There was a disturbing moment for me when a coworker just asked me out of the blue if I was for this Health Care Reform stuff. She had it all reduced to "you're taking money out of the pockets of some, and putting it towards the health care of others." Then when I tried to point out that 1 - that's how the current system works, and 2 - the disparity in prices shows that the free market just doesn't work for American Health Care (basic microeconomics) she just starts talking over me. Jingoism has replaced discourse. American Democracy no longer works. It's just a doppleganger of its former self.
2 - the disparity in prices shows that the free market just doesn't work for American Health Care
This is not intended as an attack on you, just in case it might sound that way, but: I wish people, when saying that "the market doesn't work for _____" would specify what their definition of "working" is. This is not a trivial issue!
Markets are distributed systems that optimize economies for... the kind of behaviors that succeed in the market (in some respects resembling biological evolution, only less stupid and short-sighted). External forces and constraints on a market change the parameters that get optimized, sometimes in unpredictable ways, and there's no such thing as a market without external constraints warping it.
Most of the time, when someone says "the market doesn't work" what they really mean is "I value parameters A, B, and C, but the market is not optimizing the economy to maximize those", but rarely do they indicate more than obliquely what those parameters might be.
I agree (as do many people) that the current system is pretty terrible. But without specifying what it should be like, it's hard to talk about good ways to fix it.
First off, you've got a great point here, and I agree with just about all of it. But I do take exception to one point:
> (in some respects [markets resemble] biological evolution, only less stupid and short-sighted)
LESS short-sighted? When all of our markets are optimizing for 6- or even 3-month returns? When companies are structured in long-term suboptimal ways because you need to maximize profits for the short term to keep investors happy, or the people at the top get fired. cf the infamous quote from Citibank's former CEO, Chuck Prince: "While the music's playing, you've gotta dance." [This said in answer to being asked why he continued his investment strategy despite knowing it to be unsound.]
Quite so! I fear you overestimate biological evolution.
Imagine a market with the same kind of behaviors you describe, only a million times larger, and where not only do markets fixate on 3-month returns, but if any executive tries to do otherwise he isn't just fired but summarily executed along with all his senior staff as a lesson to others. Oh, and management at all levels make Dilbert look optimistic: no one actually even knows how to maximize 3-month returns, or how to do anything at all in particular; they just stick with what they're currently doing and sometimes randomly try new ideas (and if 3-month returns don't improve, even for unrelated reasons, everyone involved is also executed). Oh, and sometimes the government introduces arbitrary new regulatory schemes with no reason or warning, and any companies that (by means of trying random new ideas) don't find a way to make decent 3-month returns also have all their senior staff executed. New companies get started semi-regularly, but they're managed just as incoherently. And the system has been running that way for untold millennia.
That's evolution. A chronicle of blind stupidity and senseless mistakes, unfathomably vast, written in blood.
Makes our silly human affairs look positively cheery in comparison, doesn't it?
The average life expectancy of a multinational corporation-Fortune 500 or its equivalent-is between 40 and 50 years and they have been around for 500 years or less (in their current form). Compare this with the time humans took to evolve. The vast time involved more than compensates for the slower rate of change.
My sister just paid $2600 for an MRI. I just paid $860 for an MRI. Apparently, there are other places a few miles away where I could have paid $400 less for the same MRI.
How hard would it have been for your sister to go to the $400 place and pay $400?
If the answer is "very", then you don't have a market.
I consider the idea that the US has a free market in health care laughable. How "free market" something is is a continuum, not a binary distinction, but my ability to price discriminate or choose among competing insurance providers is effectively nil. I sometimes wonder how much of the problem could be fixed if we took the simple step of stopping making it virtually necessary to get health insurance from your employer for tax reasons and then just see what happens for a couple of years.
(But naw, too simple, let's pass a 2000 page law.)
How "free market" something is is a continuum, not a binary distinction
Even worse: it's a multi-dimensional continuum, where the function mapping points from the space "all possible markets" to the space "quality of the resulting health care system" is almost completely unknown, but probably has lots of local maxima and minima distributed throughout the space.
The task we're faced with is "maximize the value of the quality function by making semi-blind guesses, while hopefully not landing in a very bad local minimum". I don't think they covered an algorithm for that one in my CS classes...
The upfront cost would be $160, right? I'd prefer to subsidize healthcare for people who actually need help. You and I are probably around the same place economically speaking, so why don't both of us just pay for our own healthcare?
