Health Care Debate: What I Don’t Understand

As Members of Congress prepare for what might be their favorite time of year — the extended August recess, scheduled to start tomorrow for the House; and August 8 for the Senate — they do so with a flurry of progress on health care reform but not the hoped-for, full-chamber, final votes on definitive bills.

Accordingly, during this recess, I hope one or more of our elected officials — or their staff, or the countless “interests” vying to get their attention on health care reform — will take some time to consider and clear up the following points of confusion.

From the debates I’ve followed at this site and elsewhere, it seems clear that individuals who favor a “public option” for health care reform argue for such an option because they believe it will provide much-needed competition to private-sector insurers. Borrowing a line straight from the bible of free-marketeers, these public-option advocates proclaim: “More competition is good because more competition will help drive down costs.”

In turn, many of the same, public-option advocates argue against the concept of health insurance cooperatives because the latter (they say) would not have enough “scale” to drive down costs.

Later, if pressed, these public-option advocates will confess their belief that — while a public option is a reasonable “compromise” — scale is so important to the overall equation of affordable, universal health care, that a single-payer, all-government/all-the-time system is really the best way to go.

What I don’t understand about those arguments is their failure to acknowledge and/or address the intrinsic conflict between “scale” and “competition.” Typically, more of one means less of the other.

A government monopoly is still a monopoly. “Yes,” single-payer advocates might respond, “but government is intrinsically good because it operates in the best interests of the many, while business is intrinsically bad because it operates in the best interests of a few; therefore, a government health care monopoly would make decisions that are more fair, more just, than a private-sector monopoly.”

Perhaps. But without competitors, government monopolies still lack what private-sector monopolies lack, namely: ample incentive to control costs or innovate or encourage innovation among others. I would argue that a failure in any one or more of those areas is neither fair nor just.

Granted, on certain challenges, it is hepful to find a balance between scale and competition. Too much of one can be counterproductive. Too much scale can lead to monopolies or virtual monopolies. Too much competition (in a market where scale has indisputable benefits) can lead to inefficiencies and missed opportunities.

So I’ll concede this much: It’s legitimate to simultaneously advocate more scale and more competition, seeking an ideal blend or balance of the two. What I won’t concede — what I think remains a subject for legitimate debate — is this: If they operate under the same essential rules (e.g., no exclusion for pre-existing conditions, etc.), which course of action achieves the better blend or balance between scale and competition: One, DC-centric public option … or three to four dispersed health-care cooperatives?

Phrased differently: If we assume health care cooperatives are structured in effectively the same way as the public option — i.e., they’re essentially the same device — is it better to have one or several of these devices, competing against not just the private sector but against each other?

I don’t have the answer, but I would appreciate a substantive debate on these grounds, rather than a debate that starts with “the public option is great idea because it represents more competition” and ends with “health care cooperatives are a bad idea because they don’t have enough scale” — with little to no objective data attached to either claim.

—————

Addendum: While he doesn’t address the debate I’ve suggested above (i.e., single public option vs. multiple cooperatives), Andrew Sullivan does offer this round up of pundits who either favor or are not dead-set against the public option, including Sullivan himself, David Brooks, and the consistently impressive Nate Silver.

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Author: PETE ABEL

  • GeorgeSorwell

    Pete–

    The government currently runs a well-regarded health care system through the Veteran’s Administration.

    The government currently funds and encourages medical innovation through the National Institutes for Health.

    The government also currently runs a well-regarded (by its customers, certainly) if limited medical insurance program called Medicare. Even if some of those customers are confused about where it’s coming from:

    At a recent town-hall meeting in suburban Simpsonville, a man stood up and told Rep. Robert Inglis (R-S.C.) to “keep your government hands off my Medicare.”

    “I had to politely explain that, ‘Actually, sir, your health care is being provided by the government,’ ” Inglis recalled. “But he wasn’t having any of it.”

