The Ever Elusive Fantasy of Free Markets in Health Care

I have often referred to my colleague, Dr. Don McCanne, on this blog. In fact, I have extensively quoted him here. Allow me to better introduce him to you. He was the subject of a recent feature article in the Orange County Register (http://www.ocregister.com/news/-183873-ocprint--.html). Excerpts:

It sounds like a golden age in medical care.
You went to the doctor and received medical care. You didn't jump through hoops such as prior authorization, referrals or network providers.
“Insurance didn't interfere,” recalls Dr. Don McCanne, who practiced family medicine for 31 years in San Clemente before retiring in 1997. “You just took care of the patient.”
Then, in the 1990s, came the “managed care revolution.”
Suddenly, he says, the private sector “intruded in the relationship between the physician and the patient.”
In his practice, McCanne worked evenings and weekends to treat the poor or undocumented without health insurance. Today, he sees the same problems getting worse: Medical costs have soared, and many people still don't have access to health care.
McCanne, now 74, volunteers as a policy fellow for Physicians for a National Health Program, where he was a past president. His group favors a single-payer national health program often called “Improved Medicare for All.”
It's not socialized medicine, just socialized insurance.
The Patient Protection and Affordable Health Care Act, which survived a judicial cliffhanger in the U.S. Supreme Court, only remodeled the existing structure.
McCanne says the act corrects several issues but doesn't go far enough. His group's position is that when the law is fully implemented in 2017, more people will be insured, but under plans that won't provide adequate coverage. Many low-income families could be left out altogether, and medical costs will continue to rise.
“It didn't fix the system,” he says.
McCanne describes an alternative that sounds stunning in its simplicity:
Everyone would be automatically enrolled in a national health plan at birth. There would be no deductible, no out-of-pocket, no coinsurance and no networks. It's similar to Canada's national insurance.
“It returns choice to the patient and removes monetary barriers to care.”
Doctors and hospitals would deal with only one plan, cutting administrative costs and improving planning. Today, McCanne notes, 31 cents of every health care dollar is spent on administrative costs.
We would pay for this insurance through an employer payroll tax and income tax. Physicians for a National Health Program says most taxpayers would spend less than they do now.
McCanne doesn't seem like a doctor who could hustle you in and out of his office in seven minutes without making eye contact. He also doesn't seem like a policy wonk.
The son of a doctor, he seems like a guy fundamentally offended by the way things work today. Too many uninsured patients came to him too late, ignoring a malady until it has reached a late stage.
“We are the only nation that rations health care based on ability to pay. … As a doctor, if someone needs health care, I give them health care. That's just the way it should be.”
McCanne's group – a nonpartisan think tank that seeks to educate the public about what works and what doesn't work in health reform – says we won't control health care costs until we overhaul the way we pay for them.
The group estimates a single, national insurance plan could save over $400 billion per year in administrative costs.
McCanne also argues we should stop allowing medical costs to drive families into bankruptcy.
“Half of all personal bankruptcies have medical debt as a contributor, and of those … three-fourths were insured … so insurance is not providing the financial protection it's supposed to.”
I see the logic, but isn't it a little naïve to think the insurance industry and lawmakers are going to fall into line behind a change simply because it makes sense?
“I'm a pragmatic idealist,” he responds. “I'm not for incrementalism, which doesn't work at all. … Or for supporting legislation because it's what we can get passed. …
“We support policy that really works.”

Dr. McCanne's pragmatic idealism was the subject of a letter to the editor which appeared shortly after this article cited above (http://letters.ocregister.com/2012/08/25/health-care-cure-is-an-rx-for-e...). Excerpts:

