Why Can’t We Buy Health Care the Way We Buy Food?
Think of a supermarket. There are probably more than a hundred in the city of Dallas alone. I can walk into any of them — in most cases, at any time day or night — and buy thousands of different products. The only wait I experience is at checkout, but express lanes speed that along if I want only an item or two. When I go to purchase something I want, the product is always there. I can’t recall an instance when a shelf space offering something I wanted to buy was empty. Further, the products being offered are produced by thousands of different suppliers, and they travel thousands of different routes to get to market. What is true of Dallas is true of every city of any significant size in the country.
Contrast that with the market for medical care, where almost nothing is available at the drop of a hat. According to a Commonwealth Fund study, nearly one in four patients has to wait six or more days for a physician appointment. Less than one-third of physician practices have made arrangements allowing patients to see a doctor after hours when the practice is closed. Sixty percent of patients find it difficult to get care after hours or on weekends. Newspaper reports around the country tell horror stories of the consequences of the shortage of cancer drugs and other life-saving pharmaceuticals. Four- and five-hour average waiting times at hospital emergency rooms are not uncommon.
So why is there so much difference between these two markets? I would argue that one is a real market where consumers face real prices, whereas the other is an artificial market where the price system has been suppressed.
You can’t always get what you want
But if you try sometimes you just might find
You get what you need
We previously reported on a study that found that enrolling children in CHIP does not result in their receiving more medical care. But when CHIP pays higher fees to doctors, its enrollees do get more care. Think about that for a minute. We encourage low-income families to enroll their children — in most cases by making the insurance absolutely free. Many of them drop their private coverage to take advantage of the opportunity. But we make it illegal for the family to add to the government’s fees and pay the market rate for their care. They can have free health insurance only if they agree not to purchase the same care everyone else is able to buy.
When we expand a public insurance plan for low-income patients, we are spending billions of dollars in a way that doesn’t increase their access to care. At the same time, we forbid the enrollees to do the one thing that would expand access to care.
Contrast this foolishness with the Food Stamp program. Low-income shoppers can enter any supermarket in America and buy almost anything the market has to offer by adding cash to the “voucher” the government gives them. They can buy everything you and I can buy because they pay the same price you and I pay. But we absolutely forbid them to do the same thing in the medical marketplace.
This is why Tom Saving and I recently proposed to get Medicaid and CHIP out of the business of dictating prices and replace that activity with a health stamp program, fashioned after the food stamp (SNAP) program. Enrollees would get stamps, depending on their health condition, and they would be free to add their own money and pay any price for any service the medical marketplace has to offer. In this way, low-income families on Medicaid would be empowered patients who could compete for health care resources on a level playing field with other patients, at least for small dollar health purchases, which would include almost all primary care.
The idea behind health stamps is straightforward. Like food, health is generally considered a necessity. So why not treat it the same way we treat food? We don’t segregate grocery stores into those that sell to poor customers and those that do not. Grocery stores take all comers, and they charge the same price to each of them. The way we subsidize low-income families is through the food stamp program, a highly successful poverty program that now reaches 50 million people. The program allows poverty and near-poverty families to have access to the full range of food products. Because they pay market prices, Food Stamp families are welcome customers at every grocery outlet. Although they live with more limited budgets, Food Stamp families are able to make tradeoffs in grocery choices — using Food Stamps in a way that meets their own preferences and needs. Competition for Food Stamp dollars forces stores to compete on price and, unlike health care, the prices are transparent. Every paper contains full-page ads in which price plays a dominant role.
This proposal makes certain that the poor have the wherewithal to pay for their health care not by forcing them to wait or take poorer quality, but with health care dollars. These health care dollars are full dollars to providers, ensuring that the poor can complete for resources with all other buyers of care.
Good post.
Great commentary on the reason for drug shortages. Price controls lead to scarcity. Period.
I would differ with you, though, on the success of Food Stamps. While it is a far more efficient way to redisribute wealth, the fact that 50 million people partake from the public trough is a travesty.
If the poor were able to use Health Care Stamps pay free market prices at taxpayer expense, medical inflation would quintuple.
