Kent Pitman

Kent Pitman
Location
New England, USA
Title
Philosopher, Technologist, Writer
Bio
I've been using the net in various roles—technical, social, and political—for the last 30 years. I'm disappointed that most forums don't pay for good writing and I'm ever in search of forums that do. (I've not seen any Tippem money, that's for sure.) And I worry some that our posting here for free could one day put paid writers in Closed Salon out of work. See my personal home page for more about me.

MY RECENT POSTS

AUGUST 22, 2009 4:43PM

Medical Care and the Free-Market Catch-22

Rate: 15 Flag

There’s been a lot of talk about health care and whether it should work by a public or private system. Advocates of private systems say that a public system can’t hope to achieve the efficiencies, innovations, etc. that a private system can. Fair enough. But there’s a “catch-22” in all of this.

“Catch-22 is a term coined by Joseph Heller in his novel Catch-22, describing a set of rules, regulations or procedures, or situation which presents the illusion of choice while preventing any real choice. In probability theory, it refers to a situation in which multiple probabilistic events exist, and the desirable outcome results from the confluence of these events, but there is zero probability of this happening as they are mutually exclusive.”
  —Wikipedia

A market’s job is to optimize a set of well-understood parameters in a dynamic negotiation between providers and would-be consumers. But if you don’t set the parameters and incentives correctly, the market mechanism cannot perform magic. Instead it will ruthlessly achieve what it’s programmed to achieve, selecting whichever customers make it the most money and ignoring the rest, whether or not that’s good for society.

In order to serve the public as a whole, it is critical to set the incentive structures correctly. Without that important step, markets will just make a mess of things. We saw this effect in graphic detail last year when the mortgage industry melted down and Alan Greenspan, visibly shocked, admitted too late that additional oversight had been needed.

GIGO, to use an acronym that’s about as old as the computer industry: “Garbage In, Garbage Out.” Computers—and that’s what the free market is, a giant organic computer—only do what they’re programmed to do, nothing more. So if the instructions or data you put into them is garbage, that’s the result or effect you’ll get back out.

But here’s the “catch-22”: In rough terms, the people who support the free market solution also support reduced government control. Yet the problem is that in order to use the market, the entire incentive structure for what the market seeks to achieve needs to be revised.

The present system incentivizes a number of specific practices that allow insurance companies to make money by clever games of finding people who are cheap to insure and getting the most money out of them, and trying hard to exclude people who are expensive to insure. In order for health care to mean “health care for all,” not just “health care for the employed” or “health care for the healthy,” we need to revise the rules.

But if the people who are promoting a market-driven approach are opposing regulation, that can’t be done. Those people need to decide whether they want to really help, and if they do, they need to make some serious concessions toward appropriate regulation. The market will not do to this on its own. It has no incentive to. And markets are everything about incentive.

If the people who favor a market-driven approach continue to avoid material government regulation, as if there is something wrong with it, they should understand they are, by so doing, asking that a market-driven approach not be used. They can’t say they have a powerful tool that everyone should want to use while in the same breath saying that no one is allowed to touch the very powerful controls. That’s Catch-22 logic and won’t get our society where it is asking to go.


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You are right, the health care debate is not about health care at all.

It is about a clash between proponents and opponents of the free market.

Regardless, on which side of the issue they are, most Americans do not understand the free market concept, and do no know socialism either. We are in real trouble.

BTW, I have a few posts on the subject.
I don't know if you've read any of my posts on the subject, but I have stated on more than one occasion that there can be no true reform of health care until profit is removed from the equation.