My experience on healthcare in Japan is largely positive, except for the one time I really needed it. (And I lived through that, though it was a bit touch and go for a while.)
Don't get me started on dental care, though. I had a business trip to Chicago recently and used the opportunity to drop by my parents' dentist for a long overdue routine cleaning. My conversation with them was almost comical: I kept offering to pay them money and they kept asking me how they could help me find a way to get insurance to pay for it. (It ended up costing about five times what my last cleaning in Japan did -- and would have been cheap at twice the price. Don't get me started on Japanese dentistry.)
Great point! In health insurance, markets should work to minimize administrative costs - to minimize the amount people have to pay to be insured (cost) and maximize benefits. Currently, the market incentives are to do the exact opposite, while innovating on customer confusion, public relations, and lobbying power in Washington.
I'm confused. First off, let's accept that what Bray is talking about is healthcare. The problem is that there is a plurality of voters who seem to be saying they oppose the current legislation making their way through both Houses.
On the other hand, not only do a majority of Americans want healthcare reform (http://www.rasmussenreports.com/public_content/politics/curr...) but most say they are happy with their own plans. Thus it's inaccurate to say that "a voting majority of Americans apparently want their government to provide them" [with healthcare] if in fact he's referring to healthcare.
What confuses and scares me about the current legislation is that it assumes that everything that both the private and public sector in the US has done is wrong with the aim towards radical change for everyone. This ignores the multitide of things the US had done right - from healthcare innovation and research to even process innovation (e.g. Ambulatory surgical centers - an example can be seen in India though there are many in the US as well http://online.wsj.com/article/SB125875892887958111.html).
There are those who argue that the healthcare system in the US is an example of failed markets ignoring the government incentives that favors employer provided healthcare, that the US spends more per capita on public healthcare than the Canadian government does, and the rather high costs of malpractice insurance. But let's say we even accept that it is a market failure and market failure alone, isn't there an assumption here that the US government wouldn't do even worse? (Again in the context that the government already controls Medicare)
One of the basic policy arguments for public and universal healthcare is that it could encourage entrepreneurship. If that's the goal, why then does the Senate bill dismantle Health Savings Plans that effectively allow for coverage portability? Why force the additional taxes on businesses that employ more than a small handful of people - effectively discouraging hiring? Why is the CBO estimating that both plans would place an even greater healthcare burden on the economy than currently exists?
If legislators are serious about reforms, why would they first not attempt to propose changes that optimize existing spending and changes that encourage competition rather than rushing monolithic pieces of legislation that few have read or understand? It would seem that the biggest beneficiary of existing legislation is not the uninsured who may or may not end up being covered by existing legislation but the SEIU.
> 2 - the disparity in prices shows that the free market just doesn't work for American Health Care (basic microeconomics) she just starts talking over me. Jingoism has replaced discourse.
Some reasons American medicine is very expensive:
1. Health insurance, but not treatment, is fully tax deductible. So if you buy your own penicillin, it's with after tax money, but if your insurance company buys it, it's pre-tax money. That's one of the reasons that health insurance is so widespred in America even for routine medicine like antibiotics and checkups. That's a major contributing factor in why the administrative costs are so high.
2. There's a shortage of doctors in America, and qualified doctors from other countries are not allowed to practice medicine in the United States. So there's good doctors from Canada, England, Japan, wherever that'd love to practice in the USA, but can't. This artificially inflates doctor's wages by restricting supply.
3. American doctors are typically required to get an undergraduate degree, medical degree, and do a below market, crazy hours residency in order to be able to practice medicine. That's 8-10 years of study and below market working to practice medicine. Now, medicine is very important and needs to be done right, but I don't believe for a second that a focused apprenceship couldn't teach a very specific kind of medicine - say arithscopic surgery - in just 2-4 years under a highly trained doctor, but this isn't an option.
4. The Food and Drug Administration requires new drugs to be proven not only for safety, but also efficacy. That's an incredibly high and expensive burden to meet - that means that drugs need to be proven to work to a certain standard, instead of just not harm. This adds years of development time and millions of dollars in cost to the new drug development cycle.
