This post at RealClearPolicy on the problems inherent in a single-payer system stuck in my craw a bit. Here’s the meat of their argument:
Market prices inform producers about the value of their services, enabling them to best serve consumers. If lots of consumers want laser eye surgery, high demand will lead to higher prices, which encourages other entrepreneurs to enter the market. If consumers don’t care for colonoscopies, the lower demand drives prices down and encourages entrepreneurs to stop focusing on that service.
This feedback mechanism is absent when government sets prices. The result is misallocation and chaos, as we see in Medicare.
Medicare tries to centrally plan around 6 billion prices every year. The resulting prices are often arbitrary. Cataract removals, for example, are reimbursed at eight times the rate of a visit to a primary-care physician. This is despite the fact that cataract removal is a 50-year-old assembly-line procedure that can be done in 10-15 minutes. In contrast, primary-care physicians are required to draw on a wide range of medical experience in order to diagnose a range of problems.
This pricing structure distorts the health-care market. One result is a shortage of primary-care physicians that experts predict will only get worse.
Let’s get down to brass tacks. Imagine a system in which once a year or, maybe, once every couple of years the AMA tells the federal government’s experts the relative value of all of the procedures that docs perform. Then imagine that the experts take those values, add their own secret sauce, and decide on reimbursement rates. Finally, imagine that the system I’ve just described accounts for more than half of all healthcare spending.
Actually, you don’t need to imagine such a system. It’s a real one: it’s the Medicare system.
Armed with that information, imagine a different system that isn’t the Medicare system, in which the market decides the prices for medical services, and that provides a reasonable level of healthcare for senior citizens and other people on fixed incomes. Such a system will be purely imaginary because no such system has ever existed, at least not in the United States. We used to have a largely free market system but that didn’t provide a reasonable level of healthcare for seniors.
Under that system prices were never really determined by a free market because the supply of healthcare services was capped. Any system in which the supply is capped while the demand is allowed to rise will eventually price some people, maybe a lot of people, out of the market. That’s inherent.
But all of the foregoing also highlights why I’m more or less in despair over our healthcare system. We aren’t even speaking the same language. Anarcho-capitalists keep imagining fantasy systems while social democrats imagine perfectly functioning governments.
Instead, I think we should start with real systems: Medicare, Medicaid, the system of VA hospitals, for example. We know how they work. We know their shortcomings. We know that neither Medicare nor Medicaid has been able to control costs. Start from there.
I think in years past you’ve posted a chart on spending by age cohort and if I remember correctly the elderly consume, by far, the most health care dollars. IIRC, cost for procedures for other age groups isn’t too far removed from Europe, the difference is that we get a lot more procedures. I may be misremembering that.
Anyway, I agree with your skepticism, but one potentially workable option is a hybrid system where “catastrophic” care above some threshold is paid for by a single-payer system while everything else is paid for individually or through private insurance. The poor and elderly would still have access to medicare/medicaid to assist with non-catastrophic costs. For this to work, though, I think you’d need to get rid of fee-for-service and introduce a lot more transparency in terms of costs and prices.
Value has nothing to do with price. Water is far more valuable–indeed essential– to a person than gold, but costs a million times less. That’s why we need markets to set prices, not gummint bureaucrats.
Some points to remember. Prior to Medicare people charged usual and customary fees. They did that also for the first few years of Medicare. It was way too costly. Alway remember that for identical procedures, Medicare almost always costs less than private insurance. Medicaid costs even less. Everyone with cheaper care has more govt involvement.
Singapore tried to take the market approach. Failed miserably. Costs skyrocketed. Strangely enough, medical providers concentrated on maximizing profits. Who would have guessed?
Insurance screws up everything. Absent insurance, markets could maybe work. Absent insurance, how do people pay for care? The 22 y/o couple a year out of college have premie twins. How do they pay?
How do we provide care for those at the bottom 30%-40% in terms of income? A market approach would simply leave these people w/o most care. In any system you devise, major surgery, chemo, neonatal care, emergency care and lots of other stuff is going to be expensive. We might be able to make premie care $250,000 instead of $500,000, but we are still talking a lot of money, even with a 50% reduction. In a market approach, if you can’t pay for it you don’t get it.
Last of all, look at colonoscopies, which the author cited. It is correct that if people didn’t prefer them, costs (certainly in the short run) would probably decrease. OTOH, total medical care costs probably increase. Last I looked they were found to be cost effective. So, say someone has catastrophic insurance. They don’t want to pay for a colonoscopy since that comes out of pocket. However, when they need much more expensive surgery and chemo to treat the cancer, the insurance pays. Thus, higher total costs.
Steve
Any notion of market pricing assumes health to be a commodity like shoes or corn. But it can’t be bought or sold or traded like a commodity; everyone correctly places a premium on their health and so spends whatever they can when the need comes. Efforts to utilize market mechanisms require consumers to make choices about which chemotherapy drug to purchase or which procedures deliver statistically significant benefits over others, things that doctors must spend decades learning.
If this were possible what would be the result? Prices for more effective treatments would rise while prices for ineffective treatments would fall, signaling to consumers they should show preference for the inferior treatment. Inferior treatments mean worse outcomes and greater health issues down the line leading to an increase in health care consumption for those of lesser means.