The smiling Dr. Don McCanne and his cadre of liberal progressives speciously suggest that the “cure” for health care in America is another entitlement to be paid for through the income tax system, as if this country is not already $16 trillion in debt (not counting unfunded liabilities.) The state of our entitlement system is completely ignored: Social Security is operating in the red with more funds flowing out than in for the first time in our nation’s history, propped up by a “trust fund” consisting of IOU’s from the Treasury. Medicare will follow that scenario sooner, rather than later, now that Obamacare has siphoned $716 billion in funding from Medicare over the next 10 years. All of this while Dr. McCanne proposes to place yet another burden on the barely 50 percent of Americans who pay taxes, mostly to be borne on the backs of the middle class, for that is where one finds the real wealth of this country. McCanne’s “cure” for health care is a prescription for the financial collapse of this country.
Using Nobel Laureate Milton Friedman’s logic, a medical system that provides the best quality to the most must necessarily embrace free-market principles, but the free market is absent in our health care industry today. In 1945 Congress passed the McCarran-Ferguson Act, which exempted the business of medical insurance from federal antitrust laws.
Thus insurance companies may freely conspire to price-fix without legal repercussion, and consumers cannot readily compare prices for products and services. Coupled with expensive and unnecessary tests defensively prescribed to ward off meritless malpractice suits, our system is certainly sick, but it is not incurable. Just as the computer evolved from a slow, clunky but pricey desktop to a sleek, fast laptop at less than one-fourth the price of the original 30 years ago, competition and innovation can bring down the cost of health care, improve quality and enhance affordability. A free-market prescription begins with the embrace of free-market principles: repealing McCarran-Ferguson, posting prices for services and products, competition across state lines, tort reform and empowering the consumer.

Dr. McCanne is a pragmatic idealist who seeks policy that will actually function. The responding critic is an ideologue who seeks policy that conforms to pre-determined ideas. Here's how Dr. McCanne himself responded to the ideologue (http://letters.ocregister.com/2012/09/05/how-the-u-s-should-fix-health-c...). Excerpts:

She then proposes a “free-market prescription.” In doing so, she ignores Nobel Laureate Kenneth Arrow’s seminal work of a half century ago demonstrating that health care fails competitive market preconditions, and “when the market fails to achieve an optimal state, society will, to some extent at least, recognize the gap and nonmarket social institutions will arise attempting to bridge it.”
In 2004, I was on a panel debate with Milton Friedman discussing prescription drugs. In that debate he said, regarding the government’s defense of patents, “My initial reaction was to say, of course we want to let the market completely work, and instead of having the government defend the patent, let the patent owner defend it. But the more you look at it, the more you see that’s inconsistent.” He also acknowledged the importance of government in drug research. Even in Friedman’s view, pure free markets are an illusion.
Further, the oracle of free markets, Noble Laureate Friedrich A. Hayek, in “The Road to Serfdom,” wrote, “There is no reason why, in a society which has reached the general level of wealth ours has, (the certainty of a given minimum of sustenance) should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health. Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision.”
Every other wealthy nation provides comprehensive health care to virtually everyone, and they do it at a per person cost that averages close to half of what we spend. The secret is that they all use some form of social insurance, acknowledging the fact that health care markets inevitably fail for far too many with significant health care needs.
The Affordable Care Act of President Barack Obama supposedly relies on market principles by expanding competition of private health plans. Under the act, 30 million people will remain uninsured, inadequate health plans with low actuarial values will become the new standard and costs will continue to increase out of control. This is the most expensive of all possible models of health care reform, and yet falls miserably short of achieving a high-performance system. It is a mistake to pretend that markets will work since free markets do not and cannot possibly ever exist in health care, as the current reform effort once again demonstrates.
As Herbert Stein would say, the current status cannot continue. It is absolutely inevitable that eventually we will enact some form of social insurance.

My comment:

Our nation is caught in its health care nightmare because of the 'ever elusive fantasy of free markets in health care' (Dr. McCanne's words). Every serious economist (including Milton Friedman) recognizes the unique features of health care delivery which negate market forces. Profits in health care always come at the expense of patients. Competition increases costs. Patients can not make informed decisions as buyers (ala "let the buyer beware"). Everytime one hears the words 'free market' in the health care debate, one should recognize that phrase for what it is: an ideological statement which aids and abets the corporate welfare which is stealing our nation's ability to care for its sick and injured.

Thank you Dr. McCanne.

Dr. Joe Jarvis