Rated
What Ron said and...
RATED
but why stop with socialized health care? it might be best for the nation to ensure everyone has a job, everyone gets as much education as they can use, and no one gets so rich that their economic power distorts the political process.

the notion that free markets are efficient is simply absurd. they might be better than markets controlled by the wealthy, but free markets invariably become controlled by the wealthy.

a market controlled by a dictator is no better. which long ago led me to conclude that the only approximation of free market efficiency that could be sustained was a market controlled by the state, and the state controlled by the people.
Henryk, the original design of the US was a synthesis based on a clear understanding of a long list of bad systems and an attempt to build a new system with safeguards against becoming bad. Clearly, such safeguards need tinkering because the people bent on exploiting the system to personal ends become increasingly clever. So yes, we've seen problems with communism/socialism, and we need to do something better. And we've seen problems with capitalism and we need to do better. Like so many things, any improvement will look like a hybrid. It's got to look like something.

RonP01, my point is that it's not 100% true that we have to get profit out of the system. The capitalists keep saying that profit is more powerful than non-profit. And they're probably right. But only if they allow the necessary regulation to make a systemt that's doing what we need. A system that's efficient at doing something we don't need is pointless. So my point is that the people who are favoring that approach need to wise up. Or else indeed the only solution will be to remove profit and indeed I'll end up agreeing with you in practice even though not in theory.

Mothership, thanks for dropping by!

Al, I honestly can't figure out what you're saying. Perhaps you should write a blog explaining your political point of view at all. You're always sounding like the sky is falling (and sometimes maybe it is), but I can never quite figure out what you want—only that you don't agree with what's happening or sometimes with what others suggest. I'd like to understand you, but this time I just can't penetrate what you've written.
You mention "more regulation" as though this is a simple dial, that you can choose to either have 3 of or 7 of, and we need to set it to a higher number.

But regulation doesn't work like that. What you need to do is identify specific failures with the free market solution, and then craft narrow regulations to address those failures. Otherwise, you'll lose all the benefit of free market efforts, and acquire all the drawbacks of large government programs.

You're right that, in health care, an unregulated market winds up with "solutions" that we pretty much all agree are not good for society. "Moral hazard" is one. "Rescission" is another. "Adverse selection" is another. All of these can be improved with well-designed regulation.

But I fear that just saying "more regulation is good!" is likely to do more harm than good. There are a lot of ways to make things worse, too.
Don, the problem isn't that. The problem is that the people who purport to know about the market (like yourself) are not racing to say “here's how you have to regulate us if you want us to work that way.” Those people are saying precisely as you are—we don't trust regulation so we don't want it. They're creating rhetoric saying “that way lies disaster.” When I start to see ads by the Republicans saying, “This can work if we set the regulations right, and we're willing to show you how to do it and why it will achieve the relevant social goals,” then I'll think your point is constructive. But as long as the keepers of the the free market are not pitching in to do their fair share and to take the heat for adding even targeted regulation, my point is that it's no wonder people are saying “get profit out of it.” The game is yours to lose, and you're doing a good job.
TBL4, this is exactly my point. We have a goal and there are many ways to get there. I'm trying my hardest to keep an open mind and to think that maybe the capitalists can offer advice on how to use their way. But they're big on saying their tool is the right one and bad on help with the instruction manual. There seem to be two reasons: (1) Some don't want to help Obama and (2) Some don't want their message not to be crisp. A message like “no more regulation” is neat and pretty. A message like Don alludes to (effectively “ok, yeah, maybe some regulation, but it's got to be targeted”) is pretty messy as a political banner, and they're avoiding it because they worry it will dillute their message. Or, at least, that's my impression. Good workable solutions are often messy. People who want to win only when it's neat and pretty are sometimes not doing the public favors.
Kent, I'm a bit puzzled how to react to your comment. You seem to throw me into the camp of non-constructive Republicans (whose ads you criticize). That's not a label I identify with. I actually like better your response to TBL4, where you mention me: in that one, you seem to have correctly read my comment as more subtle than can easily get across in a charged political atmosphere.

So I'm not sure why you grouped me with the GOP politicians who are just trying to get Obama a "loss", with no care about US citizen health at all. That's not me.

