Tuesday, February 12, 2008

The Competition in Health Care

Responding to Marginal Revolution, which writes, "Every year prices would fall in real terms, quality would improve, and coverage would be expanded. Imagine the whole health care sector working like laser eye surgery or cosmetic surgery."

The nice thing about laser eye surgery is that it is not a life-or-death thing. People can do without it, which means that the demand can more or less match the supply, as regulated by the pricing policies of laser eye surgery providers and the purchasing decisions of potential clients.

But this is not true of health care in general. For the most part, people cannot do without it (or, in some cases, doing without it means the likelihood of much larger health care needs in the future). So there isn't an abatement of demand as a result of pricing policies. This means that, all things being equal, if the supply of health care is even slightly less than the demand, nothing prevents a price increase into infinity, except the premature deaths of those unable to pay. Which is the current situation in the private health care system.

Most advocates of private health care take an attitude something akin to "it's OK if the poor people die off prematurely." Usually it is couched in more diplomatic language, but the sentiment is nonetheless there. And, indeed, it is unavoidable. You cannot have free market health care otherwise. Any attempt to mitigate this effect is a step toward public healthcare, and the question at that point resolves to one of how best to deliver health care services to the entire population, rather than one debating whether or not health care should be subject to the free market.

The proposition in the post above is essentially that improvements in health care technology will make health care accessible and affordable for everyone. Only in this way would it be possible for market forces to be able to balance the production of and demand for health care services. The suggestion that we should plan for such a time is well taken. But the suggestion that our system should be currently structured as though such a time were already here is not.

Marginal Revolution writes, "But if we institute a single-payer system, or highly regulated mandates, we will never have much chance of arriving in that world. Ever." This is simply false.

Historically, when government has mediated distribution because of market failures, such as shortages in supply that lead to infinite demand, such mediation has persisted only so long as the shortages have prevailed. Food rationing during the war years evaporated once supplies expanded after the conflict. Public housing in many areas has gradually given way to rental and owned accommodations. In Canada, telephone companies and energy companies, both owned by the government, have been privatized. The mechanisms exist, and so long as there are people working for pofit, there will be at least some movement toward privatization.

An thus with health care as well. In Canada, the movement is strong and well-funded (from U.S. sources). Even so, Canadians en masse vote against such measures because the supply of health care services is not yet sufficient. We would not be able to depend on being able to access and to afford health care in a private system, so we preserve our public system. We have the example of the United States, the richest nation in the world, with a private system that leaves 50 million people uninsured, and which sees people financially ruined by illnesses that would be nothing more than an inconvenience in Canada.

I, too, hop for the day that health care will be as common and as accessible as grocery shopping, where I can choose which store I go to, where I can expect government regulations to monitor the quality and safety of the offering, and the marketplace to moderate the price. But while oranges go for a couple of dollars a dozen, quality health care is rather more expensive, and rather less accessible.

That said, people who are proponents of private health care can take concrete and useful initiatives today, to hasten the day when costs approach clients' ability to pay. Instead of trying to force a marketplace solution into a market that cannot sustain it, advocates should be lobbying for and working toward policies that will significantly lower the cost, ensure th quality, and increase the affordability, of health care.

- a major form of government intervention in the health care marketplace, patent protections on drugs, has been one of the most significant drivers of increased costs in recent years. Drug company lobbies have successfully convinced governments to extend periods of patent protection, with a corresponding rise in the price of the drugs protected.

This system actually slows innovation, as improved drugs will not be rolled out until the protection period for other drugs expires. This is especially the case for high-end and specialist drugs, where there is very little competition.

Patent protection also slows the research effort as laboratories try to keep their processes secret in order to maintain an effective monopoly on research. Ironically so, since most of the research is funded directly by government, or indirectly through the participation of university labs and professors.

- mandate open access of all government-funded research. This would ensure that any research that is funded by the taxpayer is available to all agencies, thus maximizing the propagation of that research. Thus, the same work could benefit a large number of companies, rather than the one or two it does now.

This stipulation should apply to raw data as well (and perhaps more importantly). The sorts of discoveries Kepler made from Tycho Brahe's observations would be impossible in today's environment, because Kepler would not have had access to Brahe's observations.

- voluntary patient-owned electronic health care record - creating an effective system of one-patient one-record would enormously streaming health care and reporting processes. However, clients quite naturally trust neither governments nor corporations to preserve the confidentiality of such records (in large part because such records would later be used to deny health care insurance).

Thus the mechanisms prescribed in the 'Innovations in Health Information Technology' booklet are, for the most part, a step forward in a positive direction, and merit consideration by public and private health care providers alike. That said, if our experience in other technological domains is any guide, care must be taken to ensure operators are willing to adhere to common and compatible standards for electronic services; a health care record that "doesn't run on Linux", for example, is unacceptable.

I'm sure there are other measures that could be considered, and of course I have an open mind aout them. My own stance regarding health care is not motivated by partisan politics, but rather, the conviction that it is wrong to allow people to die prematurely merely because they are poor.

When I see a willingness on the part of those people supporting private health care to genuinely improve access, increase quality, and lower costs, I am supportive and willing to work alongside them. But when the point of their advocacy is merely to create an environment in which they and their friends can take advantage of a market failure to enrich themselves at the expense of people' health, they lose my support, and frankly, my respect.

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