  • GeorgeSorwell

    I would also like to agree with Zack. The health insurance industry hasn’t produced much innovation (unless you count pre-existing conditions and rescissions), which is why we have these problems.

    Also, the idea of a single risk pool that everybody pays into a surely a great and simplifying idea. Too bad it isn’t politically feasible.

  • CStanley

    Pete- part of the answer to your basic question lies in the fact that what we're really talking about here is monopsony power, not monopoly, since the question is how well the entity can bargain with providers. Both though, are imperfect forms of competition- and to make it even more confusing, a health insurance system in some ways can be both monopolistic and monopsonistic since it could also function as the only provider of the commodity of insurance to consumers. The latter is what I think you're arguing here would reduce or eliminate the pressure on the insurer to seek efficiencies to reduce costs for the consumer.

    I'm no economist but I think that the 'scale' argument works on the buying side, to negotiate prices with providers- but not on the consumer side, with regard to keeping prices of the insurance product low. Of course, there would be political pressure to keep the costs down as much as possible, but that's not the same thing as competition (which is how this has been promoted to the public so far.)

    As far as the regional co-ops- I don't think the current proposals would have them competing against each other, but I'm not sure. I guess to some extent there might be competition because if one region were running a great program where people were happy and there was little or no need for federal funding to subsidize the program on an ongoing basis, then it would competitively win out as the model for the others.

  • zack12342313214

    “But without competitors, government monopolies still lack what private-sector monopolies lack, namely: ample incentive to innovate and control costs — and (I would argue) a failure in either category is neither fair nor just.”

    What innovation and costs controls has the private insurance industry implemented? We are talking about risk pools here. Health CARE innovations are generally left to doctors and medical researchers.

    Let the Government be the one risk pool that every person pays into and draws from. Then you can allow the private practices of doctors offices drive innovation and quality of care because we would have free choice of physician. Free Market proponents of Private Insurers fail to realize the stifling of free market competition among those small businesses.

  • PETE ABEL, Managing Editor

    George — Thanks. But my question is not about the pro’s and con’s of government-run system(s), per se, but about why multiple cooperatives would not be as good a choice as a singular public option?

    Both present competition to for-profit insurers, while the public option has more scale, and the cooperatives are purportedly less costly to taxpayers to create and (presumably) sustain — and by virtue of their being dispersed, the cooperatives would potentially not fall victim to the well-documented ills (nor, for that matter, benefit from the well-documented efficiencies) of centralized systems.

    It is that field of debate on which I’m looking for a dispassionate discussion: the relative pro’s and con’s of dispersed cooperatives vs. a centralized program.

    Keep in mind: We agree the current system needs to be fixed and that the private-sector, left to its own devices, is not the appropriate fix.

    I’m just not yet convinced the public option is the appropriate fix — because I don’t (yet) accept the premise that its primary selling point (scale) outweighs its primary drawbacks (cost and centralized control).

  • GeorgeSorwell

    Pete–

    The government currently runs a well-regarded health care system through the Veteran's Administration.

    The government currently funds and encourages medical innovation through the National Institutes for Health.

    The government also currently runs a well-regarded (by its customers, certainly) if limited medical insurance program called Medicare. Even if some of those customers are confused about where it's coming from:

    At a recent town-hall meeting in suburban Simpsonville, a man stood up and told Rep. Robert Inglis (R-S.C.) to “keep your government hands off my Medicare.”

    “I had to politely explain that, 'Actually, sir, your health care is being provided by the government,' ” Inglis recalled. “But he wasn't having any of it.”

  • GeorgeSorwell

    I recognize that there are weird things going on in the comments today.

    I would also like to recognize how much I appreciate the Moderate Voice. I appreciate how much Joe and T-Steel do to keep it running as smoothly as it does.

    Thanks so much!!

