Local view: The imaginary health-care market
By: David Gore and Rebecca de Souza, For the News Tribune
One of the most frustrating elements of the ongoing health-care debate is the discussion about the role of markets. This includes fear of, depending on which side you fall, capitalist or socialist solutions (or market-vs.-state solutions). This false dichotomy, probably the result of a Cold War residue regarding the evils of public organization, interferes with our understanding of incentives in our health-care system, including how recent legislation attempts to address the problem of misplaced incentives.
What has been grossly overrepresented in the health-care debate is the notion we operate under a market system. What we have in fact is a hybrid solution, financed both through the “market” and the state. It is based on an assumption that there is a group of people for whom markets work well and a group of people for whom markets will never work (e.g., the unemployed, poor, elderly, and/or disabled).
Approximately 40 percent of the American population is insured through private insurance (traditional insurance companies and/or managed care organizations) and 40 percent through public/ government mechanisms (such as Medicare, Medicaid, and VA). The remaining 20 percent — about 45 million to 50 million people — remain uninsured for a plethora of reasons, affordability being the key reason.
In one way or another, the remaining 20 percent are now to be moved over the next four years into one of the other categories.
Still, even though we may imagine our health system as a capitalist system responding directly to market forces, what we have had for a long time is a hybrid system, funded in part through the private sector and in part through public funds; in some estimates, more than 60 percent of health spending in the U.S. is funded by the government.
We argue that the practices of our current system suggest that market forces may not be operative at all — even in that sphere which we traditionally think of as the “market”: the private-insurance sector. In other words, even the 40 percent of the population that “pays” privately for its health insurance does so under mostly non-market conditions.
In its purest form, a market is essentially a system where consumers are left free to make their own decisions about what to make and what to buy instead of having someone else make those decisions for them. There are many things that markets do well, but there are many ways in which markets fail. Markets serve us well by giving us access to the necessities of life, including food, clothes, and furniture, through the division of labor and the money supply, but in other realms, like education and health care, the matter is considerably more complicated.
John Stuart Mill pointed out 141 years ago markets only work well when three conditions are met: 1. The consumer must have the means of paying. 2. The consumer must be a sufficient judge of what is purchased. 3. The consumer must care sufficiently for what is purchased. It is not difficult to imagine that many problems with funding health care in the United States occur because of a failure in one way or another to meet Mill’s three conditions, and the recent legislation passed does little to address these problems. By Mill’s criteria the health-care system in the United States is not by any means a genuine market in which consumers are empowered to make their own decisions. Rather, what we have is a distorted market that fails to meet the most basic conditions for a true market.
A market can only truly work when the consumer has the means to pay for the product.
In today’s health-care system, there are few consumers who can actually afford to pay for health care “out of pocket.” For example, the cost of removing a simple precancerous skin lesion can run anywhere from $1,000 to $10,000 or more. The exorbitant price of procedures, treatment, and care is far more than the salaried worker can pay. This reality has long been recognized and has shaped the structure of the current health-care system.
In order to correct for the inability of consumers to pay for their own health care, the consumer was redefined. The consumer was no longer the individual in need of health care, but rather the consumer became the employer of that individual. Patients, while consumers of health care, are no longer immediate customers of health-care providers. This move distorts a genuine marketplace by restricting decision-making power on the part of the consumer. Employers and managed-care organizations now serve as the middle men between the patient and provider.
Note: there is not just one middle man, but two organizations that come between the patient and the physician, not counting the hospital to which the physician belongs. These middle agents serve to disempower patients in several ways.
For instance, employers use “benefits” to negotiate jobs and salaries with employees, thus employees no longer get paid in dollars but rather in health care benefits; the employee sells his/her labor for access to health care (since he/she cannot pay for health care himself/herself). Managed-care organizations also negotiate between employers and health-care providers, thus employees have little choice in picking their own health-care plans and become passive recipients of the services purchased. The lack of a direct producer-consumer relationship means that managed-care organizations are not directly accountable to patients, making it easier to deny coverage, create painful and circuitous bureaucratic procedures or place otherwise unreasonable expectations on customers like waiting hours to see a doctor.
Also, when one gets sick enough, one usually loses his or her job, which is both a loss of income and health care. A double penalty! What none of us should want is a system in which people go bankrupt when they get sick, as is increasingly happening. To make matters worse, there is data to suggest that more than half of the uninsured hold full-time jobs, meaning that even the employed are sometimes unable to afford health-insurance plans provided by employers. When there is no mechanism even for the fully employed to afford necessary products, we can be certain that the market has failed, and recent legislation does not completely close these gaps.
The consumer must be a sufficient judge of what is purchased.
This second criterion provides strong evidence that health care does not and cannot be addressed with market solutions. We are almost always insufficient judges of health care, and even before that, we are insufficient judges of our own health — at least in biomedical terms.
The continuum between sickness and health is riddled with uncertainties, from the moment we start to experience symptoms of any kind to the time we are laid up on an operating table to the time after the procedure when we wait for results to the time 20 years later when we experience a symptom again and are struck with panic. There is a large body of research in the field of health communication that examines the torturous uncertainties of illness experiences. So this raises the question: If we do not know exactly what is wrong with us, how can we be sufficient judges about how to fix what is wrong with us?
Thus, we seek out the help of experts; but even here there is uncertainty. Today, as the practice of medicine becomes more technical, ordinary people understand less and less about what they’re buying. We walk a thorny line, not knowing when to use our own judgment and when to trust the expert. On the one hand, we trust the trained physician to diagnosis us correctly, to order the required tests, and to prescribe the appropriate treatment. We expect health-care professionals to know more about the practice of medicine than us, so we sign over blank checks to them. But, that said, we may also have nagging doubts that the expert is always right. We’ve heard horror stories about preventable medical errors and misdiagnosis. So we may lobby for procedures and expensive scans even if there is little chance that they will alter larger outcomes. We may negotiate for “quick fixes” such as antibiotics from doctors. We may refuse to comply with physicians’ directions. We may seek out a second and third opinion. All of these are indicators that even with our best efforts we remain insufficient judges of what is purchased.
