Sunday, June 14, 2009


A large impediment to the advocacy of free market principles in healthcare is the intuitive notion that such principles are incompatible with the idea that healthcare is a right. Healthcare is not a right, at least in the commonly used sense that it is a constitutional obligation of the government. No less an authority than the U.S. Supreme Court has already recognized this:

The Constitution imposes no obligation on the States to pay the pregnancy-related medical expenses of indigent women, or indeed to pay any of the medical expenses of indigents.
Maher v. Roe, 432 U.S. 464 (1977)

The postition that healthcare is a right is asserted dogmatically, but the assertion cannot withstand scrutiny. Until this misperception is dispelled, advocates of government financed healthcare will have a formidable, if disingenuous talking point, one that will be used to defend potentially disastrous alterations to our healthcare system.

But if healthcare is not a right, what is it? If I may wax Obamaesque for a moment: There are those that assert that healthcare is a right, and not a privilege. But I reject the false choice between those two extremes." In fact healthcare is neither a right (in the sense that someone is obligated to provide it for everyone), nor a privilege. It is instead a limited resource that must be provided and used judiciously. This is the key to understanding the healthcare "crisis." View healthcare as a limited service, and you can clearly see the differences in philosophies underlying the various healthcare proposals.

Wise use of resources requires stewards, and the debate at the moment reduces to who is the most appropriate steward for utilizing the impressive healthcare resources of the United States. There are four obvious candidates:

1.) The patient. This is the model that pure free marketers advocate, and in theory, the main stakeholder.
PROS: This is the human life that is actually affected by healthcare decisions. The patient has the most incentive to retain the quality of the healthcare system, and since he ultimately ends up paying for a portion of it in one way or another, he should be able to exert consumer pressure to keep prices down and service up.
CONS: Most patients do not have the sophistication, nor the objectivity to evaluate healthcare decisions. They are dependent on providers who guide them through the decisions between angioplasty and by-pass surgery, revascularization vs. amputation, expensive diagnostic studies vs. watchful waiting. Likewise they may be confused by the intricacies of determining actuarial risk among various pools, and not fully understand the subtleties of different insurance plans.

2.) Insurance companies. These are ideally thought of as the agents of the patients, serving to diffuse risk among appropriately described pools. The employer-provided model significantly limits the utility of insurance companies, by constraining the choice of individual patients, and injecting job-related uncertainties into the private insurance market.
PROS: Insurers can be objective. In a competetive market, they have an incentive to select out the most efficient aned efficacious therapies. Through their premium structure they can promote preventive and public health practices that lead to more efficient uses of limited healthcare resources. They can use their actuarial skills to adjust risks for arbitrarily sophisticated treatments.
CONS: The more regulated insurers become, the more their interests conflict with their policy holders. Publicly traded companies also must balance the interests of insureds and shareholders.

3.) Physicians. They are the most knowledgeable regarding the use of resources and the expected benefits to the patients. In theory, they are patient advocates.
PROS: Physicians have the best knowledge regarding the use of resources in a particular case. They are responsible for expending resources in a manner that benefits the patient's health. They interact with the patient and are exposed to the patient's concerns and anxieties. A large part of medical expenditures is the direct result of uncertainty reagarding the patient's care. The physician alone is charged with accommodating this uncertainty.
CONS: The present system imposes a multiplicity of conflicts of interests. The physicians financial interests sometimes enters into medical decision-making; the spectre of medical liability results in the waste of resources under the guise of "defensive medicine." Regulatory requirements, hospital medical staff rules, insurance panels, unreasonable family members of patients, and dwindling reimbursements all compete for the physician's decision-making attention.

4.) The government. The government brings two things to the financing of healthcare: coersion and other people's money.
PROS: They government can limit costs by diktat. It can force physicians, with criminal penalties if necessary, to conform to the ideologies and pet theories of the bureaucrats in charge of the system. It can confiscate property and money to pay for services.
CONS: Efficiency suffers whenever any system must simultaneously accommodate multiple competing interests. The government is far and away the institution most subject to this effect, and consequently will be the least efficient steward of healthcare services. This is a main reason why the government will have to ration, why waiting times will soar, why care will suffer, and why choices will diminish. The government will only be able to accommodate "good enough" care. Furthermore, the government may coerce people, but it cannot coerce the outcomes of the immutable forces that affect the production of goods and services. A fair market contains an intrinsic optimizing feature: competition. A prescriptive government defauting to command economy methods will eventually respond only to political concerns rather than individual patient care concerns. And obviously, the smartest people will not be running healthcare with the government in charge.

Taken together, the reforms most useful to the American healthcare system will: exclude the government from running anything; limit the conflicts of interests imposed on physicians, especially the tort liability system and mindless "guidelines" drafted by remote functionaries; allow the insurance industry to compete on the basis of efficiency and the values and preferences of their insureds, rather than the ideologies and parochial vanities of policy-makers; and allow patients to find those insurers that will help them get the services that they need and value in the most efficient ways possible.

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