    That said, I'm going to (try to) respond to a comment from Pete Able that seems to have vanished. Here goes:

    Pete–

    I believe that the bigger the risk pool, the greater the risk that can be safely absorbed by that pool.

    I hope that's grammatical.

    I believe the relative smallness of even a large insurance company's risk pool is why they exclude for pre-existing conditions. Their pools are too small for the additional risk of people who will certainly cost money.

    I'm not opposed to co-ops, but I don't really see any advantages to them either. And I sort of think they may end up needing to be bailed out.

  • Pete Abel

    George — I'm glad you saw and responded to my question, despite the Disqus/commenting problems today. Thank you for that.

    For those who are curious, the shorthand version of my vanished comment, to which George has now was responded, was this:

    1. I agree with many others that (a) the current system needs to be fixed and (b) the so-called “free market” for insurance, left to its own devices, will likely NOT deliver that fix.

    2. My core concern is not with government programs but with a dispassionate debate over the relative merits of cooperatives vs. the public option.

  • qwert321

    Competition is at the heart of America. To deny them competition by denying them a public option seems to me, un-American.

    —–
    Watch that talking point get smashed to pieces here –>

    http://www.youtube.com/watch?v=Hdr49iGZOUw

  • mikkel

    CS, I believe that a monopsony is required because of the nature of health care demand. If demand is elastic then it can have negative effects on supply chains and manufacturing (cough Walmart) but in this case demand is highly inelastic and without someone to put their foot down (so far Walmart has actually been the best about this for drugs) costs will continue to explode.

    I've worked at the low end insurance billing end, the basic research/clinical end and am looking into moving into the infrastructure (software/hardware) end, so I've seen pretty much all of the aspects of the health system except for pharm/med school. It is clear from my travels that all aspects of the price chain are overly inflated and grossly inefficient [actually that's why I may take this job, because it's with a growing player that is explicitly dedicated to solving this].

    There is an argument about whether the government will do a good job of being a responsible monosopy considering how they run the defense, transportation and food budgets, but I do see the need for fewer players.

  • JasonArvak

    A government monopoly is still a monopoly. “Yes,” single-payer advocates might respond, “but government is intrinsically good because it operates in the best interests of the many, while business is intrinsically bad because it operates in the best interests of a few; therefore, a government health care monopoly would make decisions that are more fair, more just, than a private-sector monopoly.”

    Actually, the claim that government policy is guided by the “best interests of the many” is demonstrably false. The most charitable way of putting it would be to say that government policy operates in the best interests of the many as interpreted by current ruling elites. The relevant concern here is that government employee unions that control the staffing levels of the bureaucracy and set the work rules tend to place at least some priority on ensuring the growth and sustenance of their own overhead costs and their own bureaucratic power as well as the interests of their political allies. The fact that this often results in some degree of undermining of the broader set of “best interests of the many” can be seen in a huge raft of examples, including the recent stimulus bill where the “best interests of the many” disproportionately benefited groups like ACORN and the United Auto Workers while ignoring broader groupings, most particularly interests of taxpayers who must now compete with the government in the long-term competition for available investment capital.

    The idea that government functions in the “best interests of the many” is almost always promoted exclusively by people for whom “the many” is functionally interpreted as the same as “me and my friends”.

  • http://greendreams.wordpress.com GreenDreams

    I agree with zack about private insurance's lack of innovation and cost control. The insurance industry has been king of the hill now for many decades. They have not kept costs down, especially their own, which have advanced faster than either medical costs or cost of living. And during the reign of GWB, their profit rose 500%, their top salaries are stratospheric. So the argument that competition among insurance giants will control costs or create meaningful health care innovation has no basis in historical fact. And as noted above, innovation in health care comes from physicians and researchers, most often with funding from the government (NIH, NIOSH, VA, DOD, states and counties among others) and from foundations (ACS, Gates Fnd and hundreds or thousands of others). Drug discoveries are rarely from drug companies alone (NIH funding and NCI researchers both found and mostly developed our latest cancer drugs for instance).

