I ran across this blog post from Modern Healthcare which brilliantly encapsulates the why part of the answer for the question of why applying market-based principals is not a panacea that will cure all of our healthcare problems. It’s not news that the cost of healthcare is skyrocketing, even after the implementation of the Affordable Care Act and other related reforms. It’s also not a surprise that a large number of people are increasingly being priced out of the healthcare market, especially in Kansas and other states where the decision was made not to expand access to Medicare as part of ACA reforms.
In a nutshell, the reason that a market-based approach cannot resolve healthcare’s issues is that healthcare does not function like a normal market, and moreover it cannot function like one. In a normal market, if the product/service is substandard, or too expensive, or otherwise undesirable then a consumer can choose to “vote with their feet” and walk away from it. Don’t want want to buy the cheap TV with horrible reviews and a tendency to start fires at the cost of three times what you can spend for a good, quality TV? Then don’t buy it. It is a basic economic principal that is reasonable, easy to understand and a key factor in keeping the market competitive and prices and quality reasonable.
But healthcare does not function like that, simply because you cannot choose not to get healthcare; you cannot choose to get sick or get into a car wreck or even shot in your own workplace. Sure, you can choose to do things like not see your primary care physician for annual check ups and you can even choose not to see them for more serious problems like diabetes or heart disease. But when you go into hypoglycemic shock or have a heart attack, especially if it’s a public place, you cannot tell them “Don’t take me to the hospital!” especially when you are unconscious. They will take you to the hospital, and you will be treated, or at least stabilized. This means you will use the healthcare system and incur those health care costs, regardless of whether you agree with the system or your ability to pay for those costs.
In economics, this scenario is referred to as a excluding free riders. In order to keep costs low for everyone, as many free riders as possible need to be excluded from the service, either by preventing them from accessing it or by turning them into paying customers. If you cannot exclude the people who will use the resources without paying for it, costs quickly spiral out of control as the payers are required to pay more than they should simply to cover those who don’t pay. The reality is that laws on the books require hospitals stabilize patients who come to them, regardless of their ability to pay. In addition, when faced with a health crisis and eminent death, even the staunchest individualist will change their mind and allow the healthcare system to save them. It’s human nature.
The blog explains why other aspects of consumerism cannot fix healthcare. For example the paradox of employers offering high-deductible plans with Health Savings Accounts in order to help counter the deductible at a time when wages have been stagnating since the 1980’s and thus people can’t afford to put money into the HSA. It’s a great read!