Is a genuine market in health insurance even possible?
A new study suggests health care doesn't work like other products
Genuine competitive markets in health insurance and health care are sort of like Bigfoot: There's no real documented case of them appearing in the wild, but some people remain convinced they're out there.
ObamaCare itself is premised on the notion that competitive markets — albeit ones that occur in an environment heavily structured by regulations and subsidies — are possible. And ObamaCare's conservative critics insist that no, even that structuring is too much, and that we need to clear out even more regulation and spend even less and then we'll get to a competitive market. Yet every other advanced nation relies on some form of single-payer or all-payer rate-setting — including Switzerland, arguably ObamaCare's closest cousin.
So the quest for functional health care markets is kind of a big deal, because both sides assume this elusive beast can actually be found.
But markets are kind of abstract. The idea is to use the decentralized crowd wisdom of millions of people hunting through price signals for the best deals to drive down costs and drive up innovations. But in practice, that requires millions of people shopping through different options; having the time, knowledge, energy, and emotional discipline to shop meaningfully; being able to weigh trade-offs and future hypotheticals; etc.
That's a pretty tall order. The abstract ideal of the market maps onto messy human realities better for some goods and services than for others. And if you were to guess which goods or services it really doesn't map onto at all, you'd probably put "health care" near the top of the list.
A new two-year study says you might be right. In 2013, a firm shifted 52,000 employees and a number of their dependents onto a new health plan. The old plan was extremely generous, with lots of providers and covered services, and no deductibles. The new plan kept the providers and services, but added a $3,750 deductible. Since a deductible is a form of cost-sharing — you and your insurer share the cost of your care — fans of markets in health care are generally fans of high deductibles. The idea is that if your insurer covers all of your costs, you won't shop for care in any meaningful way, and then competitive market pressures can't do their thing. But if you share your costs, you'll be price sensitive, and you'll shop.
More importantly, the insurance plan also provided everyone with $3,750 in cash in a health savings account. So while the consumers were made more price sensitive, their own financial security wasn't threatened by the price sensitivity. They could spend the $3,750 on care, or they could save it for a rainy day, all without fear of encountering a price they couldn't shoulder.
The people on this plan were given a price-shopping tool "that allowed them to search for doctors providing particular services by price as well as other features (e.g. location)." That's also really important, because price transparency in the American health care system is wretched. Price tags for the same procedure vary all over the map, and it's next to impossible to get hospitals, doctors, and other providers to quote you a price upfront for major procedures.
The system is so sclerotic that the basic institutional and cultural infrastructure for just telling people the price of something was never put in place. And you can't really shop without that.
Finally, it's worth noting the employees on this plan were "relatively educated, high-income consumers" — i.e. white-collar folks with the know-how to sift through complex ideas and paperwork.
So this looks like a pretty good test of whether we can get markets in health care. Sophisticated consumers were made price-sensitive but not put at financial risk, and were given a tool to shop for providers and procedures. So did it work?
Per-patient spending definitely fell — about 15 percent in one year — but not because anyone shopped. People just…didn't go to the doctor. They cut out "potentially valuable care (e.g. preventive services) and potentially wasteful care (e.g. imaging services)" alike. This is not the result we want. If you're sufficiently hell-bent on lowering costs in the health system, you can always just not spend money on people and leave them to fend for themselves. What we want to do is cut spending but maintain quality of care, and the theory is market competition is the means to do that. But in this case, at least, that theory didn't pan out.
"I am a little bit surprised at just how poorly patients were able to do when looking at very similar products, like MRI scans, and with a shopping tool," Jonathan Kolstad, a University of California Berkeley economist and one of the study's co-authors, told Vox. "Two years in, and there's still no evidence they're price shopping."
Nor is this the first time studies have come to this conclusion. "There's a lot of evidence that high deductibles deprive people of access to care and are on the whole not a good thing," Timothy Jost, a Washington and Lee University law professor and a widely recognized ObamaCare expert, told The Week. Which is significant, because the rising costs of health care have been driving a lot of employer-provided plans towards higher deductibles for a while now, and ObamaCare itself allows relatively high deductibles on its exchanges.
Political theorist Corey Robin had a pretty brutal take on ObamaCare and the whole market-oriented push in health care reform, which forces all of us "to spend an inordinate amount of time keeping track of each and every facet of our economic lives," Robin observed. "That, in fact, is the openly declared goal."
"In real (or at least our preferred) life, we do have other, better things to do. We have books to read, children to raise, friends to meet, loved ones to care for, amusements to enjoy."
Even with total price transparency, health insurance is an intrinsically complicated product. There are networks to juggle (maybe your hospital is covered, but not the doctor you had at the hospital), different forms of cost-sharing (if not deductibles, then co-pays), procedures that aren't covered by the plan, and more. And it's a product uniquely plagued by the stresses, fears, and emotional weight of sickness and mortality. A vision of the American health system that assumes people can navigate all that comes close to treating human beings like emotionless economic calculators.
Now, you can argue, and I have myself, that a genuine market could tackle these problems, forcing insurers to make the experience of health care shopping speedy and painless. Maybe we just haven't cracked the code yet, and this study wasn't an adequate test of our ability to do so. That's possible. But it also leaves us gesturing at some theoretical utopia of nimble health innovation and provision that lies just beyond the horizon.
Ironically, it's lefty fans of things like single-payer and all-payer rate-setting who are suggesting we stick with traditional, tried-and-true methods.