    To CS comments, “Of course, there would be political pressure to keep the costs down as much as possible, but that's not the same thing as competition (which is how this has been promoted to the public so far.)”

    A big part of cost control in a public or nonprofit option is the absence of profit motive as the primary driver. Organizations, whether corporate, academic, governmental or nonprofits are driven by their *missions*. Under the current system, providing health care is subordinate to making money. My main argument for nonprofit insurance, whether governmental or not, is that our *national* goal is for citizens to have effective health care, which is NOT the mission of private insurance. Their goal is to charge as much as possible and deliver as little as possible, to “maximize shareholder wealth”. In most markets they have a virtual monopoly, probably matching what a Medicare-for-all program would have. It's 85% in many markets, held by fewer than 4 companies. In many states, a single company has over 60% of the market share. We already have virtual monopsony/monopoly control, but not in the service of health care, but of profit motive.

    Additionally, a Medicare-for-all program is virtually identical to regional coops, because Medicare itself is managed regionally, and many functions already contracted to private companies. But its national advantage is clear. No private insurance touches these features: no qualification, no exclusion, no penalty for changing or losing a job or moving, lower overhead, no profit, low executive salaries, no sales or marketing cost, fancy offices, etc.

  • AustinRoth

    GS -

    You are going to hold up the VA as a model to shoot for? DEFINITELY count me out, then.

  • http://greendreams.wordpress.com GreenDreams

    Jason: “government employee unions that control the staffing levels of the bureaucracy and set the work rules tend to place at least some priority on ensuring the growth and sustenance of their own overhead costs”

    This is demonstrably untrue. The insurance industry admits their overhead, including profit, is 16.7% and that it won't decline. They admit that Medicare was 5.2% a few years ago and is expected to hit 3.3% next year. That is from the insurance industry trade association! No one in Medicare is working to increase overhead, and their record speaks for itself. It is private insurance that has high and growing overhead costs.

  • margaretedgington

    My daughter's experience of the medical insurance system in Japan might be relevant to this discussion. The second document that Hannah signed upon beginning her contract as an English teacher in a mom and pop cram school was her enrollment form in the national health system. About 5% of her monthly salary is taken out for this purpose.
    A healthy young person, she hasn't had any need for critical or catastrophic treatment, but if she were to have, it would be there.
    Routine office visits and minor illnesses are dealt with locally and promptly in doctor's offices and hospitals which are almost all owned by doctors themselves. You fend for yourself in dealing with the Japanese language. It helps to have friends who are native speakers.
    This seems to me to be a system which provides good general care and excellent nationwide results. The statistics on longevity in Japan alone argue for the quality of care.
    -Universal individual mandate
    -subsidies for those who can't get insurance with their own resources
    -private delivery
    -8% of GDP (http://www.pbs.org/wgbh/pages/frontline/sickaro…)
    -nationwide portability.
    We get so myopic when we debate only the solutions that are apparent from looking at the US health care system.
    The Japanese system has been compared to a Toyota health care system. They get amazing longevity from a fairly low-cost system.

  • http://greendreams.wordpress.com GreenDreams

    AR, I'm pointing out that FUNDING for health care innovation does not come from the insurance industry. EVER. Their goal is profit, while the goal (in part) of NIH, NCI, NIOSH and yes, VA, is to make grants to researchers looking for cures.

  • CStanley

    GD, for all your praise of Medicare you never seem to notice that we're going bankrupt over it. If it performed as well as it does and broke even or even came close to doing so, I'd be all for using it as a model or expanding it.

    GS- that woman (and I think there was another one who said something similar to Obama at one of his townhalls) wasn't confused. What they are saying is that they are aware that the current proposals will make changes to Medicare in order to cut spending there and shift it to plans to cover younger individuals. Inglis, and Obama, are being coy in their responses when they pretend those questioners don't know exactly what they're talking about.

