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The Healthcare So-Called Market and “Occupy Wall Street”

Posted Oct 28 2011 4:45pm

Deane Waldman MD-MBA is Adjunct Scholar for the Rio Grande Foundation, and the author of “Uproot U.S. Healthcare” as well as “Not Right! (January 2012).

E.D. Kain’s blog on Forbes Online titled Why Healthcare Reform Matters to Occupy Wall Street should not be allowed to stand uncorrected. It is a combination of accurate assertions with incomplete and often erroneous statements.

Kain is right to label what desperately needs reform as “healthcare” (one word). As such, the word refers to the system. U.S. healthcare is very, very sick. It is a “system” in name only: it is not systematic . Further, all systems including the so-called universal health care ones fail to meet public expectations.

Health care as two words means a service relationship between a patient and a provider. A healthcare (one word) system exists in order to facilitate (two words) health care and the well-being as well as longevity of people.

Kain’s first sentence is incorrect: well intended but wrong. He wrote, “Nearly every country in the developed world has some form of universal access to health insurance.” Most nations with so-called universal health care offer access to insurance and therefore care to citizens only. If you are not a citizen, even if you are one of nearly two million Turkish invited guest workers in Germany, you do not have access to “universal” health care.

Secondly, the care you can access is not what your doctor says you need. Care is limited to whatever the government says you can have. In other words, universal health care is rationed by the central government , always. People are literally waiting inordinately long times to gain access to care that has been approved.

Writing about the market for health care, Kain remarked about “the way capitalism works – and doesn’t work – in America.” The flaw in his comment is this: there is no market, certainly no free market, for health care in the U.S.A. Let me prove that statement.

Within the so-called healthcare market in the U.S.A. there is a monopoly: a single supplier class called licensed providers who do not compete with each other on price. Within the so-called healthcare market in the U.S.A. there is a monopsony: a single purchaser called government who sets the amount of [fixed] payment. Insurance companies simply follow suit.

Any “market” that lacks price competition among the suppliers and that lacks price variability among purchasers is not free. The free market has not failed in American healthcare: it does not exist, and never did.

In place of a free market, healthcare has a controlled, contradictory, and perverse financing arrangement. We should not even call it a market but for convenience below, I will.

The market is “controlled” because payments are fixed and non-competitive. The market is “controlled” because suppliers do not compete, and most particularly, because consumers and suppliers – patients and providers – are disconnected.

If you go to McDonald’s for a hamburger, you consume it and you pay for it (in the reverse order of course). McDonald’s offers its hamburger at a certain price. If you are willing and able to pay that price, you pay and consume. If the price is too high, you go elsewhere, where a competitor offers a burger for less.

In healthcare, the patient/consumer does not pay the provider/supplier: a third party does. In healthcare, the supplier/provider does not determine his or her price: a third party does. That is called micro-economic disconnection, which can function only when the third party payer (government) both rations the supply and fixes the payment in advance.

The market in healthcare is internally “contradictory and perverse.” Ostensibly intended to promote health and longevity, the supplier (government) encourages sickness, viz., subsidies to tobacco farmers and to grain producers. The current system rewards NOT giving care (insurance profits) and rewards providers when patients are sick, called “pay for performance” but not when they are well.

Mr. Kain’s solution is as follows. “A single-payer healthcare system works so well [1] because there is one very large risk pool with an enormous amount of bargaining power. [2] You can’t match that bargaining power in a fragmented system like the one we have, comprised of myriad regional insurers with de facto monopolies over their area.” [3]

[1] Single payer systems do not work “so well.” Just check out deaths in Canada, England, and Spain, or the necessary rationing of care in Greece. Check out the administrative waste of all of these systems. Yes, the U.S. is worse in terms of administrative healthcare costs, but that does mean that single payers “work well.”

[2] Bargaining power of the single-payer is absolute: it is in fact price fixing by the government. When Italy thought that pharmaceutical prices were too high, they simply decreed low prices. Result: the destruction of a previously vibrant Italian pharmaceutical industry.

[3] While there may be on paper a “myriad [of] regional insurers”, they follow a pre-determined (fixed) payment schedule that comes directly from the government (Medicare). There is no competition among suppliers (providers) on price. As stated above, healthcare – with both monopoly and monopsony – is no real market at all.

Fortunately, Mr. Kain ended with a completely true statement. “The lack of universal access to healthcare in this country actually hampers business. It makes capitalism more risky for workers, and the cost of healthcare weighs down workers and businesses. The economic cost is huge, and makes American firms less competitive and American workers less secure.”

Business leaders such as Andy Grove (Intel) and Lee Scott (WalMart) have both said publicly that the U.S. healthcare non-system is the major drag on U.S. competitiveness. As a nation, we spend way too much on the healthcare system: 40% of all healthcare spending does not produce health care. With a less healthy and less long-lived populace, we are less competitive. The regulatory burden just adds to the drag.

Even ignoring the ethical advantages, it is in the financial best interests of individual persons, of U.S. companies, and of the Nation to cure – not palliate or sedate – our sick healthcare system. Curing requires treating causes not symptoms. Cure entails replacement , not reform.

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