Morality, Not Markets, Is The Heart of Healthcare

By Michael Bryan

The American healthcare system is not a market at all. And it is certainly not a 'free' market.

This is how Republicans depict the system. It's a lie.

That may be a counter-intuitive statement, given the political discourse around the American healthcare system. But allow me to make the case before you reject this premise.

Any economist will tell you that a free market system for exchange of any good or service requires several basic preconditions in order to work. Some of those prerequisites are: the existence of fungible goods in the market (substitutions are possible which leave the consumer equally well off), pricing information freely available to consumer and providers, freedom by participants (especially buyers) to select the timing of their purchases, and freedom to choose whether to enter the market at all.

None of these preconditions obtain in the American healthcare system.

Let's start at the end. In most cases, a patient has little or no freedom to choose whether to consume healthcare services; most healthcare needs are emergent and frequently needed quite direly. A person with a burst appendix or a broken leg, or a serious laceration hasn't the ability to decide not to seek medical care, and frequently has little choice as to what services he wants, or even to choose a provider. Some elective care, such as cosmetic surgery, actually does meet this requirement, but little in healthcare meets this precondition.

Most often the timing of care is selected by the physician. They hold all the expertise, and the duty, to make such judgements for the best interest of the patient. Few patients (other than Steve Jobs, I guess…) are going to tell their oncosurgeon that they aren't going to have that lifesaving surgery when it is recommended by the doctor.

Most often, when seeking medical care, the price of the services, especially if they are considerable and complex, such as a surgery or a long course of treatment, are completely opaque to the patient. Frequently, because of our insurance system, the patient may never learn the price paid for services rendered. Thus, useful pricing information is generally not available to anyone in the system other than the insurance company. This gives them incredibly effective power over our healthcare system.

Finally, healthcare services are not fungible. Most often, decisions about care are made in the context of existing relationships. A surgery or course of treatment proposed by my family doctor, with whom one has an established relationship of trust and respect, is not readily swapped with the same procedure by "Gall Bladders R Us".

Even decisions as to which insurer to choose are far from freely made. Most often you have to merely accept whatever plan your employer chooses for their own reasons. Even if you are buying your own insurance, the health insurance market is extremely concentrated, with most Americans only have two or three choices based on where they live.

In short, to call the provision of medical services, or even insurance, a 'market' in any meaningful sense is to fundamentally fail to understand what a market is, and how one works. Anyone who fails to make explicit qualifications and reservations in applying market logic to our healthcare system is simply ignorant, or trying to bullshit you.

The bulk of American's healthcare expenses pass through private health insurers, who take their cut.

Note carefully that the system participants who have the most information about pricing, are able to manipulate market entrance by providers and consumers, and are able to attempt substitutions in care, are the middlemen in our current system: the insurance companies.

Deregulation to make market work 'better' in healthcare, and to 'empower' consumers in the market, really only serves one purpose: to strengthen the position of those market participants with the most power and information, the insurers. 

When politicians talk about applying free market principles to our healthcare system, therefore, what they are really trying to do is further empower the insurance middlemen of the system who are able to manipulate the system in order to extract a profit from the suffering and death of the American people. This is morally repugnant and deeply inefficient.

The role of insurers is to extract rents by restricting access to care. This is morally repugnant.

In our system, the insurance middlemen can make actuarial decisions that minimize cost in order to maximize retention of premiums. It is what they do, and they are good at it. The problem is that those insurers are working solely to maximize their private profit, they haven't any other metric to measure their success.

Nor do insurers have any incentive to reduce overall costs of the system in relation to the rest of the economy. In fact, the incentive is grow the healthcare system ever larger so that they can extract their rents from an ever-growing slice of the pie.

This is why the current system is constitutionally incapable of providing two things we very much want from our healthcare system: improved patient outcomes, and reduced overall cost.

Nor can you look to patients or doctors to make decisions that maximize effectiveness of care (they haven't the actuarial expertise or incentive to develop it), or to minimize cost (they are notoriously bad at this, in fact).

So how can we achieve the goals of maximizing effective care and minimizing cost? We simply can't do it with the current system. Obama's ACA attempts to remake insurers into something akin to privately-held public utilities by restricting their abiltiy to deny care and coverage. But it doesn't, and can't, fix the incentives of private insurers. The only way to get control of the system is put an actuarial decision maker at the heart of the system whose goal is not profit maximizing, but cost reduction and the best patient outcomes across the entire system. That accurately decribes a single payer insurance system.

Only a single insurer can have the right systemic incentives to achieve our goals for the healthcare system. A single payer insurer has the ability to reduce overall system costs while maximizing patient outcomes. How is that achieved? By investing heavily in prevention, by finding system-wide efficiencies (such as elimination of the byzantine reimbursement and billing systems currently required by the existence of multiple insurers), and by scientifically examing the cost vs. benefit of medical procedures.

Surely, we can do better. But not with the current system.

The political pressures on a single insurer funded by the government are exactly what we want: pressure to reduce cost from taxpayers, and pressure to maximize health and life from patients. This is in contrast to the current system's incentive to canabalize as much of our GDP into healthcare and to extract the maximum private profit from it at the expense of patients.

The latter incentives, which currently operate in our healthcare system, are morally unacceptable. We do not want people whose only legal obligation is to maximize returns for their investors to be making decisions about the life and death of patients. Such decisions should be made through consultation between patients and their medical professionals, constrained only by public policy decided through a democratic process. Any other outcome is morally indefensible.

For our healthcare system to return to fiscal prudence, maximization of patient outcomes, and moral balance, we must have a single payer insurance system.