Obama Is The Establishment on Health Care

By Jason Kettinger | Nov 9, 2009 at 23:11:39

A very good friend of mine directed me to a recent piece in the Atlantic Monthly on the state of health in the US, and the delivery of said services. I say it that way because the author, David Goldhill, says an overemphasis on health management (epitomized in the phrase, “health care”) as opposed to prevention and overall well-being, may be in large measure responsible for exploding costs, and the number of preventable deaths by infection.

The unwillingness to impose the most basic rules governing the prevention of illness, and the toleration of obscene inefficiencies is but a symptom of a larger problem: insulation from market forces and misaligned incentives. To hear an unabashed Democrat who favors government-subsidized insurance for the poor say these things is refreshing, and should alert us to the fact that health reform need not be the bane of the free market advocate’s existence, as one may have thought. If we can be principled without being recklessly dogmatic, we may yet find agreeable solutions in the Age of Obama. The problem is—contrary to what we were promised—Obama may not be smart enough to listen.

I was worried when I saw the title: “How American Health Care Killed My Father” — but I shouldn’t have been. Goldhill incisively writes, “There needs to be a business reason why an industry, year in and year out, would be able to get away with poor customer service, unaffordable prices, and uneven results—a reason my father and so many others are unnecessarily killed” (emphasis his).

He throws down the gauntlet, saying, “Accidentally, but relentlessly, America has built a health-care system with incentives that inexorably generate terrible and perverse results. Incentives that emphasize health care over any other aspect of health and well-being. That emphasize treatment over prevention. That disguise true costs. That favor complexity, and discourage transparent competition based on price or quality.”

After highlighting the problems, Goldhill gives us a preview of his proposed solutions: “We will need to reduce, rather than expand, the role of insurance; focus the government’s role exclusively on things that only government can do (protect the poor, cover us against true catastrophe, enforce safety standards, and ensure provider competition); overcome our addiction to Ponzi-scheme financing, hidden subsidies, manipulated prices, and undisclosed results; and rely more on ourselves, the consumers, as the ultimate guarantors of good service, reasonable prices, and sensible trade-offs between health-care spending and spending on all the other good things money can buy.”

Goldhill pretty easily convinced me that the pervasiveness of health insurance was causing a distortion in the market when he wrote this: “The average insured American and the average uninsured American spend very similar amounts of their own money on health care each year—$654 and $583, respectively. But they spend wildly different amounts of other people’s money —$3,809 and $1,103, respectively. Sometimes the uninsured do not get highly beneficial treatments because they cannot afford them at today’s prices—something any reform must address. But likewise, insured patients often get only marginally beneficial (or even outright unnecessary) care at mind-boggling cost.”

He goes on to say that health insurance and health provision are uncompetitive; health regulations (some justified, most not) are creating barriers to entry for health services. We the people cannot begin to assess how to pay for health care ourselves if its true cost is obscured or hidden, which Goldhill rightly notes, is in the interest of Medicare, the insurance companies, and health providers. He notes somewhat glumly that Medicare is the true customer in American health care—not us. If the market for health services were responsive to the market, Goldhill observes, there’d be many more geriatricians (and the commensurate rewards) to care for our aging populace.

Goldhill’s specific solutions are quite appealing to me, if competition and information become the rule: insurance for catastrophes only, credit for middling high expenses or elective procedures—and the big one—HSAs. Even if we take Goldhill’s suggestion and subsidize HSAs for the poor directly, they would still have a say in how that money is spent, and more than enough incentive to join the ranks of the non-subsidized.

The economist and political theorist F.A. Hayek believed that social insurance (i.e., a ‘safety net’) was not incompatible with his vision of a radically free market economy, which he laid out in his landmark work, the Road To Serfdom. I think Goldhill’s ideas strongly suggest that he was right, and this can be the fertile ground of consensus of our political leaders — if they have the courage and intelligence to listen to us.

But here are the questions and obstacles to this actually taking place: Do Democratic leaders, in their heart of hearts, believe in markets? What percentage of them prefer the status quo, and prefer the current terms of debate (which will lead to full government control) as a means to acquire power? Do the Republicans believe in markets? Do they believe in competition? Are they willing to stand up to the insurance industry to allow the transparency and disclosure that would be necessary for the people to manage their own care? How will providers react to selling far less insurance?

I think libertarians and other conservatives should gladly accept the direct subsidization of HSAs for the poor if the other market reforms were put in place. Unfortunately, I think Obama prefers a command system that he controls over the dynamic, responsive system Goldhill describes. And that’s a pity.

Jason Kettinger is a contributing editor to Open for Business.