize patient care instead of revenue generation.

However, the latest issue of The Atlantic magazine has a fascinating article that takes the entire system to task and suggests a radical new approach. The author, David Goldhill, is a businessman rather than a policy guy, but he was driven to explore the health care system after his father died from a hospital-acquired infection. (Disclosure: I know David and am friendly with him) This article has been praised from the right and the left, and even has its own Facebook page.

Goldhill starts from the specifics and moves outward. He notes the 100,000 deaths per year in the US from hospital-acquired infections, and how hard it is to convince doctors to adopt a checklist that has been proven to dramatically reduce infection. “But many physicians rejected the checklist as an unnecessary and belittling bureaucratic intrusion, and many hospital executives were reluctant to push it on them.” He wonders how a society that shuts down restaurants for a single case of food poisoning tolerates this.

As a businessperson, Goldhill assumes there must be a reason for these terrible facts. Since people respond to economic incentives, the incentives in health care must be deeply flawed for our system to work as poorly as it does. Goldhill’s diagnosis: rather than following a market system, where consumers drive providers to lower costs and improve service, our health care system is a patchwork of information-obscuring insurance and lobbying-influenced regulations. In a market system, DVD players get better and cheaper, while in the health care system, nothing ever gets cheaper.

Goldhill’s treatment plan is to make health care more like a standard consumer product. Everyone will have catastrophic insurance, but in his system, those plans will have a deductible of $50,000 rather than the usual $2,000-$4,000. The government will provide subsidies to make this insurance affordable. But for most medical expenses, consumers will pay for them out of income and savings. Where will they get the money for this? Under Goldhill’s plan, since employers will no longer need to provide insurance ($12,000 per year for the average family), workers will be paid more, and thus have money to spend on medical expenses. If consumers are paying for most things themselves, the entire system will be subject to market forces, which improve quality and decrease cost.

I’m not doing justice to Goldhill’s solution. When read in full, it makes a lot of sense. Goldhill notes at the beginning of his piece that he is a Democrat who believes that everyone should be covered, and his system would do that. Ignoring the fact that Goldhill’s system will never happen (the insurance and hospital lobbies are way too strong), I have only one general critique, which has that Goldhill has, I think, too much faith in the market, which we have seen over the past two years is not always efficient, and is sometimes capricious and cruel. It’s bad enough when the market screws up your mortgage, but if it ruins your health care….

Here are two specific examples where I think Goldhill overestimates the wisdom of the market:

  1. Goldhill says that if companies did not have to provide insurance, all the money saved would go to the workers as increased salary, so they could afford their own health care. But we all know that the majority of the savings would actually go to executives and stockholders, and workers would be left uninsured and unable to pay for visits to the doctor.
  2. I certainly agree that we want people to be better informed consumers in the health care market, but as the mortgage debacle has shown us, many people are simply incapable of making intelligent decisions in a complicated environment. If somebody is unable to figure out if they can afford an adjustable rate mortgage, can we really expect them to intelligently perform the cost-benefit analysis between possible treatment plans for their cancer?
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4 responses to “A Market Approach to Health Care

  1. I’m only a country doctor, but I hope will read my post on this subject today.

    drtombibey.wordpress.com

  2. A wise and thoughtful country doctor, based on your fine blog

  3. Some may be interested in my bipartisan approach to health care. It can be found at:

    http://www.plan.bipartisanhealthplan.com

    It has some features in common with the Wyden-Bennett bill but is more radical, involving government supplemented Health Funding Accounts and private guaranteed-renewable health policies from birth to death. These replace all other government health plans, including Medicare, Medicaid and SCHIP.

    The approach, by design, solves the inherent contradictions between pre-existing conditions, guaranteed issue, community rating, and market competition which have been on view in town hall meetings this August and which have frustrated politicians and citizens of both parties.

    It also has elements in common with David Goldhill’s article.

    Goldhill and I have in common the facts that we are not health care professionals and were brought to the field by the real-life experiences of relatives.

  4. I haven’t read Mr. Blandford’s plan closely enough to comment on it, but I have read it enough to see that it’s a serious attempt to solve some of these problems. Thanks for the comment and for the plan!

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