Monday, April 28, 2008

Kuttner is wrong. WE do not have a health care market and therefore it has not failed

Sometimes you find a particularly flawed article. In early February I read an article in the New England Journal of Medicine by a journalist and member of a political advocacy organization. The article is called

Market-Based Failure — A Second Opinion on U.S. Health Care Costs

And it was written by Robert Kuttner

You can read it here .

A few comments:

Market Based Failure" is a misnomer. It is the “health management concept” in its present form that has failed. This failure should be attributed to the government that has set up the system in the first place. I would call this more accurately a "government based failure". It is surprising that someone who has been writing about the health care system and about politics for many years lacks the most basic knowledge about economics and about health care. We do not have a "health care market". It does not exist. Any 18 year old can see that. We have a very (!) limited market for "health insurances". Just that. Not for health care services, which is exactly the problem with our system. To postulate that we have a "health care market" is either plain stupid or cynical. For Mr.Kuttner's sake I assume he is being cynical and just tries to make a pro-government-monopoly point. A bit cheap though...

Here is what the past governments have set up: patients and physicians are blinded to the costs of all transactions. This alone shows that our health care system is not a "market". You cannot shop without knowing prices.

A powerful oligopoly of insurances dominates and overpowers individual physicians, which are not permitted to unite, unionize or even communicate in any way concerning pricing. Physicians can either participate at the conditions of the HMOs and Medicare or drop out of the system altogether. It is a “bad contract-no negotiation-take it or die” situation for physicians. Physicians are rewarded only for volume, not for quality, service or efficient use of resources. The healthcare consumer, the patient, not only has no idea at all what happens with his money, has also has no influence whatsoever on how his money is spent. This discourages cost efficient behavior to say it mildly. And neither physician nor patient is really held responsible for any cost, another major factor in increasing costs.

So, this is what the government has set up. Mr.Kutter believes that this government produced system has failed. With a rather incomprehensible logic he now wants to turn the whole system over to those people who have failed - the government. Go figure.

I believe we do not have a market in healthcare and I think we should finally have one. A market where costs are transparent, where everybody knows where the money is going, how it is spent.

The reason why every system around the world fails to contain cost is:

The consumer has no feedback about his spending. The consumer does not have skin in the game. The consumer is spending “other people’s money”

Americans (and Europeans equally) demand the best health care other people’s money can buy. As long as the “third party payer” system is intact, the spiraling health care costs will not be contained.

The author certainly is aware of the complete absence of true market characteristics in US health care. This makes his “second opinion” invalid. But let’s try something different:

"News are vital, and inconsistent quality and lack of informative value warrants a reform. All TV and radio stations, print media and Internet outlets will be merged into the government run "Federal News Department" (FND). The FND will the exclusive employer for all journalists and pay salaries mirroring the postal service. This will free journalists to focus on their work. Since they do not have "expectations of earnings", they will be just fine.

The FND issues comprehensive guidelines: All news have to follow templates, the number of words and paragraphs have to be consistent with formulas proven efficient in conveying information. Only words from federal vocabulary lists are permissible. We do not know how to measure performance, but we will cut salaries if "performance measures" are not met. I am sure, Mr. Kuttner, that you enthusiastically support my reform proposal!”

To dump health care into the lap of the government is the helplessly-throw-your-arms-in-the-air-and-give-up-version of reform, some people would call it the EEYORE version of reform.

Think before you support something stupid!

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