Americans have long been active in the healthcare debate. Why have we not been able to come to a resolution? Perhaps it is because we have not been asking right questions …
Who should pay? This has been the central question of the American Healthcare Debate since the Truman Administration flirted with the idea over half a century ago. This line of inquiry paves the way to never-ending debates between the left and the right: Should the government chip in? If they should, in what way? Should government-funded health insurance be separated from employment?
In regard to the health insurance market, it seems the Americans have been asking, or are tricked to asking the wrong questions.
Among the OECD nations, the United States records the highest healthcare cost per capita by a clear margin. In his exploratory classic “Affordable Excellence: The Singapore Healthcare Story” and follow-up commentaries, William A. Haseltine compares cost and service outcomes across countries where he points out Americans pay far more to achieve inferior health indicators against other developed nations.
So, why are the costs so high?
Healthcare providers are supposed to be setting market-clearing prices so that the customers can shop around to decide for themselves where to go for their healthcare needs. When shopping for almost every good and service we purchase, we consider price as a primary variable. But we are prevented from comparing costs for our specific healthcare needs as the insurance companies weigh in to facilitate the supposed convenience. “We do collective bargaining for you. We can help you lower the prices.” That is their promise.
As Steven Brill pointed out in his 2013 TIME cover-story, however, the collective bargaining by health insurers might not accrue any real benefit to consumers due to the astronomically high prices indicated in healthcare providers’ chargemasters. There might be obvious reasons for the high prices; for example, the cost of medical education and research and development expenditures. Still, by independent estimates, those considerations do not account for the inflated prices. Although the insurers may pool the consumers (including lower-risk individuals with higher-risk individuals) and flatten the costs for us, insurers bargain for a tiny portion of an inflated price. Profit-driven insurers, knowing the unassailable fact that healthcare is a necessity, make targeted consumers vulnerable. That is to say, they have no opportunity to question the original price or seek other, sometimes less expensive or broader healthcare options.
The insurance industry faces an upfront issue of information asymmetry. That is to say, an issue where they might not be able to assess the accurate health profile of a potential customer as is the case with auto insurance. The assurance that there will be a sizeable healthcare market no matter how high the premiums are, creates a moral hazard (a perverse incentive), encouraging the insurance professionals to act in their own interest rather than being responsive to a free market of consumers. The notion of risk pooling in insurance creates adverse selection, prompting the users to forget the individual responsibility of remaining healthy since they will be paying the same rate as others despite whether or not they are healthy, although copayments and deductibles are meant to deter this behavior. Haseltine mentions that administrative overhead accounts for over 20 percent of the United States’ healthcare expenditure and the bulk of that goes to administering health insurance, not even the actual coverage of consumer health needs. All these factors add to the increases in premiums that we see at an alarming rate.
Defensive medicine, which arises from the perception of patients as potential plaintiffs, is another primary phenomena which leads to increases in healthcare costs. As the Ohio Governor John Kasich rightly pointed out during his failed Presidential bid, one must use common sense to negotiate and solve these problems rather than relying on lawyers. They are an overproduced and otherwise unemployable lot who do not have our well being in their minds.
Then there is the unavoidable evils that the pursuit for equality create. While we would like to think that all individuals are equal in every way, they are not, and they never will be. While respecting the argument that a gender-specific need is a social need when it comes to healthcare, it is undeniable that women have unique healthcare needs and amass higher costs within their lifetimes compared to men. Certain demographic groups are more prone to unfavorable medical conditions, for example, diabetes. The lack of discussion and consensus on such sensitive topics prevents the United States from adopting a collectively beneficial healthcare policy. Instead, we are stuck with what we have in place at the moment. And what we have in place at the moment is not unfavorable to many Americans.
It is unfortunate that a country envied by the world for its entrepreneurial and innovative spirit, one that is equipped with the most sophisticated medical facilities, technology, and manpower, lags behind the rest of the developed world in its healthcare indicators.
The foundation of all perverse aspects of the healthcare industry can be attributed to the lack of genuine competition. Blame it on the excessive regulation, the higher education bubble, the unthinkable cost of attending medical school or persistent lobbying efforts. Competition drives prices down in every other market, even in the uninsured and relatively unregulated segments in the healthcare market such as lasik and cosmetic surgeries. The typical argument that choice does not matter when one needs an ambulance should not prevent discourage the free market ideology. Considering most healthcare shopping need not be done on the way to emergency care, there is room to allow our good old friend, capitalism, to work with his invisible hand to help the masses.
Aravinda Karunaratne is a Graduate Student at the Department of Public Administration & Policy. He is a regular contributor to The Arch Conservative.