Wednesday, April 27, 2011

*Free* Markets?

In all the hoopla about returning the issue of healthcare to the "free" market, conservatives and Teabaggers have neatly sidestepped the one major sticking point to that scenario.

A robust market is a wonderful thing. The prices of televisions, cell phones, clothes, fast food, computers and major appliances have declined over time, in part because consumers are rational creatures who are pretty good at figuring the value proposition being offered by the sellers. We can drive a hard bargain.

But the game doesn't work in our favor all the time. The airline industry is crazy competitive, right? Except that fares have increased nine times since mid-December. Gasoline is approaching $4 per gal. in many places. You may notice that having four service stations within two blocks of one another hasn't noticeably lowered the price at the pump. Cable- and satellite-television providers are constantly attacking each other in their advertising. Has your cable bill retreated over the past five years?[...]

Health insurance too defies conventional pricing inputs. It has experienced double-digit inflation for a decade. (Would you rather run a hospital or be the health insurer that collects premiums and pays the hospital?) The industry has enjoyed pricing power that ought to be pulling companies into the business. Instead, there's been consolidation, which is one of the reasons prices have gone up.

The author, Bill Saporito, goes on the make the case that the obstacle to competition in health insurance is something he calls "substitutability." That is, you can compare the price and features of cars and make a judgement on the best value for you, but you can't easily compare insurance policies, since so much is contingent on the network of physicians you'd have available, and it's hard to shop for an orthopedist when your legbone is sticking out of your skin.

A valid point, but the real problem goes deeper than that.

Japan has a private insurance market. Japan also has universal healthcare, mandated by the government, run by private industry.

The industry is profitable enough that there are over 2,000 private health insurance companies! The per capita medical cost in Japan is roughly half of the US ($3500 v. $7400). In the US, there are three dozen listed insurance companies.

In truth, there are really only a dozen or so companies that provide health insurance (the reason more are listed has to do with a curious construct in America: states regulate insurers and so many companies can't or won't write policies in every state.)

There is a concept in economics called "monopoly profit." Essentially, because competition is limited or non-existent, a company can pretty much set whatever price it damn well pleases for its product and make boatloads of money. True competition would force those prices to come down.

This is what the American health insurance industry is all about and why they can get away with denying coverage to a sick person while the CEO buys yet another boat. It is also why healthcare costs have skyrocketed over the past three decades. The lack of competition allows insurers to set whatever premium will make them the most profit with little fear of losing customers. This also explains why a full fifth of the nation has no health insurance. Rather than run to a non-existent competitor, people simply opt out of coverage. It's too expensive? Take it or leave it.

What we have here is an oligopoly, a market controlled by a small number of players, with enormous barriers to entry for competitors. It's also why former Congressman and current tool of the industry Billy Tauzin introduced and passed a piece of legislation specifically forcing Medicare to not bargain with hospitals and doctors to lower costs of medical care. Since insurers can simply raise premiums to cover their premium profits, there's no incentive in the industry to negotiate with healthcare providers, and indeed, higher costs can be passed along in totality PLUS ADDITIONAL PROFIT MARGINS to their customers.

So when Teabaggers talk about a "free market solution," remind them that in most industries we've had "market solutions" but because of the greed of the corporatocracy and the capitulation of the Republicans (and now Democrats to a lesser degree), there are no "free" markets.

Freedom just ain't free anymore.