If you're just asking me for something more constructive ... well, I think I did mention some specific problems in my first comment. You want some proposed solutions too? OK, I like single payer (but that's not on the table in the health insurance bills in Congress). I like payment for patients or for outcomes or for time (like the Mayo clinic), rather than payment for services (which is how both private and government insurance work now).

I like David Goldhill's idea that "insurance" ought to be used to cover rare expensive catastrophes, not to cover routine and predictable medical expenses. We should pay cash for most of our medical care, not bill it through insurance.

We should separate our medical insurance from employment, to allow a more mobile labor force. To do so, we should eliminate the corporate tax break on employment health benefits. You should just get salary from your employer, but not health benefits.

Oh, and half of all health care is useless. We should be judging based on health outcomes, not based on access to services and drugs and treatments.

Summary: catastrophic coverage ought to be single-payer insurance provided by the government; regular medical care ought to be paid with cash; there should be no involvement by insurance companies, or by your employer.

That's my proposal.
Don, another day, when I have more time—I've got very limited time tonight, alas—I'd like to address/debate the statement, “We should pay cash for most of our medical care, not bill it through insurance.” I can see why this would appeal, but there are a number of subtleties in here that need picking out.

Basically, I think it's a matter of almost national security that we have a healthy population. Consequently, people must be treated for such things. And yet, I think it's more of a luxury than you think to have health care. Many can't and don't afford it. So they don't do routine care because they are forced by economic circumstance to gamble that it won't matter. These things will come back as catastrophic later, when people don't maintain themselves. But they have no choice.

You have an apparent built-in assumption that people can and will pay this small stuff because you think it's small. But cash flow is everything, and some people don't have even that much free cash as to be able to tolerate small variations like that. That's why people get health care plans. You might indeed find people contracting the work out to someone who just insures the short term small stuff for cheap, but then you have an organization who is not responsible for your total care, just for your short-term care, so they are not incentivized to do any cross-over and are not penalized when they fail to connect up your short and long-term care.

We need a single one-stop everything-is-connected system if we're going to address the overall issue of wellness, and if we want to incentivize the notion that there is no money to be saved by avoiding short-term care. The whole problem is that people do things that are penny-wise and pound-foolish, and you need the same organization to say “hey, that doesn't pay in the long run, and we're here for the long run and it's us it's going to hurt.” Individual people don't have the perspective, and multiple businesses won't have the economic incentive. They could if you made a complicated set of regulations that made these individual companies interlock and get penalized if the people they took care of later had problems even after leaving service, but then we're into that complicated regulation you wanted to avoid. But my point is that, to put it bluntly, I think you are in an Alan Greenspan-like fantasy-land if you think people are properly motivated to mind their own short-term care.

I want universal coverage because it's in society's interest to have a ready, healthy population. It means we have a higher proportion of people ready to work. It means we have relatives of sick people focused on working (contributing to the GDP), not worrying who's going to take care of their relatives. It means people can move from job to job as appropriate to the job without having choice of job be a function of side-issues like health care. It means people who are out of work don't have to make hard choices about their health as if it were an expense category. It means we have people less in need of committing crimes as acts of desperation to survive. It means we are a more humane society. Every move toward “every person for himself” works against these goals.
Great explanation, Kent.
An excellent, intelligent commentary.

Alas, excellence & intelligence don't seem to be much in evidence in the over-all debate and, most crucially, not in the noises coming from Congress.

If countries like France, as mentioned by Barking, and Canada, where I have the good fortune to live, can figure these things out and do them with intelligence, a sufficient degree of excellence, and a sense of compassion - and, as you note, a sense of national interest - why oh why can't "the greatest nation in the world" do so? (I personally blame your nutty way of government with all those congress-critturs being ostensibly party members but in practice being autonomous vis a vis their peers and in thrall to lobbyists and bribes. This has been a plug for the parliamentary system.)
Erudite.
And right on.
Kent said: "I think you are in a [...] fantasy-land if you think people are properly motivated to mind their own short-term care."