A far better way to care for the poor is for physicians and volunteers to provide true charity leaving the government and taxpayer out of it. Just protect those volunteering physicians from the burden of the medical malpractice jackpot system.
Dr. Eck is right about the Food Stamp program. Although it is an effective way to provide sustenance to the poor, obesity is a bigger problem for them than hunger. Hunger is a symptom of other problems — mainly substance abuse, child neglect and dementia. Nonetheless, Food Stamps is a better model for delivering care to the needy than Medicaid.
We buy “healthcare” the same way we buy cars. I talk about this in my book “MediCrats”.
Those of us old enough to have turned on the high beam with our left foot remember when you went to a car lot and the price $8,600 was clearly marked on the window. We knew we could haggle on the price, we also knew that the options like mag wheels, 4 on the floor and the 8 track were the expensive options, so we avoided them. Today, you go to the car lot and see “$299 a month zero down” on the windshield, and there are countless expensive options included and the true cost is hidden.
“Medical Care” used to be the product, but today we buy payments, and all the expensive options are wrapped up in those payments. Expensive options like contraception, annual physicals, expensive diagnostic tests etc.
At http://www.MediBid.com you can buy medical care the old fashioned way…just buy what you need. The concern isn’t what’s covered, but what’s needed. That’s why the costs are 80% lower than posted prices, and 50% less than insurance discounted rates.
Hi John:
Once again on target. In case others might not have noticed, we are moving pall-mall toward heavy patient payments out of pocket–higher co-pays, higher deductibles, and less coverage. And of course, there is the employers’ anticipated stampede toward the exit as the exchanges come on line. Consumers will have no choice but to spend their money or go without care.
You have cleverly proposed health stamps, which presumably would be a governmental subsidy for the poor. That is a very good idea.
The Patient-Physician Alliance has designed a point system for all patients, not just the poor, that would permit providers to offer discounts by “redeeming” patient-members’ points. The PPA system is being created to harness the one-in-five dollars in our economy and to establish true value.
Of course, at present we can’t use it for poor or old people, because our government, in its infinite wisdom, prohibits doctors from “discounting’ Medicare and Medicaid services. Likewise, many health plans purport to prohibit discounting–even as they cut coverage and raise premiums. These prohibitions are a perversion of the market and a barrier to free market health care reform from the bottom up, not the top down.
Providers and patients need to be free to exchange the value they set on the services and goods they buy. Health stamps and PPA points must be permitted to be a part of the health care solution in the future. Without empowering consumer/provider exchange values and prices in health care will continue to be fictional and inflationary–and ultimately ruinous to this country.
So please continue to push for health stamps and PPA Points, so patients can help establish a real health care marketplace.
Cheers,
Charlie Bond
But Charlie, as soon as you infuse taxpayer dollars into the health care system in the form of any type of voucher or MSA or health stamps– that IS inflationary.
There is no question that the GI bill and other government subsidies have led to the dramatic inflation in college tuition. Everyone pays more and salaries of professors rise because of the free flow of government dollars. This is not a good thing in a free market.
We subsidize degrees in “Far Eastern Art History,” where the students come out with no job prospects. Is that a good use of taxpayer dollars? Is that Constitutional?
Again, real charity would mean the patient who cannot pay gets care from a doctor who does not charge. The taxpayers ought to be left out of the transaction.
Setting up non-government free clinics would utilize retiring baby boomer volunteers and doctors would donate their time. Having the state simply protect the doctors from the medical malpractice burden in their private practices would be enough of an incentive.
MSAs are a wonderful idea for people who earn their benefits, but I do not believe they would translate well into charity care.
Great 30 second video on buying groceries the same way that we buy healthcare.
http://www.youtube.com/watch?v=mOcYrlHlBBk&feature=g-upl
The problem with the proposed health stamp program is precisely that it reduces the role of the government. The real purpose of almost all government programs is to buy votes for politicians. For that to work, the government’s role must be visible, obvious, and above all continual. How many poor people vote for a current politician because some previous politicians once passed a law establishing the food stamp program? None, of course. What current politicians want are new programs or programs in which government is always present meddling in things so that it is obvious that the government is “doing something.”
