The argument that the extraordinary cost of health care in America is at the heart of our healthcare crisis is a compelling one that both Presidential candidates appear to accept. John McCain has made it the cornerstone of his proposals for healthcare reform, but it is equally central to Barack Obama’s plan to guaranty affordable health insurance for all Americans. John McCain and his advisers have touted the McCain approach as an operationally sound free market solution and have attacked Obama’s plan as the first step in a covert plot to create a government-run healthcare system. But when free market principles are used to critique each candidate’s proposals, it turns out that Obama and not McCain is proposing the market-based reforms needed to create an effective, efficient free market for healthcare services.
Free markets do not exist in a vacuum. Transactions between willing buyers and willing sellers do not create truly free markets when there is marked asymmetry in the information available to potential buyers and sellers or when one side is disproportionately powerful. The sub-prime housing crisis has been so toxic not because some overly aggressive investors made poor decisions but because intelligent investors could not obtain accurate information about what they were being sold. A homeowner who purchases electricity from the only supplier of electricity in the community is not participating in a free market transaction when the homeowner’s only alternative to paying the company’s asking price is to live without any electricity. Information and competition are the lifeblood of any free market, whether for goods, for services, or for political power. That is why the Constitution, which reserved so many powers to states and citizens, mandated a federal census every 10 years so that accurate information would be available to guide apportionment of representation.
Useful information to guide purchasers of healthcare services is extremely difficult to obtain. Services are so fragmented that it is almost impossible to combine them into any meaningful package whose quality and cost can be assessed and used to make individual purchasing decisions. Interpreting data about clinical services and healthcare outcomes properly often requires one or more advanced degrees. Resources to analyze performance and leverage to influence the healthcare market currently are available only to large corporate purchasers of healthcare services. And even these powerful organizations have been unable to ensure quality care or contain runaway costs.
There are few, if any, authoritative evaluations of healthcare outcomes, and most credible reports comparing healthcare quality and cost were derived from data obtained from the federal government, not from private payers or insurers. Under the Bush administration, a good deal of important work has been undertaken to improve the healthcare data infrastructure. Still, accurate assessments of comparative effectiveness and efficiency in health care remain illusory, and recipients and purchasers of healthcare services often end up buying a pig in a poke.
John McCain, under the mantra of free markets, proposes underwriting individual purchases of health insurance with tax credits and subsidies, working with states to provide for citizens who cannot afford individual insurance. This will shift responsibility to workers from employers, whose health plans would no longer receive special tax treatment. With good information and a truly competitive market, individuals should be able to make better decisions and obtain better deals than their employers or government purchasers.
But as a recognized expert in the evaluation of healthcare quality and cost, I can assure you that the information needed to make intelligent purchasing decisions is nowhere in sight. For this reason, creating a healthcare market saturated with isolated, poorly informed individual purchasers will make a difficult situation even worse. The current market for individual health insurance is a no man’s land in which people with preexisting conditions may be unable to obtain insurance or may pay extraordinarily high rates for minimal coverage with very high deductibles. In this market, even healthy presumably well insured people may discover that they have inadequate coverage after they become ill and have no remaining market power at all. Free market rhetoric aside, taking something that doesn’t work and turning it into a national standard makes no sense at all.
On the other hand, Obama’s National Health Insurance Exchange creates a source of accurate data that can be used to set reasonable standards for healthcare quality and cost. Having worked with databases such as the one that might be created by this Exchange, I have good reason to believe that this new national health data resource could become the basis of a healthcare information infrastructure equivalent to the national census database that is used by numerous private enterprises to guide their decision making and marketing efforts. It also will enhance the power of individual consumers, providing them with a viable alternative if private insurers attempt to exercise oligopoly power over a fractured consumer market.
John McCain and his advisors will argue that Obama’s National Health Insurance Exchange is the beginning of an inexorable journey to socialized medicine. Perhaps it is, but only if the private sector is unable to compete with the bumbling bureaucrats who would run the Exchange. Personally, I have great faith in the constructive power of well-organized, properly administered free markets. I believe that the creativity of American free enterprise will give the Federal Health Insurance Exchange a real run for its money and that a new equilibrium will be reached in which both government and the private sector have important complementary roles. I believe that Obama’s plan will challenge all sectors to become more effective and efficient and will help create the informational and competitive infrastructures required for honest free market transactions to occur.