Those are all legislated reasons that increase the cost of medical insurance, doctors, and drugs. They'd be fairly easy to remove -
1. All medical and health expenses can be written off taxes regardless of insurance. Employees can choose to convert som of their wages to a medical or health plan tax free to both the employer and employee. (Currently, under most circumstances, only employer-provided health insurance can is tax free)
2. Allow any doctor in a country with reasonably competent medical standards to practice in the United States.
3. Require that doctors be able to demonstrate that they can practice their area of medicine capably. Be flexible in how they demonstrate that. Note: This will incur high opposition from medical schools and current doctors who are currently enjoying the wage premium and had to go through the very long, difficult, and expensive system.
4. Change the drug standard from "safety and efficacy" to only safety. Drugs will come to market much faster and cheaper. There's plenty of people and organizations that will test proven safe drugs for efficacy for free or nominal cost once drugs hit market, and efficacy will get understood with time. Put this way - a proven safe but questionably effective treatment against heart disease being held off the market for five years and costing much more to get to market is not a good thing. If it's certainly safe, then let people make the decisions with their physicians, instead of having the FDA take such a strong gatekeeping stance.
Technology has progressed such that we don't need government protection from ourselves as much any more. The current set of legislation has greatly increased the costs of doctors and medicine. Regardless of political position, and regardless of stance on other health issues, addressing these four points will make the medical system fairer, more effective, and and less expensive with relative ease.
Admittedly, there's some powerful entrenched interests that are winning in the current arrangement, and will oppose these simple improvements.
Perhaps I got to the party late, but I've read some dynamite analysis of the problems of healthcare by commenters and articles on HN. Most all of these are able to lay out the drivers of the problems and suggest concrete, simple ways to fix things.
However when I look at the current proposed solutions, they are neither simple or concrete. Instead (to me) they look byzantine, obtuse, and obfuscated.
This leads me to believe that either lots of really smart people have vastly underestimated the complexity of the problem, or that the people currently charged with fixing it are unable or unwilling to work in a direct manner.
Basically, the current system is a local optimum for a large number of powerful interests. Also, the beneficiaries of a current system all are organized, while the beneficiaries of some major reform are not organized, thus their lobbying power is greatly muted.
Also, I highly recommend "Government's End" by Jonathan Rauch which is the single best book to understand Washington. It talks a lot about this issue.
The core problem is that the structure of our political system is fundamentally pro-entropy. Madison was completely wrong about factions. Unfortunately, the only way to defeat entropy is with concentrated authority. But that is anathema to the American ideology. So the entropy continues to increase unabated.
If you enjoy interesting, just-crazy-enough-to-work, will-never-actually-happen solutions to the health care problem, take a look at this one: http://hanson.gmu.edu/buyhealth.html
the author of that piece has some interesting perspectives on the issue.
Making things happen in politics typically requires convincing at least some threshold number of largely disparate groups that they each stand to benefit (in some tangible, direct way) from your proposal, or at least won't be harmed by it. This tends to constrain the space of possible solutions in awkward ways, as an initially simple proposal may accrete peculiar exceptions, irrelevant attachments, and other cruft until enough people are happy.
If you're lucky, the final result of the process will still fulfill the purpose of the original proposal. If you're unlucky, the crufting process will have completely undermined the original intent and you'll have to either vote against your own proposal (which is embarrassing) or pass it anyway (wasting taxpayer money on all the useless cruft).
That said: smart people are often prone to underestimating the complexity of problems outside of their domain of expertise, and it's easy to propose solutions when you're not the person implementing them. So it's probably a bit of both.
It seems based on your reply that we will never know, then, whether initial assessments of complexity were correct. If the description of a problem never matches the solution, it becomes very difficult to have a conversation about whether a solution actually addressed a problem, no? The problem mutates from it's original nature and becomes assembling and coordinating disparate groups.
I note that there are many examples of solutions to problems in legislative circles done in a direct fashion -- I'm not certain this is as much a requirement of legislative solution-creation as much as a certain style of decision-making.
I don't have any conclusions, just the observation that if the goal is to gain support of various groups, then it's not really about solving the initial problem any more, because with just a small number of groups it's very easy to over-constrain a solution.
I note that there are many examples of solutions to problems in legislative circles done in a direct fashion -- I'm not certain this is as much a requirement of legislative solution-creation as much as a certain style of decision-making.
Well, it's a feature of politics-in-general, not legislating as such. One could probably observe the same dynamics arising semi-spontaneously in any context where a group with a diffuse distribution of influence has to make a collective decision. It's the old "design by committee" problem, just writ very large when we're talking about the US federal government.
Very interesting. Is it a bug? Or feature?
That's more of a value judgment than I'm prepared to make. I'd call it an inevitability, for decisions made in certain environments.
