Health Care Nonsense

In his latest column, John Stossel mocks Michael Moore and explains why our health care system would be so much better if we just allowed the free market to work its magic. He writes:

America's medical system has problems, but profit is the least of it. Government mandates, overregulation and a tax code that pushes employer-paid health insurance prevent the free market from performing its efficient miracles. Six out of seven health-care dollars are spent by third parties. That kills the market. Patients rarely shop around, and doctors rarely compete on price or service.

It's always the knee-jerk free market worshipers like Stossel who are the most clueless about how markets actually work. Stossel thinks that the problem with our system is that third parties (i.e. insurers) pay for most services. The implication is that if people paid out-of-pocket for medical costs, they would be more cost-conscious and would shop around for better deals, thereby forcing providers to compete and lower prices. This makes sense until you actually switch on your brain for more than three seconds, at which point you realize that it's total nonsense.

First, and most obviously, health care services are not like TVs and stereos. While some services are elective (and these are already paid for out-of-pocket), the vast majority of medical services are not. If you have a heart attack, you are whisked away to the nearest hospital and operated on. There is no time or opportunity to shop and compare rates. Even for non-emergency care, you usually don't know what you need until you've seen a doctor. And at that point, it's not very realistic to expect people to get second and third opinions and compare prices ("please don't treat me, doc, I'm just browsing"). Going to the doctor is a major inconvenience, usually requiring time off work. People don't like doing it. They just want to be treated and leave. And many don't even have the option of shopping around. If you don't live in or near a big city, your options are generally limited. Many people only have one hospital in their area.

Moreover, not being doctors themselves, most people lack the knowledge necessary to meaningfully compare services. Sure, they might be able to determine who's cheaper, but that doesn't really help. If anything, I'd be tempted to go with the most expensive provider, on the assumption that what costs more is better quality. I may be willing to buy the bargain brand toilet paper, but when it comes to my life, I'm not fooling around.

Perhaps most devastating to this argument, though, is the reality that when people are forced to pay out-of-pocket for medical expenses, they generally stop going in for routine preventative care and monitoring. This results in worse health outcomes (and unnecessary deaths), and has the perverse effect of raising health care costs. Preventative care has repeatedly been shown to reduce overall costs by heading off (i.e. preventing) the occurrence of conditions that are much more expensive to treat.

Finally, there's a reason why we rely on insurance to pay health care costs. It's the same reason we have car insurance and home owner's insurance: without pooling risk, the costs would be unmanageable. Most people don't have the financial resources to pay out-of-pocket to settle a lawsuit with another motorist or rebuild their home after a fire or pay for a heart transplant. The only way such things would ever be affordable to an average person is through participation in a large risk pool (i.e. buying an insurance policy).

The rest of Stossel's column is devoted to tired cliches about how the private sector is more efficient than the public sector. This is of course true in many cases, but not particularly useful in the health care context, where nearly every system in the world necessarily relies on a mixture of government and private sector services and money.

Toward the end of the column, Stossel offers this challenge:

I'll pay you $1,000 if you can name one thing government does more efficiently than the private sector.

That's pretty easy actually. The government provides health insurance to the elderly much more efficiently than the private sector possibly could. I don't see how this can be argued. What does Stossel think would happen if we suddenly did away with Medicare?

The reason the government has to insure the elderly is because private insurance would be prohibitively expensive to most people. As you get older, the odds that you will need expensive health care services dramatically increase, thereby making you a much greater insurance risk. This coincides with you dropping out of the work pool and having less income. Put simply, absent Medicare, most elderly people would not be able to afford insurance and would not have the resources to pay for costs out-of-pocket. That's why we created Medicare in the first place.

Medicare's costs may be soaring, but that's not because Medicare is inefficient. It actually has a remarkably low overhead. Costs are soaring because health care costs in general are soaring due to the proliferation of new medical technologies and treatments.

There is simply no way that the private sector could provide health care to all elderly people in this country at anything near the efficiency of Medicare. John Stossel owes me $1000 dollars.