Sunday, September 2, 2012

Ideology Verses Objective Solutions in Health Care

Ideology Verses Objective Solutions in Health Care

As the recent Supreme Court ruling came out partially in favor of the majority of the Affordable Care Act (ACA) an outbreak of debates and speculation spread across the media and into people’s everyday conversations.  There appear to be two main arguments being put forth.  The first comes from the Republicans who don’t want the government to interfere with the private sector and believe that only a market-based solution is the answer.  The second comes from the Democrats who believe that the private sector has failed to address the problems of health care access and that government needs to step in to regulate insurance companies.  However, is it possible that both parties are not honestly addressing the health care crisis because of their own ideological cant?  

A basic understanding of economics shows us that a market-based approach to solving the health care crisis is not possible.  And a basic understanding of how the insurance companies operate shows us that banning bad insurance practices and forcing all U.S. citizens to buy their product may also not solve the health care crisis.  The unfortunate casualty of this ideological short-sightedness is all U.S. citizens because the best solution to the health care crisis, a medicare-for-all system, has been ignored in a rush to push ideology ahead of objective solutions.

The conservatives are upset about this bill because they would rather have the government stay out of health care and let the market solve everything.  But have they ever stopped to ask if the market is even capable of such a thing?  Empirical evidence has shown us that it is not a good way to deliver health care because that is not the market’s primary purpose – which is to maximize profits.  A research paper written by two leading public health policy experts, Dr. Steffie Woolhandler and Dr. David Himmelstein, has also provided evidence to show how the private health industry is increasing costs, and not decreasing costs like the theory suggests it should. 

There are a few basic elements that are required for an efficient market to work properly.  In order for the producers to operate under conditions of perfect competition requires a rigorous set of conditions - perfect information, a uniform product, many sellers and buyers, and freedom of entry and exit.  All of these things support the basic idea that sellers are price takers, producing at the lowest possible cost in the long run and earning profits.  In the health care industry the number of sellers is limited and restricted, while the number of buyers is uncontrolled and could be considered almost infinite. Add to this fact is that buyers have no freedom of exit from the health care industry. For example: The buyer says, “Well, I disagree with how much you are charging for a heart bypass, so I’ll just skip on down the street to the next guy who is doing them for cheaper.”  

The above elements, along with the massive lopsidedness of information, the monopoly power of hospitals, and the atypical nature of health care are all clear violations of the perfect competition requirements for the market to function as the theory suggests.  Furthermore, in a market the price is supposed to be established not by the buyers or sellers, but through a thing called market forces - supply and demand.  In the health care industry the market forces fail to institute either price or quantity because demand is price-inelastic.  So the market has failed to establish price and quantity and the health care providers have become price-makers.  This phenomenon in economic speak is called, market failure.  So why do Republicans continue to promote privatization of health care if the private market is failing?  Market reform is a nothing short of a joke because of the inherent non-market nature of this industry. And this is all before the insurance companies even step into the picture. 

The inherent function of insurance companies is to maximize shareholder value and profits, and not provide health care, as their number one objective.  This basic understanding of the health insurance industry is why the Democrats believed it was necessary to curtail some of their worst abuses.  The New England Journal of Medicine published a research article by three public health policy experts that explains how thirty-one percent of health care spending in the United States is wasted on administrative costs.  To compare, the overhead cost of running the non-profit Medicare system is three percent.  Take a moment to think about that.  Thirty-one cents of every dollar is wasted on profits for insurance executives and shareholders, advertising and the bureaucratic mess of running a patchwork system of for-profit payers.  So why do the Democrats believe it is a good solution to force all U.S. citizens to buy insurance from a system that siphons so much money out of actual health care?

The Democrat’s argument claims the ACA bill is a step in the right direction because it regulates the insurance companies from engaging in bad practices.  Ending rescission policies, ending denial of coverage for pre-existing conditions, ending of lifetime caps, and expansion of Medicaid are all good things.  But what of price controls?   According to experts there are no price controls in the bill.  The idea that an insurance company can no longer deny customers insurance coverage because of pre-existing conditions is a great concept, but how great of a concept can it really be if there are no mechanisms in the bill to stop insurance companies from charging whatever they want for monthly premiums and co-pays?   To make matters worse, the ACA bill forces all of us to buy into this situation.

The curious fact about the ACA bill is that so few seem to know who actually wrote the bill.  It turns out the majority of the bill was written by Liz Fowler, a former Wellpoint insurance executive.  How comfortable should we all feel that the “solution” to our health care crisis was written by a person with an obvious conflict of interest?  Liz Fowler may be a credible expert in maximizing profits for insurance corporations, but she is definitely not an objective public health policy expert like those who run Physicians for a National Health Program (PNHP). 

The objective solution to our health care crisis is a basic medicare-for-all system, or a single-payer system as some call it.  A single-payer system is not socialized medicine; it is a non-profit financial mechanism run by the government.  After all, why is a middle-man corporate entity allowed to make billions in profits from the sick and dying?  The U.S. Government Accountability Office (GAO) agrees that implementing this type of system would help solve spending problems and ensure universal coverage. The GAO stated: “If the universal coverage and single-payer features of the Canadian system were applied in the United States, the savings in administrative costs alone would be more than enough to finance insurance coverage for the millions of Americans who are currently uninsured.”  So why is the objective solutions coming from the GAO and PNHP ignored in favor of the solutions of an insurance policy expert?  This question and many more will definitely be things to think about as we watch how the ACA bill unfolds in our everyday lives.

Yours Truly,

Hic Civis

UPDATE - 3/13/2015 - See Part II

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