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Private Health Care Markets Don’t Work

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Drum has, I think, an excellent response to the memo in which Wal-Mart admits that it tries not to hire unhealthy people:

…the funny thing is that I can’t really blame Wal-Mart very much for this. Corporate healthcare costs are a big deal, and it’s only natural that an HR executive would look for ways to reduce them. Attracting healthy workers and discouraging unhealthy ones is an obvious strategy.

And that’s the problem. In fact, it’s the whole point behind the discussion of perverse incentives in America’s current disjointed healthcare system. In any system that doesn’t cover the entire population of a country, each individual insurer has an incentive to cherry pick only the healthiest workers and leave the sick ones to someone else. This problem is rarely stated as baldly as it is in the Wal-Mart memo, but it’s always there. Our entire system is built around an incentive to make sure that it’s always someone else who’s responsible when someone gets sick.

Right. In this instance, bad as it is, Wal-Mart is acting rationally, and ultimately there’s no way to stop this from happening when companies become responsible for basic health care. The whole issue provides an excellent way of distinguishing people who think that markets (if adequately regulated) are highly useful institutions that produce and allocate many goods more efficiently than central planning, and simple ideologues. Free markets in health care don’t work–particularly if we’re unwilling to just let poor people die, which since libertarians remain a thankfully tiny minority we won’t–for some obvious reasons: 1)the incentives insurance industries have to cherry-pick healthy customers, 2)the inelasticity in the demand for a lot of health care (if you get severely ill or break something, you don’t have the serious option of not getting health care), and 3)the extent to which passing costs to the consumer creates incentives to avoid preventive care or abjure insurance and rely on emergency rooms, which increases expenses in the long run. And the empirical evidence on this is unambiguous. First, as Ezra notes, let’s compare government-run health care in this country with private insurance:

This is, of course, pain caucus stuff, the predictable tendency of certain politicians and media figures to endorse punitive measures on the poor in the name of high-minded bipartisanship. I have a feeling few on the Times‘ editorial team would be quite so cavalier with, say, the health care their children rely on. But putting all that aside, the purpose of an experiment is to collect previously unknown data. On this, however, we have the data, in the form of numerous, peer-reviewed Health Affairs studies released over the past few years. And the answers have been consistent: Medicaid works better than the private (which is to say, managed care) sector. It spends less per patient of equivalent health; has enjoyed a slower rate of growth; and shows virtually no difference in utilization of medical services, which means Medicaid patients are seeking and receiving as much care as similarly situated patients in the private market. (Children actually use more services.)

And, of course, the comparative data is equally clear: single payer produces outcomes that are as good or better for considerably less money, which is particularly remarkable when you consider that most (if not all) of these countries have older populations. France spends considerably less money on health care, covers everybody, and gets better results. It’s not as if there’s conflicting evidence; unless your only criterion for evaluating health care is the best quality of care available to upper-class individuals, it’s a question of people who are looking at the evidence and people who won’t believe evidence that doesn’t say that markets are better at everything.

It will be very difficult to achieve given the institutional realities of the American state, but there’s no question that single-payer would be vastly superior to the status quo; it would make American businesses more competitive, provide far more equitable coverage, and probably save money as well. Unless you’re a libertarian (or the kind of Bushian conservative for whom conservatism means nothing more than the self-interest of the most powerful), it’s a no-brainer.

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