Economy

Health Care is not a Commodity

By Ryan McGreal
Published July 16, 2007

With the release of Michael Moore's new documentary, Sicko, the on-again, off-again debate in the US over public vs. private health care has flared up again.

It behooves Canadians to pay attention to this debate, because the same people who, in the US, stand to lose the most if that country adopts universal health care also stand to gain the most if Canada abandons it.

As usual, there is far more heat than light in the debate; and most arguments come down to dogma.

The dogma of private health care is that whatever the government can do, the market can do better. Among those people who trumpet the dogma of market efficiency, mere facts can rarely penetrate their certainty (and in any case, it's not hard to throw so much sand that no one knows what the facts really are anyway).

In any case, even if we accept the dogma of market efficiency on its face, a strong argument can be made that delivering health care is simply a poor candidate for market forces because health care itself is a poor candidate as a commodity.

  1. The principal economic incentive for an insurer is to collect premiums but not pay out benefits. This manifests in co-pays, user fees, risk selection, and service denial for pre-existing conditions - i.e. conditions that are most likely to require medical intervention.

    Right off the bat, treating health care as a commodity tends to mis-allocate spending away from where it is most needed.

  2. Single payer health care is better at prevention and early detection. For-profit drug and surgery providers want to maximize treatment, not prevention, and then insurers respond by finding ways to disallow coverage.

    The result is an ineffective mishmash of heroic, costly last-minute interventions for those with top-tier coverage and either inconsistent, haphazard service or actual denial of service for lower tiers.

  3. Single payer health care rations spending based on medical need, not based on ability to pay. Therefore, limited health care resources are allocated more efficiently to where they are needed most.

  4. Single payer health care has much less bureaucratic waste [PDF]. Because companies don't have to worry about who's going to pay, whole business units are eliminated or severely scaled back, and administrative costs drop dramatically.

  5. Single payer health care doesn't waste money on profit. Profit is money that goes into the health care system but does not provide health care. It's pure waste, especially since other aspects of for-profit health care add far more inefficiency than market forces can reduce.

  6. Because medicine is so complex, it's hard for patients to make informed decisions on purchasing care. To function efficiently, markets require informed, rational agents to negotiate contracts, but the information ratio between patients and providers will always be unbalanced.

  7. Doctors and patients should have the final say on medical treatment, not accountants and auditors. American doctors frequently complain that insurers second-guess or overrule their decisions, but the doctors are the experts.

  8. Health care is intrinsically labour-intensive. It requires people to deliver and administer, so market-imposed efficiencies cannot significantly improve labour productivity.

  9. It is impossible to shop around for a health care provider during a medical emergency. If you suddenly discover that the procedure you need is not covered, or that your insurer doesn't operate in the jurisdiction where you are having your emergency, you are out of luck.

Markets do some things very well; they do other things well when properly regulated; some things they cannot do at all.

An overwhelming majority of Americans supports single payer health care and has done so for a very long time, despite the near-absence of any media reports supporting or endorsing it. If markets always gave people what they wanted, then the US would have a market-based universal health care system.

The fact is that market forces by themselves cannot produce universal health care, since the market by definition will not allocate resources where they do no return a profit. That means sick and poor people are inexorably far less likely to receive health coverage than healthy and rich people.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan writes a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. He also maintains a personal website and has been known to post passing thoughts on Twitter @RyanMcGreal. Recently, he took the plunge and finally joined Facebook.

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By Al Rathbone (anonymous) | Posted July 16, 2007 at 18:56:50

I think many canadian conservatives have no issue with single payer Medicare especially if the delivery is open to competition payed at the same rate as public deliverers.

There is an idea i have been pondering however. What if these rich people who want to jump lines payed for quicker surgery for those ahead of them meaning they get their surgery quicker too.

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By Dan Neuman (anonymous) | Posted July 16, 2007 at 21:45:56

Excellent article, particularly the points about prevention and complexity. The big problem, though, is that the US doesn't have market-based health care: the customer, the patient, has little say in what care is given, and since he doesn't pay the bills directly, doesn't much care what it costs. No, the US has the worst of both worlds: profit-orientation, coupled with the multiple bureaucracies of multiple HMOs and insurance companies.

Milt Friedman, the Nobel Prize-winning economist, wrote an excellent essay on the topic in 2001 that is highly relevant today. You can find it by googling (Milton Friedman How to Cure Health Care).

I agree with you that effectively managing my own health care may take more effort than I'm willing to make (heck, I hate getting physicals as it is, and they're (subjectively) free!), but Friedman shows a true market-based system is possible, and may actually be more efficient. But I'm not willing to do the experiment in Canada. Let's get the US to try it out first.

If you want to see what a true private health system looks like, get yourself a pet. Veterinary care is significantly lower in cost than medical care -- I'm guessing mostly because salaries are significantly lower (possibly 1/2 for equivalent service). And that may partially be because some people are willing to forgo treatment if they don't like the price -- their pets aren't worth that much to them. I'm not sure how it'd work if their own health was on the line.

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By Sicko (anonymous) | Posted July 20, 2007 at 14:48:42

Al Rathbone wrote, "What if these rich people who want to jump lines payed for quicker surgery for those ahead of them meaning they get their surgery quicker too."

Sure thing. It's called "paying their taxes."

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By Jajjj (anonymous) | Posted October 01, 2010 at 11:29:14

The arguments you put are frankly pretty weak, especially when put in the context of a free market.

1) Yes, one of the principal interests for an insurer is to be risk averse. However, under a free market, fair insurers tend to win over skimpy insurers. Reputations for actually following contracts matters.

2) Your assumption here certainly has bearing under our mixed, employer driven third party system. However, under a consumer driven system, incentives change, and consumers will then have an interest in prevention to drive down insurance costs, and for-profits will follow.

3)Generally, yes, but the inefficiencies still apply. There is a reason why you can buy addon in most countries with "universal health care."

4) Compare to what? Certainly, compared to the US third party payer driven system, yes. Even Friedman mentioned this, since you can do many controls through government.

5)EVERYONE must profit, even non profits must make a profit. You should be talking about profits to shareholders...that's what "for profit" means. In fact, and it is expected, almost nationalized systems run deficits and have perpetual debt...except Switzerland.

6)That's what doctors are for!

7)I agree, which is why we should have true insurance, and not third party paying. If insurers break contract, they should be sued.

8)Yes, market forces can impose efficiencies. Switzerland and Singapore are two great examples of this...they even fit your socialized framework. They socialized the catastrophic end, but use market forces in terms of high deductibles and savings accounts.

9) That simply doesn't happen, I have a plan that covers everywhere in the world. In fact, in the US, all "insurance" plans do!

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By Jajjj (anonymous) | Posted October 01, 2010 at 11:57:32

Certainly, health care is not a commodity. But health care is a service! A commodity is a good like coffee or wheat. There is no reason why you as an individual shouldn't pay for a significant portion of your health service costs. You are presenting a 10% solution for the other 90%, and that is not optimal

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