Convenient Lies and Inconvenient Truths
by Robert Roy Pool
Our national debate about health care reform has been dominated by convenient lies – death panels, rationing, and socialism! These lies resonate through our media echo chamber, producing a distorted view of the subject, like a fun house mirror. But so far we have failed to observe what these convenient lies tell us about ourselves.
The main reason this critical debate has been dominated by lies is that it is far easier to get riled up about untruths than to face up to inconvenient yet mundane realities. Our system is bloated, misshapen, and almost incomprehensible. But let’s not talk about that. It’s too depressing.
The American health care delivery system is a complex hybrid. The system involves some components like a free market, some elements that most resemble a ruthless oligopoly, and one element that resembles pure socialism – but only for those over 65. Whatever form of social organization you despise, we have plenty of it in our existing system.
Whatever form of social organization you despise, we have plenty of it in our existing system.
Free Markets ?
The components in our system most like a free market are the doctors and hospitals that compete for our business. But the competition between them is unlike any other. Most goods and services compete for our dollars on the basis of price and quality. Consumers shop, seeking the best price. They learn enough about this elusive concept called “quality” to be able to decide between, say, various Dell and HP laptops, or a Ford and a Toyota. All this competition is up front, rational, explicit.
None of this happens in the competition between doctors and hospitals. They never advertise their prices. We don’t ask. And as for quality… we have no idea whether any particular doctor is competent compared to others. In many cases we have no way of knowing whether any particular hospital is better than another. No objective rating system exists for doctors or hospitals, nor is it ever likely to. All we know is their reputation.
Doctors build their practices by reputation, which spreads by word of mouth, not by advertising. They do not explicitly compete with other doctors. If we believe in our doctor’s good judgment, we follow our doctor’s instructions. We feel satisfied. We trust. Once a doctor has won our trust, we will stick with her until something happens to cast doubt on her judgment.
There are many independent buyers and sellers of doctor’s services and hospital space. This ought to produce a free market. But actual result is nothing like that. It’s more like once they have won our trust we accept our doctors into our families, and we pay them whatever they ask – because they’re family.
Ruthless Oligopoly ?
Even though we may love our doctor, many of us detest our health insurance company. In the health insurance market many of us are at the mercy of a ruthless oligopoly. In most states a few health insurance firms dominate the market. Together they can collude and fix prices – within certain limits. Doctors despise them, and so do consumers whenever their claims are denied. According to a Harvard study, inadequate health insurance causes 60% of the personal bankruptcies in the United States.
The ruthless oligopoly actually kills people – thousands each year. A recent Harvard study, published in the American Journal of Public Health, estimates that about 45,000 Americans die each year because they have no health insurance and they postpone necessary treatment. This is slightly more people than are killed in all domestic auto accidents each year. Yet this cruel fact is never mentioned in the public debate. No one seems to care about the 45,000 – except their relatives and friends. I find it curious that the public debate has so rarely touched on this fact.
The main question I would like to ask health insurance companies is “Why should you exist?” It is not clear to me how health insurance companies add value to the system. Do they help us avoid rationing? No. health insurance companies ration constantly by refusing to cover some procedures and limiting coverage of others. My sister Sherry, for example, had gastric bypass surgery, and her diabetes was cured within one week of the surgery, and yet her health insurance company refused to pay for it. Why?
Do health insurance companies help hold down medical costs by forcing doctors and hospitals to accept less for their services? Yes, but Medicare does the same thing more efficiently. Health insurance companies have an incentive to increase revenues and profits, like any other company in a market economy. This incentive undermines their ability to hold down costs so long as the increased costs can be passed on to the consumer. By structuring themselves into a ruthless oligopoly, with very little real competition from outside the oligopoly, health insurers guarantee they can pass on increased costs to us.
We should either break up this ruthless oligopoly and allow interstate competition in health insurance, or we should abolish health insurance companies entirely and resort to a single payer system. Allowing interstate competition between health insurance companies will probably result in the elimination – through bankruptcy or buy-out – of about 98% of all health insurance companies within a few years. A large national oligopoly will be the result of this process, as it has been in so many other industries. A national oligopoly will enjoy large economies of scale and will prove easier for Congress to regulate. This is the course of action I favor, because this would actually be less disruptive than single-payer.
Of course, another alternative is to put these companies out of business directly, through a single-payer system. Many doctors already support this approach. This approach would essentially steal from the shareholders of these companies, however, and there are millions of these, including pension and mutual funds. Abolishing an industry is decidedly un-American; there is no precedent for this except the emancipation of the slaves in 1863. It is very unlikely that any President or any Congress would choose this course of action, or that the Supreme Court would uphold such a law if it were passed and signed.
But doesn’t mean we should let the ruthless oligopoly off the hook. Subjecting health insurance companies to brutal national competition would definitely focus the minds of their executives and shareholders. What we know from the present system is that putting hundreds of millions of Americans at the mercy of a powerful oligopoly is a formula for escalating costs and eternal conflict.
Socialism ?
Americans fortunate enough to be past the age of 65 benefit from a Federal program called Medicare that is akin to pure socialism. Medicare pays almost all the cost for most of their treatments. Inexpensive supplemental insurance can cover the remainder. Our senior citizens – who comprise about 1/7th of the population but consume about 1/3rd of all health care – generally have few complaints about the health care system, even though some of them are very fond of complaining about their health.
The time has come to face inconvenient truths. Our system is ugly and complicated. It doesn’t conform to any textbook economic definition. We all dislike aspects of the system, but we all embrace and endorse other aspects.
That’s why changing the system is extremely tricky. None of us wants to give up our doctor – she’s almost a member of the family! – and none of us wants to go on being victimized by a ruthless oligopoly. And for sure none of us wants to be crushed by rationing, death panels, or socialism. (Except those over 65 -- they seem not to mind.) There is much to dislike in our present system, just as there will be much to dislike in any conceivable new system Congress may devise.
Reality is annoying. Any new plan that covers more people will cost more. We will all probably have to pay higher taxes to help the uninsured. We may benefit from lower health insurance costs, or we may not. If we do benefit it will be hard to measure the savings. What we will be able to measure are the higher taxes. In exchange for slightly higher taxes we will get peace of mind, not just for those over 65 but for everyone. We all fall through the cracks at some point in our lives.
It's the same trade-off that made Social Security such a success. You remember Social Security, don't you? It was called "socialism" in 1933, just as Medicare was called "socialism" in 1965. Today not a single member of Congress dares utter a criticism of either of these examples of "socialism." We all now agree that Social Security is a vital Federal program we'd have to be crazy to abolish.
But extending health care coverage to uninsured Americans is definitely socialism, for sure.
It’s all Obama’s fault. He stirred up all these complicated, ambivalent feelings about doctors, hospitals, health insurance companies, and socialism. Let’s blame him for this convoluted mess! That will be a hell of a lot easier than investing the time to analyze our problems and figure out how to make our system work for everyone.
Robert Roy Pool is a screenwriter, an investor, a small business owner, and founder of IntelligencePool.com.