This may be the root of all our disagreement. It gets at a fundamental perspective on politics and adult citizens. Basically, you think people make (some) bad decisions for themselves, and you are happy to have government (by force of arms!) force them to make different choices than they would make for themselves. I, on the other hand, despise "paternalistic" government. I want government to help where there is mutual benefit from the intervention. I don't want government to force me to do something, purely for myself, that I don't choose to do on my own. Government is not a better judge of what is good for me, than I am for myself.

"You have an apparent built-in assumption that people can and will pay this small stuff because you think it's small."

Not because it is small. Because "insurance" is a misnomer for easily-predictable regular costs. Food is also expensive, and necessary. Why aren't you advocating national "food insurance", to help everybody pay grocery bills? Why does (non-catastrophic) health insurance make sense to you, but not food insurance?

"we want to incentivize the notion that there is no money to be saved by avoiding short-term care. The whole problem is that people do things that are penny-wise and pound-foolish"

That sounds logical, but I think you need to look at the data here. It turns out that this is not actually a source of cost savings. The Obama and Congress folks are trying to find cost savings in the US system, and they spent a lot of time looking into preventative care. It turns out not to be a significant source of overall cost savings. Sure, you can find anecdotes of people who didn't do cheap things, and then had to pay a lot more later. But overall, it doesn't work. Turns out that a lot of people who avoid early preventative care, get lucky and never need the expensive followup. If you force everybody to do all the preventative stuff, you do not save money, overall.

"It means people can move from job to job as appropriate to the job without having choice of job be a function of side-issues like health care. "

I agree completely with this one, and it was a significant part of the proposal that I made. This is a big loss to US labor productivity (and a lot of personal happiness).

"I think it's a matter of almost national security that we have a healthy population. Consequently, people must be treated for such things."

I think you're not even following your own logic, to where it leads. You're pretty clearly comfortable with paternalistic government, with forcing people to do what they don't want, "for their own good". You say you want a healthy population. If you look into it, you'll find that medical care is so unimportant as to be a red herring, if that really were your concern.

You could have vastly greater impact, much cheaper, if you: immediately prohibit smoking and alcohol; require daily or weekly exercise; control diet to eliminate obesity.

If you're willing to force people to do things, then lifestyle changes are vastly more cost effective than anything being discussed about health insurance.

But that exactly gets at the tension between "individual freedom", and "good for society". I value freedom. Government is here for my benefit, not vis versa. I don't want to be a tool for the glory of the state. YMMV, of course.
I should add that I didn't really address the "what about the people who can't afford it?" I agree there should be a social safety net, a limit to how far you can fall. I consider it no different from people who can't afford food. But food stamps only affect a tiny fraction of our population; the vast majority of US citizens earn enough to pay for their own food. Similarly, I wouldn't focus overall reform of the whole US health care system, on those few who can't earn enough to keep themselves alive. Most people are net contributors to society, producing more than they consume. Design a good system for the vast majority first, and then add on poverty safety net programs afterwards, as part of an overall package of food and shelter and other life necessities.
Kent, your posts are not only thoughtful and articulate, but they also seem to stimulate some of the best discussion threads, thisone is no exception

I hadn't previously seen this particular catch-22 so neatly defined, and I think you've put your finger on one of the many arguments for a government regulated health care system
Kent, have you read Thomas Sowell's "A Conflict of Visions"? He has written books on economics as well. I believe he correctly understands that there are two conflicting views of life.

I like the following analysis submitted to me by a local fiscal conservative/proponent of an unfettered free market:

" In a nut shell it is that there are two world views, and always have been:
I am willing to take responsibility for my own provision but I want the personal freedom that goes with that choice;
versus:
I want to be provided for and a guarantee of safety and comfort and am willing to sacrifice certain freedoms for that provision."
He goes on: "Maybe an oversimplification, but any time I hear a clamor for the government to provide something besides national defense, protection of the 10 original bill of rights, and the basic infrastructure to "keep the trains running on time" I ask what freedom will have to be sacrificed for that provision. There is always some freedom that is given up. Government has grown too large and is taking on responsibilities that our Founders believed belonged to the individual." Pretty close summation of the first chapters of Sowell's book.