The health stamp idea would be a huge improvement over the way we do things now. That’s why it won’t happen.
Good song pairing.
John:
A very reasonable article . . and one that will receive no support from the Obama Administration. They do not wish to empower voters to be self responsible. Health Care Stamps, although supported by wealth transfer from producers of wealth, move toward independence.
I view your suggestion as a step in the right direction. The next step is to eliminate Federal control, returning all welfare issues to State and local governments where mayors and governors reside close to those in need.
I once put on an exam the idea to help New Yorkers afford apartment rentals, using John’s cool voucher scheme scheme. So New York families got means-tested vouchers towards the rental for apartments and landlords could charge what the traffic would bear.
A lot of students answered that this would drive up rental rates for everybody in New York — ruch and poor — although the landlords would love it. And in the end poor families without the funds to fork over the difference between the value of their vouchers and the now higher rental prices were out to lunch again.
In September 2005, I made the grocery store analogy in a column called Endnotes in Minnesota Medicine. Not much has changed. I wonder when we will reach the critical mass required for changing this system? This is the text of the article (published under my writer name, Elizabeth Reid Holter)
A Pseudo Market
Imagine a food market set up like
the health care market. You rely on
coverage for food from your employer,
who in turn negotiates with a
food-provision company for a grocery
plan. You don’t know how much your
boss pays even though the cost is part
of your compensation package. Food
suppliers bargain with the provision
companies for the right to purvey their
products. As a consumer, you are
bound by the terms of these parties in
your quest to fill the refrigerator. In return,
you no longer have to comparison
shop. In fact you can’t because
there are no prices on the packages.
And at the checkout counter, you only
have to pay a little bit-just enough to
give you an incentive to make fewer
trips to the store. Not a bad deal.
But months later, after all the paperwork
is processed, well out of your
sight, you get a letter saying that your
grocery plan did not entitle you to that
shrimp you bought. You get angry and
delve into the details of the system,
where you find that your plan paid astronomical
amounts for the items in
your cart. The prices you see have no
relationship to the actual costs. If they
did, a Honda Civic would be in the six figure
range. Then you might come to
the conclusion that the food market is
not a real market at all. The transaction
of value-money for food-is invisible,
and the system doesn’t allow
you to make value judgments. Is a jar
of peanut butter really worth $25?
The towering superstructure of
the health care pseudo-market rests on
a perversion of the function of real insurance.
Insurance should be protection
against catastrophe, but in the
world of modern health care, insur-
ance is the tool that makes the cost of
transactions invisible and the need for
itself absolute. Carry no health insurance
and risk financial drain for even
the simplest of health care encounters.
But the situation could be worse.
Imagine if, more than half a century
ago, employers had offered food insurance
instead of health insurance as
an employment benefit to get around
wage controls. We’ve gotten away
with such nonsense in health care because
health is not a real commodity.
Change happens when the pain of
staying the same exceeds the pain of
changing. We haven’t reached that
point in the evolution of health care.
When we do, we will quit pretending
that our current system has anything
to do with the marketplace and figure
out a sensible alternative. Maybe even
a creative one. For instance, what
would happen if, all at once, all of us
decided that we no longer wished to
buy health insurance from our employers?
Employers, relieved of the financial
burden health insurance
imposes, might hire more
workers. Workers, relieved
of the insurance tie that
binds them to jobs they
dislike, might seek
jobs they like and
become more productive.
Insurance
companies could revert
to the business of providing
insurance instead of
micromanaging the people
who provide health care.
What if we paid the doctor as
we pay the plumber, face to
face? We’d expect and get
good service. Office overhead
would plummet, and prices would
drop. What if we who have reasonably
good luck and good health paid
for medical care the way we pay for
other services and relied on insurance
only in the event of a catastrophe? We
would employ the good judgment we
use in other aspects of our lives and
have a vested interest in doing the
low-tech, preventive stuff we find so
difficult.
What if, as a society, we agreed on
a reasonable standard of care for
everyone and protected that level for
those who cannot provide for themselves?
