Single-Payer National Health Insurance around the World Part III

by admin on 06/19/2011 12:48 PM

In 2002 and 2003, we reviewed The Twenty Myths of health care reform. Now a decade later the authors have updated the book, renamed it, and added important 21st century data.
Lives at Risk by John C. Goodman, Gerald L. Musgrave, and Devon M. Herrick
(Continued from the April 2014 HPUSA Newsletter)
PROBLEM: WE HAVE SUPPRESSED NORMAL MARKET RESPONSES

Some of the things we have been saying about health care are also true of other goods and services. For example, we could probably spend our entire gross domestic product on automobiles, with each of us owning several to use over different terrains and in different seasons. But no one ever asserts that this is a problem. To the contrary, most people regard it as an opportunity. The fact that automobile manufacturers have discovered so many different ways to satisfy our needs makes us better off, not worse off (pollution problems aside).

Similarly, fine wine is probably a superior good. As people’s income rises, they tend to buy more of it. And in recent years, supply has increased to meet demand, as vineyards have expanded all over the world. Again, no one regards this as a problem.

So what makes automobiles and fine wine different from health care? Why are problems that cause so much hand-wringing in health care not seen as problems in the other two markets? The answer is that in this country and in all developed countries we have suppressed the ability of the market to allocate health care resources.

The suppression of the market in health care began more than 100 years ago. It started with controls on who could be a physician and how those licensed to practice should behave. By the mid-twentieth century, controls were extended to the hospital sector and then to health insurance. By the 1970s, with government paying more and more medical bills, policy makers realized that prices and markets were not able to do their job. Similar trends occurred in other developed countries.

What does it mean to suppress normal market forces in health care? Not long ago, if a doctor competed aggressively against other doctors, say, the way auto companies compete against each other, he or she could be in real trouble. For example, if the doctor posted his normal fees and compared them to other doctors’ fees, if he compared the quality of his practice to that of another physician or if he advertised at all he could be expelled from the county medical society. That, in turn, would lead to a loss of privileges at all the hospitals in his area. If the offense were bad enough (irritating enough to his fellow physicians), he could lose his license to practice medicine.

Until very recently, the hospital sector was dominated by nonprofit institutions whose sole task was to facilitate the doctors’ goal of treating patients.

Not only were hospitals not supposed to function like businesses, they went out of their way to avoid certain common business practices. For example, for a hospital to compare the quality of its care to the quality offered by a competitor would have been unthinkable. Advertising itself was unthinkable. Not only did hospitals not post their prices, no one paid them other than the occasional uninsured patient. At the time Medicare (for seniors) and Medicaid (for the poor) were adopted in the 1960s, virtually every hospital in the United States was paid by insurers based on cost-plus reimbursement. And when the federal government set up Medicare, it joined the cost-plus system, paying for health care the way it paid for weapons systems. All in all, the health care system in this country and throughout the developed world functioned according to rules that resembled a medieval guild more than a complex modern market.

Times have changed. And they have changed more in the United States than anywhere else. Other countries have left in place the medieval guild approach to medicine and tried to control costs in crude ways that we will examine. In this country, however, we have made dismantling the guild and promoting competition a public policy goal.

Doctors today can compete in almost any way they like. They can post prices; they can advertise; they can boast about the quality of care they deliver.

Hospitals can do the same. And insurers can pay hospitals based on any arrangement that can be reached through no-holds-barred voluntary exchange in the marketplace. But although the shackles have been removed and although the law no longer protects it, the 100-year-old culture that has dominated medical practice has not disappeared.

Pick up almost any daily newspaper and you will find evidence that the medical marketplace is still not functioning like other markets. “Hospitals Say They’re Penalized by Medicare for Improving Care,” blares a front page headline in the New York Times.14 “More Care Is Not Better Care,” leads a Times guest editorial, citing evidence that Medicare spends twice as much on seniors in Manhattan as it does Portland, Oregon, without getting any improvement in quality or patient satisfaction.15

But there are two consoling observations: first, the medical marketplace is becoming more competitive, and second, things are much worse in every other country. Read the entire article. . .

Continued in the October 2014, HPUSA Newsletter . . .

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