  • CStanley

    GD- Megan McCardle wrote about the difference between NIH funding for basic research, and then industry funding to actually create products and get them to market (you need both.)

    She has a post up today where she acknowledges some of the more nuanced points brought up by her critics, but the central point remains accurate.

  • CStanley

    @mikkel- I don't necessarily disagree but your last paragraph sums up my skepticism of putting the govt in the position of being the monopsist.

  • JasonArvak

    GS –

    That's a pretty good defense of status quo Medicare, but I think it is debateable whether it would transfer well to a vastly expanded new system of government monopsony.

    Also, you are still completely overlooking the equipment investment problem that comes intrinsically with any year-to-year government budgeting system. There might be ways to devise a single-payer system that avoided these problems, but the current penchant for simply ignoring those problems to focus exclusively on the purely political battle is counterproductive.

  • mikkel

    CS I believe the Medicare problem is more complex and slightly unrelated (although there is some overlap). Simply put I think we have to distinguish between health care costs rising in general, and the distribution of health care services applied across the population. Medicare is in trouble because of the flattening population curve and because we spend an exorbitant amount of money on people in their end stage of life to give them a small amount of (normally poor quality) extra time. The rise in health care costs exacerbates this, but I believe even in a perfect system, we'll need to start making hard decisions about when to intervene during the last few years of life.

  • CStanley

    I agree, Mikkel. I was only responding to what other commenters are saying about Medicare. GD routinely promotes a public option that would emulate Medicare, and that can't be the goal unless we can also address the cost problems. And GS pointed out what some Medicare recipients have said at townhalls. The speakers at those townhalls have laughed this off as though the people don't realize that the program they're satisfied with are govt administered, even though that obviously wasn't the point the commenters were raising. I don't agree with the “Hands off Medicare” outcry, but those people deserve honest replies about what the plans really are.

  • Pete Abel

    CStanley — The monopsony/monopoly distinction is an important one that I hadn't considered. Thank you for that. It also helps answer a question raised by another commenter about innovation. The answer, I think, is essentially this: Because the “monopsonist” is the only purchaser of a good or service it can dictate terms to its suppliers. The risk is that, if those terms become too strict (sparse), they strangle the discretionary margin available to the suppliers for their own R&D/innovation (e.g., think pharma innovation on new, life-saving drugs) — which was effectively Megan McArdle's argument, to which I linked in this post, and to which you also linked in a later comment on this post.

  • GeorgeSorwell

    CStanley–

    Inglis is a Republican. He has no reason to be “coy”.

  • DLS

    “Pete- part of the answer to your basic question lies in the fact that what we're really talking about here is monopsony power, not monopoly, since the question is how well the entity can bargain with providers.”

    As I've written before, that is true as well in the more general Washington-as-single-payer concept.

    * * *

    “The government currently runs a well-regarded health care system through the Veteran's Administration.”

    Actually, it often has been the opposite of well-regarded, and “Veterans Administration” has been stated typically and routinely in conjuction with the phrase “horror stories.” In addition to numerous accounts of this, such as from doctors when undergoing training, ome years ago there was an “I am not a number!” campaign, specifically on behalf of neglected veterans. Presumably since then there have been attempts tto improve things, and there may be mixed results. The VA is the other well-known model for future health care for all Americans by the federal government, as I've noted before, and should be examined by more people, especially those with naive faith in government, as well as those who want to know about the program and how it might be incorporated (as I've noted before) someday into Medicare (in addition to Medicaid and Indian Health, as I've listed before).

    By the way, the vet community (with its experience with government) isn't necessarily in favor of the current health care initiative:

    http://www.legion.org/pressrelease/2797/militar

  • socialmaker

    I think people need a more personal approach when it comes to doctors. I know i have a doctor which takes care of my problems(prosolution gel) and he is so nice. He always knows me by name, he's friendly and i gladly attent every meeting.