What if we quit expecting medicine
to rescue us from ourselves and
quit believing there ought to be
enough money to finance that expectation?
What if we got real about
health care? Then we wouldn’t need
silly analogies any more.
Elizabeth Reid Holter is a neurologist
and writer in Edina (not anymore – I live in the mountains of Coloradonow.) –
I like Uwe’s exam question. Can we take it for granted that every time additional money is added to freely purchase a desired product the price of the product will go up?
Dr. Eck – You seem to be overlooking the fact that we already infuse this money into the system through payments to physicians for providing health care services to Medicaid/CHP enrollees. Presumably the voucher system would replace, not add to, to current reimbursement system, so the “new” money coming into the patient side of the market would be offset by the subtraction of money previously coming into the provider side. The difference with John’s model is that the providers would have to compete with each other to get a share of the money, and that would (at least in theory) prompt them to improve their quality, accessibility, etc.
@ John – The above aside, I think the grocery analogy fails on a number of fronts. Grocery stores compete with each other nearly exclusively on price, and the product is a fungible good (a box of Kellogg’s Corn Flakes at supermarket A is the same as a box of Kellogg’s Corn Flakes at supermarket B). Not so health care, which is largely a professional service.
If the supermarket analogy were the right one, lawyers – – a professional service guild which has not been derogated by a third-party payor system – – would long ago have transformed themselves into 24-hour law-marts. Which they have not done. You begin to see a little of it in areas like DWI defense and will-drafting, which are as close to a “commodity” as lawyering gets, but the proportion of that delivery model compared to the traditional delivery model is fairly small – – on the same order, perhaps not coincidentally, as the penetration of minute-clinics and the like into the primary care market.
It also occurs to me that, unlike food or housing, which enjoys a fairly constant demand month over month, healthcare demand varies greatly. Most people do not use health care services every month. A significant number do not use health care services more than once or twice a year. Then suddenly there is an event that requires a great deal of health care services – – an accident or illness. The variation in demand at the individual level is actually the very thing that health “insurance” is intended to address. In your model, John, would the recipient be expected to save the stamps, and then use them all at once if, say, something major comes along? Is there a stop-loss level if, say, the recipient develops liver disease? Some legitimately needed services would be so expensive that a lifetime of saving stamps would not suffice.
Dr. Reinhardt – Isn’t one key difference between the health care market and the NYC housing market in the elasticity of the supply? It’s much easier to add one physician to a practice group – – anywhere – – than it is to build new apartments in Manhattan. Would the answer to your exam question have been the same if the elasticity of housing supply in NYC were (at least) closer to 1, if not above it?
A basic economic reason why the health care market cannot be compared to, or rather act like, a grocery store is that if one is not able to pay for a product, they cannot be denied access to that product — at least not entirely. Ex:: emergency rooms, under the EMTALA regulations must treat any who present, regardless of the patient’s ability to pay. While the EMTALA regulations are not quite as broad with regards to ER responsibilities as we might think, hospitals are so fearful of being sued, that they typically provide more extensive and expensive services than required.
As a result, whole segments of US society see the ER as their primary care doctors.
Secondly, the presence of a robust 3rd party payor system allows providers, particularly those constrained as illustrated above, can pass off their “losses” on such care to other consumers who can pay higher rates through their insurance plans. What would have happened years ago if insurance carriers adopted a practice not to reimburse at rates higher than government health care plans? Might we not be looking at a very different landscape today?
Last, but certainly not all, is that health care in the US flips the demand/supply environment upside down. John has presented this extensively in the past.
Making plunder more efficient does not make it right.
(See The Law, by Frederic Bastiat, 1845)
Uwe, do you think that outside of New York City poor people are giving all their disposable income to landlords? That’s something I hadn’t noticed.
No telling the wonders that the market will do for healthcare if it’s allowed to work.
Dear Mr Goodman,
Thank you so very much for many interesting comments on the health care debate in th US. My name is Nils-Eric Sandberg. I have beeen working as a leader writer for the biggets morning daily in Sweden for many years, as an expert on economics. Now I am working as a free-lance writer, producing articles and books. I am a member of the Mont Pelerin Society.
