Thursday, August 20, 2009

Could the Free Market Address Senior Citizens' Health Care Needs?

GMU Economist Russ Roberts posts an interesting question from a reader named Tom on his Café Hayek blog. In essence, the reader questions how the free market could possibly service the health care needs of senior citizens, given that pretty much everyone’s health care needs increase dramatically in their senior years.
“So here is my question: which insurer in their right mind would take on my risk?

“I suspect none. Once philanthropy and savings were exhausted, I would surely risk a painful life and preventable death.

“Do I want this? Does anyone? Isn’t “socialized” medicine for older people an unpleasant moral necessity for our wealthy society? Please note I am deeply suspicious of most arguments cast in moral terms in discussions of politics and economics. I ask these questions guardedly.”
Roberts then asks his readers to answer these questions. The response has been pretty prolific. While no one mentions the Medical Savings and Loan concept, plenty of other ideas are offered.

Some readers take exception with Tom’s assumption that no private insurer would accept the risk. They note the success of long term care and cancer care insurances, which anticipate significantly high risk.

Others suggest that Tom’s question shows that he is blinded by the state of our current health care market, which is heavily skewed by government meddling. One respondent says that Tom incorrectly “assumes that greed driven capitalism has no answer to the problems associated with the ravages of time.” In a truly free market (or even a more free market), it is claimed, insurance would look and act far differently than it does today. It would evolve to become far more tailored to people’s needs.

Some mention health savings plans and high deductible insurance. Many discuss long-term contracts where level premiums would be charged, with the premiums being lower the younger the contract is begun.

Some raise the question of how to deal with people that have very high cost (or potentially very high cost) health conditions, especially where those conditions are no fault of their own. Wouldn’t government have to step in to help these people? Not necessarily say some. A mixture of private enterprise and philanthropy may be sufficient.

But not everyone thinks that government has no role to play in health care. One respondent says that “when all else fails the government may be the reliever of last resort,” but that “there is a long road for each of us to reach that stage….” But it is important to note that “during this trip WE CONTROL ALL OUR MEDICAL DECISIONS” instead of having the state control them.

Some that say that government coverage of seniors is the only feasible solution argue for voucherizing the system to enable as much flexibility and market input as possible.

One respondent expresses his faith in the free market to come up with all kinds of solutions that we can’t even conceptualize at present. In response to this, a pessimist writes:
“The problem is that a free market would deliver unequal results. Better results for everyone, but still unequal. And since people would have nothing to compare it to, they'd bemoan the inequality and press for regulation and subsidies and guarantees. …

Schumpeter predicted that democracies would trend towards socialism as basic human needs are met and the people become afraid of creative destruction. How right he was.”
It takes quite a while to read through the entire body of responses to Tom’s questions, but doing so is an informative experience.

The general point is that given the chance, the free market would evolve to satisfactorily handle the health care needs of most of our senior citizens and even those among us that have serious health conditions. Government could play a role in helping those that the market simply couldn’t reach.

But it is also entirely possible that dissatisfaction with diversity of outcomes might engender a desire to once again politicize the system in a vain attempt to enforce equality. We never seem to learn the lessons of the consequences that must be paid when we try to achieve altruism by force.


RD said...

Insurance is socialism, A group pays into a group pool which pays out based on need. If you want free market health care you have to end insurance.

Health care does not act like a market, The price of heart surgery does not effect the demand("need") for heart surgery, After a car accident the injured will be taken to the closest hospital not the cheapest hospital or hospital chosen based on other consumer driven reason. Travel distance heavily limits access to multiple competitive options for specialist care.

To many of the principals that make most markets work are none existent in the health care system.

Health care causes way to much adjacent market collateral damage to continue pretending that it is a fully free market system. Medical bankruptcy's cost us hundreds of billions of dollars every year in NONE medical debt write off's, Where do you think the financial industry makes up these loses... In the interest rates you pay on your home loans and credit cards. What do you think happens to the values of housing every time a family loses their house to medical bankruptcy. NONE of these costs will be shown in any health care reform because they are not health related and don't directly effect the cost of health services.

Ignore the moral issues, reform of the health system has as much to do keeping the financial system health as it does with any concept of morality.

Scott Hinrichs said...

You are wrong about health care not being like other markets. We have many parallels to health care in life that are managed quite well by a much freer market. No doubt there are differences with respect to emergency care, but in general, there is no need for elitist management of others' health care needs.

RD said...

So a decrease in the cost of cancer curatives will result in a higher cancer rate due to increased demand?

