The Economic Realities of Health Care

Adam Smith is credited as being the father of economics. He introduced the idea of the "invisible hand" where (as his thinking went) people pursuing individual self-interests simultaneously served the interest of society. He also introduced the initial thoughts related to "perfect competition" which has provided the basis for our own free-market thinking today. Perfect competition, however, had several key components required before a real free-market existed. These components included: 1. No single participant can influence prices, 2. a free-flow of information exists among all market participants, 3. There are no barriers to entering a market, and 4. There are a large number of buyers and sellers.

As our health care debate continues, and despite our preference for free-market approaches, it is fairly apparent that our health care economy isn't operating by any "invisible hand" and doesn't include any of the components of "perfect competition" so some level of intervention is likely needed. The level of that intervention is at the center of the debate today and the key is going to be striking the right balance between the two. This idea has been the centerpiece of the Collaborative Health Care System principles we established three years ago.

A study completed on behalf of the American Medical Association found that out of 314 metropolitan markets across the country, 94% are controlled by one or two health insurance companies, or fewer. In 15 states, one insurer has 50% or more of the entire market. While the insurance industry questions the methodology used in this study, other studies have supported the fact that limited competition exists in most markets for the delivery of health insurance services. And, as the consolidation of the health care market continues, these numbers will likely continue to increase. That's the reality.

On the other side, a 2006 study of hospital systems found that one or two hospitals controlled the market in 88% of the nation's largest metropolitan areas. When you have dominant carriers going up against dominant delivery systems, it's no wonder we have a difficult time in coming up with a "free-market" pricing structure that benefits the system as a whole. We're lacking the invisible hand.

We honestly don't know if a "public option" is the answer. Those supporting this approach are using the idea of introducing more competition into the marketplace as the reasoning behind it. We question whether a government injected solution is the right approach.

Once again, it's all about the message. It's not about whether we have a public option included or not. The real issue is about the need to change the basic economics of a system that desparately needs to change. Monopolies dealing with monopolies just don't work. So, if we're going to strive more closely toward a free-market, perfect competition approach, the free-market supporters had better come up with a better solution than what is being thrown around today.

We haven't heard it so far.

Health Care Reform- Public Opinion Is Changing

A new Washington Post/ABC Poll shows that public opinion on the health care reform debate is starting to change. The public's approval of Obama's efforts has dropped from 57% in April, to 49% today. Disapproval has increased from 29% to 44% during the same time period. Most of the change is the result of the change of view of the independents who make up a significant portion of our electorate today.

We now expect the "p.r. machines" on both sides to start to work to try to influence the numbers- just like in the 90's. And, it's quite sad. It is very likely that whoever comes up with the best marketing gimmicks (whether truthful or not) will get their way.

We understand that this is all part of the democratic process. We welcome the dialogue and debate that should occur between ideas to come up with a compromise solution that is best for our country. We too are concerned with the deficits that are being built-up that will be left to our children, our grandchildren, and our great-grandchildren to get us out of the mess we are in today. But, we are even more concerned with remaining with the "status-quo". The numbers speak for themselves- reforming the way health care is delivered in our country is key to our economic stability in the future.

A recent Harvard University study found that in 2007 over 60% of the bankruptcies in our country were in some way related to medical/health care issues. Numerous studies predict the out-of-pocket costs paid by individuals will continue to increase and at some point will become unaffordable. Savings built during a lifetime of participating in the work-force are being wiped-out by a single medical event. Employers will continue to struggle with the costs of healthcare as they continue to be a significant competitive disadvantage when competing in a global marketplace.

The public needs to understand that health care reform isn't about whether we have a "public plan" option or not. In many respects, it's not about the "uninsured". The public needs to understand that the model we have today will very likely lead to economic disaster in the future. The public needs to understand that we are already rationing care with the system we have. The public needs to understand that the system we have today is simply not sustainable for the future. And, the public needs to understand that there are less costly options to really reforming our health care system than some of the options being promoted today simply due to politics.

It is wonderful that public opinion carries the weight that it does in the democracy that we have. We only hope that the public is provided the truthful information it needs to be able to make an informed opinion in the first place.

At this point in the debate, we don't think it does.

Health Care Reform- Keeping The Big Picture In Mind

Last March we published a newsletter outlining our “Obama Score” of where health care reform stood from a public policy perspective. In it, we highlighted the 6 basic principles that are going to be required to make meaningful (not incremental) changes to our health care system. Obama had done relatively well up to that point and he still carried significant public support as his Administration was still new. But we had some important “wild cards” that needed to be addressed before we felt true health care reform would become a reality.

Now, we’re at the really messy part of the process. Since March, things have moved along quickly and we are glad to see that health care reform has remained near the top of the domestic agenda. But, as expected, the other significant issues our country faces have now become part of the debate and the public support, while still there, is tenuous now that we put the dollars with the ideas. In our view, the primary principle we were concerned about in March (Mastering the Legislative Process) has become weaker instead of stronger. This single principle has killed most initiatives before, and we hope Congress (and the private markets) can come up with solutions that are good for the country as a whole, and not just continue to protect self-interests as has occurred so many times before.

We’ve posted a side-by-side comparison on our site of 11 of the major initiatives currently making their way through the health care reform debate. This was put together by the Kaiser Family Foundation and you can grab it here if you want to look at it. This will likely be changing quite frequently but we believe everyone should have a basic understanding about what is being discussed with the best information available.

Unfortunately, the public perception of health care reform has become centered on whether we have a “public option” included or not. While this is an important delivery component, the average consumer should also understand the broader need for transforming the way health care is delivered in our country before making any judgements. For those that have health care coverage, and for those that do not, we need to understand and accept that the way our health care delivery is structured is not sustainable, especially when significant numbers of our population (Baby Boomers) begin to access the model we have today.

Payment reform, transparency, administrative efficiency, clinical effectiveness, wellness/prevention, and care integration are also critical elements that need to be understood and considered by the public before making any judgments.

Whether we realize it or not, the health care market is already changing. The reform outcome will certainly have an impact on the speed in which it changes, but all stakeholders (health plans, providers, and consumers) will need to appreciate these changes for participation in the future.

We believe that access to care high-quality health care for all Americans is a critical factor of the final solution and is part of what our country stands for. We just hope the real transformation we need isn’t derailed due to the politics or economic philosophies that have proven not to apply in the health care market we have created. And, let’s make sure the general public has a good understanding of all aspects of what the debate is all about in the first place- not just what we want them to hear.