Saturday, April 24, 2010

Healthcare and What Markets Won't Do

Remember back when dual-blade disposable razors came out, and everyone said you’d get a closer, more comfortable shave because two was better than one?

Time passed, and Gilette introduced the Mach-3, with three blades and a conditioning strip for your skin. Next, Schick came out with the Quattro. (Guess how many blades that one had)? Gilette responded with the “Fusion,” which features five blades with an even better conditioner.

Nobody saw where this thing was headed? How many dollars of “research” and advertising could have been saved if somebody had just jumped ahead to the razor with ten blades and conditioning strips with aloe vera between every blade? Who wouldn’t want a razor you can move an inch and your whole face is whisker-free and moisturized?

I’m being facetious, but my point is that often “the market” doesn’t give us what we want because it’s not profitable. Without a one-blade-at-a-time improvement, you don’t have over a decade of “new and improved” to boast about.

Or, to paraphrase Chris Rock:

We’ve got engineers who can put together metals that we shoot into space that can come back through the atmosphere unblemished, but Cadillac can’t made an El Dorado with a bumper that doesn’t fall off? Of course, it can. But they’re not going to do something that (expletive) stupid.

The money is in consistent returns, not durability and customer satisfaction. (This might also explain why Microsoft has a new operating system every other week).

Do consumers get wise? Sure. At some point, they throw their hands up and say I’m going with Apple, or they pull out the old dual blade and say, “This never killed me.” But what a colossal waste all delivered to you by ”the market." Adam Smith equated the market to an "the invisible hand" that, in the aggregate, would benefit society if we just let selfish, individual desires run wild.

Now, lest I be accused by some teapartier of being a socialist, communist, fascist, tyrant, or all four, let me be absolutely precise: market-based competition is the most-efficient approach for how a society distributes goods and services. But as Time's Justin Fox noted after reviewing Smith's seminal works:
Smith also calls for regulation of interest rates and laws to protect workers from their employers. He argues that the corporation, the dominant form of economic organization in today's world, is an abomination.

. . .

Asking "What would Adam Smith say?" is a lot easier than conclusively answering it. It is pretty clear, though, that he wouldn't just shout, "Don't interfere with the invisible hand!" and leave it at that.

Subscribing to the view that that "the market" will magically work everything out shows staggering ignorance of history. Many things we now hold sacrosanct were never delivered by "the market." Here are a few off the top of my head (feel free to add your own in the comment section):

A Forty-Hour Work Week. How many companies paid time-and-a-half for over forty hours, had per week hour limitations, and gave holidays off, even without pay, before government stepped in? I bet 1 percent, if that.

Children Don't Work in Sweatshops. Doesn't "the market" work in Southeast Asia and Sub-Saharan Africa? Then why are 158 million kids working in sweatshops globally, but almost none in the U.S.? (Shhh! It wasn't "the market" that made us better on child labor, it was "the government.")

Safe Working Conditions. Out of curiosity, for those who hate "federal regulations," do you think "the market" would compel the mine where 29 men died recently to tell you the truth about why it blew up? If federal authorities hadn't been all over the Exxon Valdez, do you think "the market" would have compelled Exxon to tell us about a drunk sea captain?

Safe Food. Anybody remember Upton Sinclair's The Jungle? (Gag reflex) Or for a more recent example, did "the market" make Centerplate Catering invest sufficient dollars to remedy mice infestation at Lucas Oil Stadium, or was it the public disclosure of health code violations, a government achievement? In fact, without "government regulation," would Centerplate have told us all about its problems? I seriously doubt it, and as all economists know, for "the market" to work, we need "perfect information" so consumers can decide whether we want Centerplate's rat-tailed teriyaki kabob or an oversized pretzel instead.

Family Medical Leave. On August 5, 1993, Bill Clinton signed the Family and Medical Leave Act, which is what lets you take time off without pay, mind you, to care for a dying spouse. This is the same bill George Bush vetoed twice saying, "The federal government should not tell employers what benefits to offer their workers." (Fair enough, Mr. President, then why didn't you work to repeal the 40-hour work week or the minimum wage, another thing "the market" certainly didn't deliver).