Indeed, an efficient system would work to combat lack of understanding on the part of patients about health, illness, and treatment options. However, we seem to get more information about our health-care benefits from employers than we do from the health-care professionals about how to stay healthy. It is health, not health care, that should really be promoted, and this is precisely where our current system is failing. Efficient markets depend on access to good information, but great piles of money can be made by creating uncertainties, by spreading misinformation and misleading consumers. For this reason, without a mechanism for giving consumers as patients an understanding of what they are buying, the market fails.
The consumer must care sufficiently for what is purchased.
This last condition for a genuine market is a function of the previous two. If one does not have the means to buy a product and one does not have accurate information about the product, then one is far less likely to care about the product.
What is interesting is the paradox of caring and not caring that characterizes health consumers today. People care desperately about their health or, more accurately, about getting better when they are sick. In fact, people care so much about visiting the doctor that a system of “co-pays” was introduced in order to make people think twice about whether they really needed medical care. We also know that people care about getting well because they are willing to go bankrupt for it. According to a study published in the American Journal of Medicine, an estimated 60 percent of people go bankrupt not because of a lavish lifestyle but because of medical bills; importantly, three-quarters of the people in the study had health insurance but experienced medically related bankruptcy because of gaps in coverage like co-payments and deductibles and uncovered services.
However, while people care a lot about not being sick, they do not seem to care too much about the details of their health benefits in times of good health. Healthy people want to know that they are covered if something goes awfully wrong, but otherwise they are not really concerned about how much it costs.
Every month, money comes out of our paychecks and is withheld in taxes and insurance premiums; but we do not pay attention to what we’re paying for; our money is siphoned to doctors, hospitals and pharmaceutical companies without us even realizing it. Between an employee and an employer, an annual health-care plan often costs much more than annual mortgage payments. A difference is that a house is used every day and the health plan, for most people, not as much.
Why do we not care about these high costs? We do not care because we are not spending our own money, because we do not know enough about matters of health and because the complexity of the health-care system has in some way turned us away from finding out more. Consumers are disempowered because of dissembling on the part of private insurers and also because of the uncertainties inherent in health and health care itself.
While most Americans care about their health and especially want to be cared for when sick, they probably would not tolerate the high costs involved in our health-care system if their employers were not regularly assisting with the tab. And they really cannot be made to care that much about it — until they’re sick — which is partly why we’ve ended up with a system that has no built-in mechanism for informing consumers about costs and care. Markets fail unless they operate in a way that promotes interests or, in other words, delivers what we care about, including easy access to health-care professionals, information about health and reassurance in times of acute illness.
Mill’s solution to market failure in the context of education was to argue for a multi-faceted approach. He argued for private over tax-supported solutions, but he thought the latter serves a crucial function. He allowed market solutions when they were truly solutions, but he thought there was a crucial role for the state to play in fostering education, especially for the young or helpless. Mill was, by turns, both a capitalist and a socialist. What he wanted were positive ends for society, which he believed could only happen if we left open every means possible. We would do well to move beyond the false constructions of market-vs.-social solutions in matters of health care and all else, instead embracing the idea that no potential road to effective ends should be closed.
With respect to the provision of health care, we did not have a market solution in place prior to recent legislation, and we will not have one after all the changes go into effect since our system fails to meet the three conditions of a genuine market. If we wanted one, it would need to address Mill’s account of market failure. In particular, radical changes would have to be made in the current system so as to increase patient information and reduce costs such that salaried consumers could actually pay directly for their own health care. The system would have to promote more understanding about what is being bought and at what price. Such understanding is the foundation of consumer interest in health and health care. It is important to point out, however, that even a performing market would not do for people who are not salaried, disabled, children, and/or elderly; thus other solutions, including government and non-government approaches would still be required.
As things now exist, belief in the power of markets is distorting the fact that a true market eludes us. The existing “market” for health care is really only a structure for creating a low-risk pool to insure at considerable profit by offloading a higher-risk, non-working pool. This hybrid system fragments the pool of risk, allowing the most healthy and wealthy people to be insured through private mechanism (private insurers cherry-picking who they want and who they do not want), while the indigent, unemployed, and unhealthy are shunted to state-supported insurance mechanisms. Until we recognize that equality in the pool is just as American and just as important to health policy as liberty to choose, our so-called market solutions will continue to serve us poorly. We need a system that removes the imaginary line between the “market” and “non market” and that puts everyone into the same risk pool. This could be achieved by linking health care to citizenship, for starters, rather than employment, but cannot be achieved by a market solution unless health care becomes singlehandedly affordable. If we persist in seeing health care through the distorted lens of a fragmented pool, we will continue to allow those pools to play off one another while costs spiral upward.
To make this point in a philosophical way, most discussions of health policy ignore that we are dependent, vulnerable, mortal beings. No matter how much we care about health or spend on health care it will never change that we die. And while we live we depend on one another to endure the inevitable vicissitudes of life. Good policy must account for the fact of our dependency and that in the face of death we are and forever will be equals. A health system that cares only for private property and not the general welfare will never have the capacity to reconcile itself to dependency, vulnerability, and mortality — and therefore any such system cannot properly serve human beings.
David Gore and Rebecca de Souza are assistant professors in the Department of Communication at the University of Minnesota Duluth.