Mooching A Spoonful of Sugar

Huck Finn and Tom Sawyer in Hannibal, MO.  ID’d first by Shannon Meeks.

Much of the confusion surrounding what to do about financing our health care system in the United States results from not understanding how our health care markets differ from others.  Would you purchase insurance to protect you against the expense of having to purchase an airline ticket unexpectedly?  I hope not, but hope you have purchased insurance to protect you against the expenses of having an unexpected serious illness.  The former would be an irrational use of your money both because the cost of an airline ticket is affordable and it is hard to imagine being forced to purchase one in any case.  Contrast that with having an unexpected serious illness which you now cannot avoid and can cost tens of thousands of dollars to treat; it is irrational not to have insurance in place to protect against this loss.

In selecting a voice/data transmission provider for your home and mobile devices, do you need the assistance of a professional who has received eight years of post-secondary education and charges $400 per hour to recommend the right provider?  It might help but it really doesn’t make sense to expend that kind of money for advice making a decision that most people are comfortable making on their own after a little comparison shopping.  Contrast that with having an unexpected serious illness and your life depends on the right choices being made about your medical treatments going forward; likely the rational way to proceed is to rely on the recommendations of a trained physician whom you trust—if you even get to choose your physician.  Dennis Not The Menace.

Our health care markets are radically different from other markets in our economy, like airline transportation and voice/data transmission services, in that parties other than the consumer, such as insurance companies and physicians, are often the actual deciders about both the services provided and their cost, and often the consumer doesn’t have a real choice about the services provided.

To this point in my March 3, 2017 post A Spoonful of Sugar I attempted to explain why Oklahoma Council of Public Affairs Limited Thinker Mark Perry is misguided if he thinks relying on competitive markets alone, without public or collective intervention in health care insurance and services markets, is going to curb health care inflation and assure that we have a healthy workforce so our economy remains internationally competitive.  Simply stated there is a fundamental disconnect between individual consumers and the health care market place due to the respective roles of insurance companies and health care providers which are the true price setters, not consumers.  He tried to generalize from the beneficial results of market forces on pricing for elective cosmetic surgery procedures where individual consumers are the sole deciders about how much they are willing to pay for what quantities of these services, i.e. I don’t have to have a tummy tuck at all so I have the time to shop around for the best deal without any consideration of insurance since most elective procedures are not covered by major medical insurance. 

By contrast, if I am transported to the hospital while experiencing a stroke or heart attack, or even in the event of a less urgent illness, I do not have the practical opportunity to shop around, nor the ability to second guess the procedures and devices ordered on my behalf by the medical team working to save my life.  In any event the bulk of the costs will be borne by my insurer so it has the immediate motivation to control costs/negotiate prices, not me.  Anyhow you can read my post which reflects the kind of analysis most economists would say is a starting point to understanding health care price inflation and why health care markets do not follow the same dynamics that more competitive markets where consumers are informed buyers and insurers are not dominant.

All this went through my head on Wednesday morning this last week, July 26, listening to CNN host Chris Cuomo interview Anthony Scaramucci, a/k/a “the Mooch” and the new White House Communications Director, about the efforts by the President and Congress to repeal and replace Obamacare.  Mr. Scaramucci, referring to himself as trained in economics, argued that what will fix our health care system and control its inflation, is taking action like was done by the federal government in the airline and telecommunications industries.  In the early years of the airline industry the numbers and pricing of flights was regulated by the Civil Aeronautics Board.  Perhaps initially this regulation made sense in developing this new industry in an orderly way.  In 1978, with President Carter’s leadership, the industry was deregulated and most observers believe this resulted in more choices for consumers and lower prices about which the Mooch and I would agree.  But to believe the same can easily be accomplished with market forces in our health care system simply ignores the reality of the role played by health insurance companies and fact that consumers too often are not the real deciders. 

In the early years of the development of voice communications in the United States, AT&T became a regulated monopoly.  Like airline transportation perhaps this was initially necessary for the orderly development of nationwide communications.  In 1974 the U. S. Department of Justice filed anti-trust litigation to end AT&T’s national monopoly which led to its break-up in 1984.  Now we have a more competitive voice/data communications market with amazing technological innovation and many consumer choices, a market where consumers are the actual deciders without third-party intermediaries such as insurance companies and the health care providers.  A consumer can walk into any mobile phone service store and learn what services will be provided and for what price.   Try doing the same at a hospital, especially when you are under anesthesia. 

The Mooch may have the charm, but he’s no economist and doesn’t have the answers.  Comparing our health care markets to airlines or voice/data communications markets is not like comparing apples to oranges, it’s like comparing apples to baseballs.

As always lunch is on me to the first to ID the photo location.