Discounted Student Loans. Do you have student loans? Did you pay during college for the loan you took as a freshman? Did you have a hard time finding a job fresh out of college? Did you take a forebearance? Would "the market" have let you do that? Go take a $4,000 loan and tell them you want to just hold off until you get on your feet. Let me know how that works out for you.

Clean Water. Are we better off than in the 1970s? Yes?

Clean Air. Are we better off than in the 1970s? Yes?

How come air and water only got measurably better after government regulation? Why wasn't "the market" able to keep the Cuyahoga River from catching on fire? Why doesn't "the market" keep the Chinese (who are actually big market fans, by the way) from sending us dangerous consumer products? I say we get the government out of the way and let "the market" work. When enough people die from the diethylene glycol in Chinese toothpaste, we'll stop buying, won't we?

(As a quick aside, don't you love how back when Democrats wanted to just limit emission of pollutants factory by factory, the Republican response was, "No, let's just create an aggregate cap, then we can use the free market so that companies that do better than others can sell their allowances, thereby creating an incentive to pollute less. Now Republicans hate it - it's called "cap and trade").

And most importantly...

Health Insurance That Doesn't Discriminate Based on Pre-Existing Conditions. Former U.S. Senator Bob Dole once said that anybody could get health insurance. He’s absolutely right. If I gave an insurance company all of my medical claims for the past ten years, and they averaged $100,000 per year, I bet if I agreed to pay $500,000 a year in premiums, they’d cover me. As long as I have an extra half-mill floating around, I’m golden.

From Hoosier Access:
If we force insurance companies to provide coverage without regard to pre-existing conditions, that completely misses the point of insurance. If someone can get “insurance” coverage when they are already sick, that is not insurance because that is not pooling risk. That is redistribution of wealth.

This is an intriguing philosophical statement by conservative commentator Scott Tibbs, but am I to believe Republicans didn't know this until now? So why did they all say they were for this provision? Oh, that's right. Because seventy-six percent of Americans favor this idea. But has "the market" delivered it yet?

Republicans say, "Oh, that's not fair. We've restricted the market by not letting companies sell across state lines." Sounds great, but every state in the union has a Department of Insurance that heavily regulates the product. Once these companies can sell across state lines, who will regulate them to ensure they don't deny people coverage because of pre-existing conditions or deny claims for bogus reasons? Wouldn't only a (gasp) federal agency have the jurisdiction to regulate "federal" plans?

Republicans also say healthcare prices will go down if (a) hospitals post prices on a wall chart like Jiffy Lube does for oil changes; and (b) consumers pay more out of pocket so they have the incentive to "price shop," thereyby seeking cheaper services or foregoing treatments altogether.

Well, of course, we will. Who wouldn't chose a plasma TV over an MRI? But aren't there 40 million Americans without health insurance, meaning there are already a lot of "out-of-pocket" payors?

Isn't it also true that only 57% of Americans (157 million) have dental insurance, meaning over 153 million fully out-of-pocket dental consumers? But have you ever seen a dentist's website advertising the "cheapest root canal in town?" Why hasn't "the market" delivered price listings? And if the market hasn't done it and won't do it, who will? Do you seriously think any hospital wants to tell you what they charge you for an aspirin? They all get over on us.

Herein lies the double-edge blade for Republicans. They want "the market" to solve our problems, but it hasn't, and to the extent Republicans say this is because "the market" is broken, the only thing that can really fix "more government." Sweet dreams, GOP.



Aleea said...

Great point, Chris, and ones that I tried to make to my cousin's child (17) when he announced on Facebook that Liberals were the reason for the world's problems. I (not-so) gently reminded him that the 40 work week, overtime and child labor were not "market" inventions. I'll direct him to your column. Thanks.

Mann Law, P.C. said...

He’s absolutely right. If I gave an insurance company all of my medical claims for the past ten years, and they averaged $100,000 per year, I bet if I agreed to pay $500,000 a year in premiums, they’d cover me. As long as I have an extra half-mill floating around, I’m golden.

Isn't that exactly what this plan does. First, under previous law, insurance companies could only exclude for preexisting conditions if you were uncovered when you apply for the new insurance. This could only occur for 6 months. The new plan basically cuts out the 6 months. Nothing in the plan says they cannot charge you the $500,000.00 but that they must offer you the plan. So what exactly did government give you except the patriotic duty to also pay for the plan for people who do not pay federal income taxes which is more than half of the people in the US.