Well, the above isn't a comprehensive solution, but it should help a good bit. Here's why I believe the above suggestions would help the current state of things at minimal cost and downside -
Doctor's fees: When something costs a lot and the supply is artificially restricted, lessening those restrictions on supply usually makes the cost go down.
Medical insurance: When a good is tax free if purchased through a specific administrative process, but taxed if purchased independently, you're going to see the process utilized and administrative costs go up. If you offer the same benefit without the required administration, you would expect administrative costs to go down.
Drug costs: The more trials and greater burden of proof on a drug company before releasing a drug to market, the longer it will take to get to market and more it will cost to get to market. If you can reduce the requirements without compromising safety, drugs will most likely get a little cheaper and get to market faster.
I think a lot of people want a comprehensive solution, and this is not a comprehensive solution - but it should help quite a lot at not much cost, and it isn't particularly politically charged in one direction or the other.
There's complex problems, but if there's a simple way to take a few medium-sized dents out of the problem that's likely to work with relatively low cost or downside, I reckon that ought to be pursued.
You should stop and ask if a free market can work in providing health insurance. It doesn't work in funding local fire departments or police forces, for example.
First of all, F=MA is a law. Economics is a guess.
Second of all, parent is not claiming that economists' predictions about the free market system do not apply to health care. He's saying that the field of microeconomics specifically predicts that in some scenarios, the free market system just doesn't work very well; that is, the market does not facilitate a scenario in which market participants efficiently distribute goods/services, and therefore do not benefit optimally from them. This is called market failure. Healthcare fits several of the criteria for a failing, nonefficient market. Namely:
- Monopolistic competition.
- Healthcare is a non-optional service.
- Informational asymmetry - that is, doctors generally have more information about medicine, as well as about the specific medical state of their patient, than the patient does.
Almost every single "market failure" in the economic literature is really an opportunity for a business plan.
All Arrow's paper shows is that certain naive structures for health insurance might not work out so well. But there are plenty of other structures that might work well. For example, here is the design for a better type of healthcare company:
- The company by contract defines that 80% of all premiums must be applied to reimbursement, the other 20% of revenue pays for administration, marketing, and profits.
- As a result, the company cannot profit by denying care. If they deny care, that money must be spent on another patient.
- Since the money must be spent by contract, the company will be incentivized to spend the money in the way that maximizes the total health of the pool, so that they can attract more customers. The incentives of the insurance company and the patients are actually aligned.
Unfortunately, in my state, and in most states, the above structure for a healthcare company is illegal. Regulations prevent it. So I hardly see healthcare as an example of "market failure" when regulations prevent the types of business plans that would actually work.
What about the possibility of artificially high barrier to entry, arbitrary regulations some which increases the cost of productions and some which block out firms? What about insurance being used to pay for everyday medical expenses instead of being used in only emergency? What about laws regulating the price of insurance? What about the effects of government welfare program on supply and demand?
Economic "laws" are a mixture of gross simplifications and statistical kludges, all of which describe patterns of behavior within some domain of limited parameters, at some scale of detail and timespan.
Of course, the same can be said for pretty much any scientific principle!
To expect a law of economics to hold in any arbitrary market is like expecting Kepler's laws of planetary motion to hold for any possible configuration of bodies.
Whether a given law holds in the health care market, and why that may or may not be the case, is another matter, and a very complicated question to boot. The only thing that can be safely assumed is that anyone offering a pat, simple answer ("we need the government to do X so that the market will Y!") is oversimplifying.
I'm not the op, but I believe he would be arguing that the basic microeconomic principle of Health Care being a public good dictates that this provision is a market failure. As such, like transportation and armies and education, the service is best provided - on a micro level - in something other than a free market model.
Certainly, data comparing US expenditures on health care to other countries supports this.
I do not understand how medical goods can be considered public goods.(Or roads and security for that matters.)
Are you forgetting to account for the various interventions that account for rise in medical cost?
I believe I recall Medicare driven up demand, thus increasing cost due to people overusing Medicare. Insurance, instead of being used to cover emergency medical care, are now being used to cover medical visit and other regular expenses.
We also have a medical cartel driving up costs by limiting the supply of doctors. Patent medicine is also adding to the cost too.
Statistics are great and all, but we really should look into the unseen on why this is happening.
Defining a public good is a method of classification based on opinion, often having little to do with a natural state. Few things in this world are truly public goods. Hell, even air can be excluded with a little thought.