Increasing the price of heart surgery is going to lower the heart problem rate due to a decrease in demand?

Both are ridicules. If health care worked as a market both would be true.

Typical consumer checks against a market are none existent, Customers rarely have the opportunity to price shop doctors, their insurance separates them from that, This doesn't just applie to doctors of course their pretty much goes for any treatment offered by insurance.

Between how insurance distorts the consumer side of the "market" and the very nature of disease calling health care a market model or trying to make it work like one is a bit naive.

RD said...

Developing World's Parasites, Disease Hit U.S.

Further proof health isn't an issue that can be left to the so called "freemarket".

Preventable communal disease's and parasites can ether cost us very little in lost life and dollars through universal access to preventative care, Or alot later on in higher disease rates and lost lives.

If the guy living next to me doesn't have a car or has a crappy car it doesn't effect my car or the quality of my car. If the guy living next to me doesn't have access to health care then his disease can easily be my disease.

The dollar cost of this all is to outrageous to ignore.

Scott Hinrichs said...

Public health is no argument for massive government run health care. There are also many public concerns with respect to our food supply. Indeed, we run into pockets of serious problems from time to time.

But having the government take over food production or become a single payer for food would not produce any safer or better system than we have today, where government provides a regulatory function. In fact, the areas where government involves itself beyond this in the food market creates more problems than it addresses. Health care is in a similar boat.

RD said...

You can't compare The food market with health care. Food is vastly cheaper, all of the basic consumer pressures are in the food market which keeps prices down. If one food is to expensive you can always buy another, curatives and treatments don't work that way. If it costs to much for heart surgery you can't treat the patient for a broken leg instead.

I will bring up another atypical behavior of the health care market, Supple and demand. In health care demand is a function defined by the disease rate, changes in price and supple do not effect that disease rate. weather that heart surgery costs $1 or $1,000,000 dollars the number of heart surgery's needed will stay constant as defined by the disease rate("demand").

No ones taking about a government take over of health care, We are talking about a government take over of health care financing. The health care "market"'s atypical behaviors, the communal nature of disease, economies of scale found in the financing side Make single payer health care pretty much the best way to do it.

Note all of my arguments are based around the economics of it all, I haven't argued based on any lofty principals or morals.

Scott Hinrichs said...

You seem to have a habit of drawing false parallels. Indeed, food is like health care and health care operates according to market principles, regardless of arguments that suggest that market principles are somehow miraculously suspended in health care.

Moreover, you accept the silly notion that the purchaser of the health care 'coverage' will not act in its own best interests --- or rather, in the interests of the political system in which the payer operates.

While you cannot exchange a bone treatment for a heart operation, our current government-run system --- Medicare --- creates perverse incentives to perform unnecessary heart operations. I saw this with my own father. He received all kinds of unnecessary (and often harmful) treatments simply because Medicare would pay for it. Who decided Medicare would pay for it? Politicians and bureaucrats; not people actually interested in my dad's wellbeing.

There is currently little cost containment in Medicare because it has competition from the perversively subsidized private health care system. But once you put everyone on a Medicare equivalent and get rid of that competition, you will indeed have universal coverage, but overall access will decrease. Cost containment will suddenly become a political necessity.

Proponents of government-run health care assert that this will not work like everything else government does. That is, cost containment will altruistically occur through reduction of abuse and inefficiency rather than through general reduction of access or targeted reduction of access to the politically unfavored. Frankly, this requires much greater faith than any argument put forward by a free marketeer.

I urge you to do actually go out and read the linked post and its comments rather than arguing with the likes of me. They are having a very interesting discussion over there and you are certainly welcome to take part in that discussion.

RD said...

"While you cannot exchange a bone treatment for a heart operation, our current government-run system --- Medicare --- creates perverse incentives to perform unnecessary heart operations."

This is true, solved by health care warranty's which currently isn't being pushed in any of the bills(republican or democrat), I hope something like it makes its way though. see link below.

Health does not act like a market or at the very least a very atypical market, I have sited several examples and described why this is the case.

I did in fact read through that link, frankly I find their misunderstanding of the reality of how health care works frightening. So I will describe the result of a more "market" based system.

The biggest thing pushed to reconnect the consumer side of price pressure back into the market is to push these so called very high deductible plans, And while it is true that this would reconnect the consumer to the cost of basic doctor visits, and minor surgery it would very likely have the immediate effect of lowering the disease detection rate. If the cost of basic doctor visits is increased by not being subsidized the rate of people neglecting treatment for basic ailments due to cost will increase. Among these basic ailments are going to be ailments that are not so basic and end up getting worse before they are dealt with. This also increases the cost to the system as a whole. Further do you want to be exposed to these people who are not having their disease properly handled? This increases your and my chance of getting commutable disease's that are otherwise preventable, This will also increase cost to the whole system.