Within this argument you can find the conservative rant against "entitlements" that fits in the "loss of freedoms" category. There is an inherent dread of government interference through regulation.

Unfortunately, a corporation is an entity formed solely to make profit for its shareholders. If corporate law allows for unfettered profit taking at the expense of its customers, then that is what will happen if the corporation is profitable.

With regard to health care, the only way to show increasing quarterly profits in the face of rising costs is to gouge on insurance premiums. Without regulation, you are correct in asserting that there truly is no incentive to do anything but keep looking better and better on paper at the expense of the public to whom they offer their product.

The business solution is all about finding balance between price and cost for any given product. There is no possible market reaction to price gouging due to the monopoly that those businesses "too big to fail" have on consumers. They can only only fail by their own hands, not by normal free market forces. Because they are now truly too big to fail, the consumer has no recourse but to consume the product at any price. The only remedy is either industry competition or government regulation.

That is why the public option is needed. Short of government regulation, the only other thing for the government to do is compete with the insurance giants. Hopefully, the government is also too big to fail...
Lalucas, re your friend with the capitalist world view - I am trying to think what freedoms Americans have that I do not have as the result of my Canadian health care. Offhand, it seems that I have more freedom: Freedom from worrying about or experiencing debt/bankruptcy/financial disaster as the result of catastrophic health-care requirements, freedom to change jobs without having to worry about losing coverage, and even, according to statistics, to paying a trifle less in taxes towards the totality of national health care (your ER 'option' for the uninsured is ultimately covered by everyone else). I have more freedom to choose my doctors (on my own, not according to what insurance company pays them), my treatment, etc.

Government can provide MORE freedom for people by extending its services.
Sorry to hijack your thread Kent, but will say to Myriad:
I have NO clue what freedoms to which he refers. It is kindof an "old-timey" Southern Post-Reconstructionist view of the world that seems to be well understood and mouthed by the Christian Right. To give you a better answer, I would really have to think harder and perhaps "pray on it"...;)

Also to Barking Dog, yes, you are correct. To my mind, it is an abuse of power -- a person pays premiums for a lifetime to insure that they are covered for catastrophic loss. Just when they need the insurance for which they have paid the King's Ransom, they are dropped. Seems that it should be illegal as it is certainly immoral and unethical. Without a move toward "social responsiblity" within corporate law, corporations can do just about as they please with regard to consumers.
lalucas, no problem. I've been busy and am a little behind on replying. I'll try to get to replies one of these days soon but I have limited time for a while.
Roy, I agree it's been a good (dare I say “healthy”?) discussion. That's really a group effort involving several people, but I'd still like to particularly thank my friend Don Geddis for his contributions. His critiques and added points of view, being at odds with those of many here at Open Salon, tend to keep controversial issues from going unchallenged and so lead to better discussion. I also like that he works from the theory and not from some fixed party line, since I don't think any of us wants to debate someone or some thing that's fixed and unable to change. (Well, we didn't until Colbert made it cool, but then we can't all be Stephen...) Anyway, to date Don doesn't seem to blog, he just shows up to debate “the other side” but he does it with good cheer and not as a troll, and since there's not a way to “rate” him for it or have his comments be Editor's Picks, I just wanted to say here that I appreciate his contribution.
marcelleqb and C Berg, thanks for taking the time to read and to offer supportive words.

Myriad, you seem to suggest that the Parliamentary system avoids the clutches of lobbyists. How is that exactly? (Not disbelieving, I just recognized an opportunity to get some education. We don't get always get enough of that in the US, as you know...heh. I try to keep from being so prideful that it keeps me from at least asking when I might learn something, though.)

