The Free Market and Health Care

Who says doctors and lawyers can’t agree? The Annonymous Liberal replies to John Stessel’s recent column on health care by providing essentially the same arguments I’ve made in recent posts (including here and here) debunking arguments from Rudy Giuliani:

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).

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2 Comments

  1. 1
    Trey007 says:

    THe two things I like about Stossel is that he seems approachable with an arguement well made, as is yours, and he never does the name calling like the ORielly-Hanity-Limbaugh-Zealot Crowd. So perhaps the “knee jerk free market worshipers” is unnessisary? Have you seen him argue with Hanity? There is nothing knee jerk about him, though you are correct, he is very pro free market. Nevertheless, your argument about how does one “Shop” in a medical free market is a good one. I wish I could state flatly that you are correct, but then, I could not understand how the government granted Monopoly to AT&T could be broken up and “competition” would ensue either. I kept objecting to Ma Bell and competition thinking, there is no way I will sit back and let them put up a dozen telephone polls just so I can have a choice as to which phone company I want. So with that in mind, I am not so quick to say just What a truly free Market medical industry would look like either. I do know one thing, I do not want govt regulating health products and vitamins and so forth…which I fear will one day fall under the FDA’s power to control, limit, and regulate. I like the free market we have hin the alternative health market, D.O’s and acuputure and so forth. But your arguement is a good one. This seems like a reasonable argument to make to John Stossel, have you made it to him directly over his website and did you get an arguement back? Right now I am about to buy Code Blue: Health Care Crises written by a doctor who is against a government take over of health care…. I will keep your question is a good one, “how does one shop in a free medical market?” Will the internet make my shopping easy, like selecting an airline ticket? I will keep your question in mind. Have you read this book? Send your question over to John Stossel, he is not a name caller, and I am sure he will answer you…well I hope he will.

  2. 2
    Ron Chusid says:

    Trey007,

    “So perhaps the “knee jerk free market worshipers” is unnessisary?”

    Note that this is a reprint of someone else’s post, and that line was not written by me. There is still validity to it. Most of the time the free market handles problems better than government, however a problem seen in many supporters of the free market is that they start with this assumption and twist the facts to demonstrate this even in the rare cases where it isn’t true.

    “Right now I am about to buy Code Blue: Health Care Crises written by a doctor who is against a government take over of health care.”

    I haven’t read it. What I’ve heard about the book hasn’t been very favorable, but I can’t say from first hand experience with it. Government take over of health care is not on the table, and if he uses such scare tactics in his book it is not worth reading.

    “Will the internet make my shopping easy, like selecting an airline ticket?”

    No, there is no relationship between health care and buying an airline ticket. Annonymous Liberal is writing here about situations where shopping is impossible, such as in an emergency. Even if it could be used, there is a tremendous amount of mininsormation on line. Even when the information is good, it is easy for people without a medical information to misunderstand it. I see patients quite frequently who have researched things on the internet and, while sometimes it is helpful, often they come in with a totally erronious picture of the problem.

    In the case of buying an airline ticket, all you really want is the lowest price once you’ve decided where and when you want to go. If you are planning to fly, presumably you can afford the ticket out of pocket. In the case of health care, costs are too high for most individuals and shifting more of the cost to individuals is a poor solution.

    Another difference is that with health care the question often comes down to whether you will “buy.” One problem we have is that many patients do not receive sufficient preventive care and routine care of chronic diseases. They save money in the short run, but ultimately this costs more as problems like diabetes cost much more to treat if patients do not receive adequate care very early in the disease process. When people are forced to pay out of pocket, they tend to postpone such costs. See my posts on Health Savings Accounts which go more into this.

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