As for long term insurance plans... PHHT your kidding you want every American to depend on a company being around 20 to 30 years after they sign up to a long term plan? INSANE, I have a simple and hard to argu response to this one.... AIG, Goldman Sacs, Lienmen brothers.

Health care warranty

Scott Hinrichs said...

This is the exact same argument that brought us to our current mess. Back when people had only catastrophic care insurance and doctor office visits cost the equivalent of $15 in constant dollars, advocates in the insurance industry and in the medical industrial complex argued that the system incentivized individuals to allow their disease conditions to go too far before seeking help. This, they noted, caused more public health issues and increased the overall cost of health care.

Like you, they ran fast and loose with the numbers. They got their wish and we began pushing toward third-party payment of everything from toenail trims to tonsilectomies. Did this push for private and government socialization of health payment solve this problem? Uh, no. In fact, we have even greater public health issues than we did back then and we have managed to increase costs beyond anything that could ever have happened in a freer market.

Yet, somehow, the solution is to do even more of what has caused the problem in the first place.

Scott Hinrichs said...

BTW, the health care warranty is a great idea. Pay the provider once for proper care. The natural result of this would be to dramatically reduce malpractice lawsuits.

RD said...

I don't recall throwing out any numbers let alone using them "fast and loose".

I would be the first to agree that often correlation is not causation. But it can be clearly stated that community's with less access to health care will have worse health outcomes. Poorer community's have a much higher rate of commutable disease's. The higher the disease rate the more economic disruption, loose of productivity, and collateral damage to those that have proper health care. Even discounting commutable disease's, catching cancer late in the game vastly increases the cost of treatment while having much worse outcomes.

"In fact, we have even greater public health issues than we did back then and we have managed to increase costs beyond anything that could ever have happened in a freer market."

I would like to see something backing this statement up. Before medicare for the number of people that had health insurance after age 60 was tiny number. Old people are not a good financial risk when it comes to health care.

The number of single payer systems/CO-OP/nation health care system in the WHO's top 10 health outcome country's is a testament to how well those systems work. We are 37th on that same list. Their now you can call me "fast and loose with the numbers".

Anyway atleast we can agree on health care warranty's. Nice to know their is a little common ground no matter how small.

Scott Hinrichs said...

WHO has a very specific set of political interests that color everything that it does. Due to the weight given to various matters, its rankings are of dubious value.

Health insurance does not equal health care.

Most of the advances in health and wellbeing have come from improved economic conditions and not from our health care system.

I strongly urge you to read this article. It is an extremely comprehensive discussion of our health care model and the proposed solutions. It is a very long article, but it is eye opening. It goes a long way toward debunking many of the myths surrounding the goodness of government involvement in the health care system. And it is written by a Democrat.

RD said...

Boy this thing is a bloody long read, I am about half way through, and will give a partial response.

I don't buy the "moral hazard" argument, If this where true single payer systems would cost more then private provider care systems. Our system costs more then twice the next closest system.

Next he pulls several numbers from the air(I won't call them inaccurate however their probably as good as any out their) using numbers related to costs after inflation with out putting the effects of inflation into context.

He sites increasing costs of medicare and medicade being caused by excessive procedures(true), New procedures/medications/etc(true) and "moral Hazard"(false or limitedly true).

New procedures and medications are going to place new burden on the system without regard for who runs it. It is often increased access to health care that cause these procedures/medications to be developed in the first place, Innovations are always good.

He also makes many parallels to market principals that don't exist in health care.

And Then he comes back to the idea of the very high deductible plan. He doesn't name it outright but calls it crazy for insurance to cover basic doctor visits. Which I outlined why this is a bad idea above.

Even if "Moral Hazard" where 100% true, The cost difference between early and late disease detection is so extreme that having more "Moral Hazard" in the system would bankrupt it. The difference between early vs late cancer detection, early vs Late detection of commutable diseases, To say nothing of the difference in outcomes in early vs late detection.

will post again after i finish reading second half.

RD said...

Look at Joe's story, How much has the system eaten in needless costs from hospital stays, Because of "Moral Hazard". A few pills that he couldn't afford would have saved the system tens of thousands of dollars. And saved his life.