TBL4, regarding the urgency, I agree. It amazes me that there are people on the Republican side who, as far as I can tell, probably don't have especially good health care, and yet appear to be duped (that's what it seems like anyway) into being even more scared of the unknown than of something that isn't serving them at all well to begin with. At some point, I think we just have to try something else only because the status quo is so broken. The notion that the winning argument for the Republicans is “why mess with a good thing” when it's pretty obvious the present system is not good is amazing to me. I think I understand why that argument is working, but it's quite complicated and is very like the reason that the mortgage industry was able to become as bad as it did for so long, while all the while telling everyone it was working especially well. People like to give the system the benefit of the doubt probably because it so terrifies them to think that what they're clinging to could be as broken as some suggest. They see evidence of people being shut out or priced out all around them but they want so badly to believe it's because those people did something wrong and not because the system is really working actively against them...
lalucas and Myriad, I think one of the things about the freedoms issue is that this is one of those places where there are multiple competing freedoms.

The focus by some conservatives is on the loss of a certain freedom in the market, but that freedom is only there for people with a lot of economic power. Many just take the one health care plan they can afford at the one job that would hire them, for example. Some don't even get a health care plan where they're hired. Some aren't hired, and so don't have the “freedom to work.” Some have to work at a crappy job that might not even use their skills or pay otherwise well because it offers the health care they need. The point is that as some freedoms are secured, others are lost, so it's not as simple as those would describe who think that “government care means definitively less freedom” and “private care means definitively more freedom.” The most important freedom in our world is “having enough money” and if one cannot find well-priced health care, there is no money left for the exercise of any other freedom, so the matter is one of pure and uninteresting philosophy to many.

(Regarding conflicting freedoms, by the way: Such an issue comes up in the free speech vs. privacy debate, for example, where enhanced privacy means less freedom of speech and less freedom of various businesses to do certain things, but if you allow unfettered free speech and free action of business, individuals freedoms become restricted through privacy invasion.)
TBL4, thanks for refreshing the focus on the issue of dropped policies. That is indeed a critical piece. It's not a usual property of markets that they be required to treat everyone as a customer. We get that in common carrier situations, but those are heavily regulated. A central notion of a normal for-profit service business is that of a contract, and a contract is formed when two parties agree on a mutually agreed set of terms for both service and payment. In this case, we know that it will be necessary to do some finessing there, probably by some combination of government-funded subsidies or secondary-insuring and some government-mandated requirement to make accommodations even at the cost of some profit... that is, some compromise by government and some by the insurers. The key is that the government is big enough to negotiate something fair, and the individual is not.
Kent: thanks for your kind words. Your blog posts are the seed that prompts me to comment; without your thought-provoking essays, I wouldn't have much to say. So, thanks for that.

Also, you wrote: "People like to give the system the benefit of the doubt probably because it so terrifies them to think that what they're clinging to could be as broken as some suggest."

Reminds me of this:

Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new. (Niccolo Machiavelli, "The Prince", Chapter VI)
Kent,

You open with, “Advocates of private systems say that a public system can’t hope to achieve the efficiencies, innovations, etc. that a private system can. Fair enough.”

I have a difficult time understanding how people think an institution established to offer a service to others – a public service -- is more efficient by virtue of making a profit. It seems like an illogical assertion. It’s sort of like saying, “I can give you more if I keep some for myself.” It would seem to defy the laws of physics. Of course, there is the moral dilemma of profiting from the misfortune of others.

Obama stated in a news conference:

“If there's a blue pill and a red pill and the blue pill is half the price of the red pill and works just as well, why not pay half price for the thing that's going to make you well? But the system right now doesn't incentivize that.”

As long as profit remains in the mix, profit is what the system will incentivize. It seems particularly naïve to think that the entities that stand to lose the most by de-incentivizing what the current system incentivizes would do anything to promote loss of profits. And perhaps that is one of the points you are underscoring here. We have seen in recent years that privatizing public “services” has disastrous results.