I'm interpreting the OP to be suggesting that choosing to define health care as a public good has obvious benefits that outweigh the notion that it should be left to the free market.
You are coming from an opposite view that clearly sees little benefit in drawing any lines past the natural norm.
Given that there is basically no country on the planet that operates in this method - spare maybe Somalia - I am assuming that the true definition of a Public Good is not the intent.
There is a middle ground here. It is possible to provide universal healthcare without dismantling private markets under the guise of calling it a public good. The Swiss do it (and at a cost lower with better quality than the Canadian or American systems) - http://www.nytimes.com/2009/10/01/health/policy/01swiss.html.... What is increasingly clear however, is that there are a number of models like the Canadian one which are increasingly unsustainable and unwieldy.
this provision is a market failure. As such, like transportation and armies and education, the service is best provided - on a micro level - in something other than a free market model.
Or, that the free market might possibly work well, but there is something else causing a market failure.
Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that are not efficient – that can be improved upon from the societal point-of-view.
This decision may be a little short-sighted. I have seen no proof that our political system ever worked any better in the past. During the Cold War, America constantly elected those perceived "less Communist", and invaded countries deemed as communist without much evidence [1], with political discourse almost completely unrelated to reality, and things turned out just fine (more or less).
The point about customer confidence stands, however.
Broken because it denies healthcare to millions who need it or financially bankrupts others. Healthcare is a basic human right - what exactly is the problem with having everyone pay a healthcare levy so that universal care can be provided? I live in Australia and my medicare contribution is ~$300 per YEAR. I have NEVER paid for a single doctor, or hospital visit in my life - the concept is utterly foreign to me.
Corrupt because from what I understand big pharma has lawmakers either in their pockets or by the balls - not sure which.
I hate the 'why should I pay for other people's health cover' line - it's something you only ever hear healthy people say.
Beats me, but if you want criticism I'll give it a shot.
Healthcare is a basic human right
I'm unaware of any right that involves making other people take care of me by producing medicines, providing services, food, housing me, and tending to my disabilities.
You can certainly argue that a lack of healthcare is a moral problem that good people solve so that all folks have as much healthcare as is feasible, but to say it is a right is to start trashing what real rights are, and healthcare, for all it's importance, is nowhere near being as important as, say, free political speech. This is a critically important thing to understand.
So I agree that morally something must be done, but I felt you went way over the top with the language.
"and healthcare, for all it's importance, is nowhere near being as important as, say, free political speech."
I assume from this statement that you are either a) healthy and/or b) fully capable of paying for all you and your families medical needs - both now and in the future.
"I'm unaware of any right that involves making other people take care of me by producing medicines, providing services, food, housing me, and tending to my disabilities."
Australian doctors are highly paid. Their salaries are paid by every Australian tax payer whether healthy or sick. By sharing the burden all of society benefits.
You would be much more inclined to agree that healthcare is a basic human right if you were both sick and unable to afford treatment.
The standard of living in Australia is as good or better than in the US. My medical costs are $0. Regardless of whether I am visiting the doctor for a flu shot or having life saving heart surgery.
A basic human right is not the same thing as a shared moral obligation. The language of "rights" is often reserved for "categorically permitted acts", such as the right to think and speak as you wish.
A lot of people are resistant to using the language of "rights" in the context of "complicated systems that impose duties and burdens on the people who implement them". Even assuming that it is the duty and obligation of a moral, prosperous society to provide for the health of its members, many people would still not term that a right.
Please review your understanding of a human right.
The Universal Declaration of Human Rights, adopted by the United Nations in 1948, proclaimed that “everyone has the right to a standard of living adequate for the health and well-being of oneself and one’s family, including food, clothing, housing, and medical care.”
In 1943, President Franklin D. Roosevelt proposed a ‘Second Bill of Rights’ for
Americans, declaring ‘freedom from want’ to be one of four essential liberties necessary
for human security. Roosevelt’s definition of freedom included “the right to adequate
medical care and the opportunity to achieve and enjoy good health.”
http://www.nhchc.org/Advocacy/RighttoHealthinAmerica.pdf
Health care is a human right - even in America where i'm led to believe that you will receive life saving emergency treatment even if you cant afford it.
"international human rights law is unambiguous on the matter: Universal health care is a right, and the government must step in and provide it if the private sector fails to do so. If there are such things as human rights, under the international framework, then health care is definitely among them."