One of the primary underlying problems is the corporate model based on share prices and profits to stockholders, which is antithetical to increasing quality healthcare to citizens. As far as efficiency in delivering services goes, the need to increase profits by denying services is a model of inefficiency. Can anyone explain how private insurers are more efficient in delivering service?
Rick, I think I can.

The idea is that if a private system has to compete with another private system, the only profit it can take (absent situations that are supposed to be illegal under antitrust legislation—enforcement of which is another missing pillar of the modern competitive marketplace) is that which still keeps it competitive with other players in the market. The theory is that the desire to make this profit is so strong that it will drive efficiencies even greater than what the public system will because there is an incentive to innovate in order to achieve better profit.

The theory often further continues that there is no incentive for government to innovate. (Note: I'm more dubious of this. I think the public sector does innovate but only in situations where it perceives it has to and can justify the expense, which I would hope most citizens would agree includes medical research. For one example, (D)ARPA has been a routine source of highly innovative, government-initiated/government-sponsored work. The drive among academics and researchers is not profit-oriented, it is oriented toward glory and doing good by mankind, but that drive is not to be dismissed.) Nonetheless, that's the theory.

The problem with the theory is that in order to work it has to be that what the profit is coming from is achieving the goal, because the only efficiencies you get are related to what is profitable. If making the entire US population healthy is not profitable, it won't happen that way. So if you want the better metaphor, here it is:

A guy loses his keys at night. His friend finds him looking on the porch. “Where did you lose them?” his friend asks. “Out in the driveway.” “Why are you looking here?“ ”The light is better.” The relevance? Well: the free market will create efficiencies but unless they are the efficiencies you need, that isn't any help. So unless we adjust the incentives, we're just looking for our keys on the porch when we go to the free market. It's efficient, but irrelevantly so.
Kent,

The problem I see in your reply is that the innovation will most likely NOT be in efficiency of delivery of service, but rather in efficiency of increasing profits, and that most likely will include ways to deny paying for the service they are supposed to provide, which is one of the major problems currently plaguing healthcare in America today. As you say, “It's efficient, but irrelevantly so.”

So, in the end, it comes down to what efficiency we prioritize; profits or quality care and delivery of service. The two are essentially antithetical to each other.
Well, we could change what is profitable. We could create tax incentives for organizations to keep people alive, for them not to drop people, for them to improve the number of people they can show they keep from having problems of various kinds. But that involves substantial adjustments in regulation, which many proponents of a market solution oppose; hence the Catch-22.
I don't see where providing tax breaks as you suggest improves efficiency. It preserves profits, but I don't see a correlation with efficiency.
Rick, the theory is (and this is a theory I believe) if you create a mechanism in which profits increase in proportion to what you want to happen, that you'll get a more efficient system because people will then have the incentive to increase profits. (The part I don't believe is that it's likely we'll get support from anyone to arrange the system so that profit-making is in alignment with the public good, because I think the people who know how to do it are not playing along and are actively working against the success of this social goal.) But if they were doing it, then tax incentives is a standard technique.

Take a neutral topic. If you haven't read Thomas Friedman's Hot, Flat and Crowded, I totally recommend it. It takes climate change seriously and takes the unusual approach of recommending market-based solutions. (I say unusual because Friedman professes to be a liberal and that might not be what you'd expect him to say.) He outlines in unabashed fashion that changing taxes to penalize things you don't want to happen and to give breaks for things you do want to happen is the way to get the market charged up to make investments. I think part of his point, which he says at one point and then downplays, is that democracy moves too slowly to address climate change. (He talks about wishing the US could be China for just a day so that he could slice through various red tape and get us pointed in the right direction, but then says he'd return control to the markets, which he thinks would operate better on their own than under government control once incentives and penalties were aligned with the public good.) I may not have done him justice here, but really he makes a good case in his book. But it wouldn't work without a tax change, and since the Republicans are determined to sabotage this administration by pointing to any tax increase anywhere as a failure, it follows that it can't work at all.

Which is very sad, really, for people like me who are trying our hardest to be open-minded about workable options and who are lining out the market option as workable not because we wouldn't consider it properly structured but because we can't consider it improperly structured. It just doesn't make good sense.
Kent, nice post, but I see a couple gaping holes that need to be addressed -- the elephant and donkey in the room, if you will.

I think the number one step to restore sanity to this market, is to ELIMINATE EMPLOYERS from the market. Disintermediation -- put the customer in direct contact with the provider (in this case, insurance provider).

Without this step, I don't think there is any hope whatsoever of constructing a market with operating incentives that are aligned with ANY societal goal.

Related to this is a need to greatly improve transparency -- customers need to know what they're buying. If they're buying a company that 10 years down the road will drop them, they need to know that. If they're buying into a plan that will not allow them to change plans later (perhaps because other plans will not regard them as having been covered for what is now a "prior condition"), they need to know and understand that risk.

I think it also has to be kept simple -- we do NOT need a myriad of competing plans and ways to slice and dice the risk. Some may be more efficient than others, but the resulting morass will be to make the market anti-competitive.

The LAST thing we need is a competitive market like we have in cell phone carriers, where the carriers manipulate up-front incentives, and there is massive lock-in. It took federal intervention to get us number portability -- but even with number portability, changing carriers is difficult and expensive, no matter HOW poorly a carrier treats you, or no matter how poor the service turns out to be in your area.

Having a wide array of competing plans makes figuring out fair rules for moving from one risk pool to another very difficult.

So the second hole (the donkey) is we have to define the product. We have to decide what is covered, what choices are available, etc. We have to decide HOW we decide all of that. It can't be left to the market -- in fact, it will poison the market if we try. More than anything else, THIS is where "government intervention" is needed. Not death panels, minimum standards and portability rules and definitions that will allow a market to operate, based on such things as price, service, support for health maintenance, access to information, etc.

Henryk: I don't quite agree that this is a clash between pro- and anti-free-market ideas. I think that's a smoke screen being thrown up by the political parties. The supposed pro-free-market side is protecting a non-free-market system -- and the resulting profits. It is unclear how much of this is bought-and-paid-for support for the insurance industry, vs. unwillingness to let the Democrats have any wins, but the result is the same either way.

The anti- side is proposing a competing public option -- and otherwise simply forcing everyone into the existing non-free market. This seems to be to be slightly more free-market than the supposed pro-free-market position, but not by much.

Socialism is Medicare -- but expanding Medicare doesn't seem to be an idea much in play. But you have the "pro-" side with folks saying things like "keep your government hands off my Medicare" -- so you are clearly right that at least a significant number of Americans understand neither free markets nor socialism -- and there are plenty of politicians and others eager to take advantage of this ignorance.

In American Politics, "free market" = "evil corporate greed", and "socialism" = "evil bogeyman from the 1950s + government waste/incompetence/interference". Neither view is much based on reality, but make for handy scare tactics.
Hi, Bob. Thanks for stopping in. Regarding disintermediation, I actually agree with you that employers should be out of the loop. There are a lot of reasons why that's really bad. On the other hand, putting customers in direct touch is something I'm more mixed on. See my article Medical Transparency: The Siren's Call where I've discussed that in detail.

(I also recently wrote Health Insurance: A Modest Proposal which doesn't directly address the issues you raise but is part of the same series in case you or anyone wants to “collect ’em all.”)
Oh, and Bob, I agree with you about the need to “define the product.” It was a bit out of scope here, and I worked hard to cut this and related posts back to punchy suggestions, not trying to get too far afield in a single post. (That was partly your suggestion, by the way, in response to a draft of one of these that was way too long and I ended up slicing into multiple smaller posts. I thank you for nudging me in that direction.)