For a numer of years I was interested in health economics, i e a school that applies economic analysis to the problems of health care.
Here just two comments on your todays´letter comparing health care and food.
First: When buying food you out of your own pocket. When paying for a surgery, you (i e most of us) have to relie on an insurance. And organising and financing insurances is not just as easy as selling carrots.
Then: You can walk into a food store and know always everything about carrots, and cheese. But when in an hospital for say cancer surgery, you do not know very much about the chemistry of your sickness, or the tecknology of the surgery. The doctors know a lot more than you. This is what the economists call a case of asymmetric information. And this is an important reason why you cannot compare carrots with surgery.
Kindest regards,
Nils-Eric Sandberg
Grenadjärvag 10
SE-291 37 Kristianstad, Sweden
John,
Delivering health care should never be equated with grocery shopping. That in and of itself further demeans the physicians role as a healer and as a necessary and important part of our country’s caring. Now to the true discussion; waiting for three months for an appointment is not unusual if it is for an annual check-up. We encouraged when a patient has been seen, to have our receptionist inquire as to the next visit and make the appointment at that time. Doctors are not clairvoyant to the point of knowing how many sick patients have to be seen on any given day, so there are openings for patients who need to be seen that day. If your grocer is out of sweet potatoes he can not go and just make some appear. Most of the problems arise because communication is lacking. In over 50 years practicing medicine NO ONE who needed emergency attention was turned away. There were even times when I would pick up a baby, tell my staff that I was leaving to take him to the hospital, and have my staff announced that to the folks in the waiting room. No one complained, and were told it might be a long wait, because the need to make the absense relayed to the people waiting to be seen, soon realized that the nature of the situation and to realize how I would and did react, that the parents were appreciative of the fact that they had a caring physician, and they knew if the same situation would occur, they were in no way be upset with me. And finally to have the decency or journalistic know-how to see if what has happened is valid, you must compare apples to apples, compare Parkland to the other similar hospitals; Ben Taub in Houston, Charity in New Orleans, Grady in Atlanta, Bellevue in New York, Boston City Hospital in Boston, Henry Ford in Detroit, Cook County in Chicago. If the others are also doing what Parkland did, then the system is wrong which means the failure is not in the institution but in those who are writing the rules, namely the insurance companies and the federal funding system. If there is further reduction of medicare reimbursement all that it will do will be to have any physician who is receiving inadequate reimbursement, will then opt out of medicare which will only increase the numbers who will then of necessity utilize the public access facilities, and then think of how it will further diminish the ability to provide even less care. I think that the medical profession is at fault in letting bureaucrats determine how much a doctor is worth, and we are guilty of allowing physicians to utilize chicanery and greed to feather their own nest.
Dr Bob Kramer
214 676 5692 office
214 522 8040 fax
drbobkramer@pol.net
Brilliant idea John! Sounds like the next HSA! Great job!
Bob,
Over time definitions of “healthcare” have blurred. Most people now consider this the payment scheme not the actual MEDICAL CARE. When medical care was the product, our focus was different. Now that “healthcare” is the product, a bunch of un needed things like contraception are thrown in.
Very interesting post and response by Uwe. Allowing people to buy whatever they prefer – what a novel idea, a free capitalist market! With this idea we don’t have to entitle everyone to everything – only perhaps the basic services made available in the market at the most competitive prices.
Here is a suggestion on how to move forward. First we need complete price transparency. Just try going to the hospital and asking how much the entire episode is going to cost. Or even go to the lab, radiologist or your internist and ask ‘how much?’.
Next with that information at hand think about how reference pricing might work in this environment. The stamps would be full cost reimbursement for either a certain amount of the cost or value (which would include a measure of quality) the balance being born by the consumer. You would make sure (here is where reference comes in) that there are subset of suppliers who offer the value or price that is covered by the health stamps. Others might offer the service at a higher price or a lower value and wouldn’t be covered nearly as fully by the health stamps. (www.ilovebenefits.healthcarebenefitsnetwork.com)
I wonder if others see it this way?
@Larry, If you look at http://www.MediBid.com, our entire model is built around transparency and competition. There are some people that make a request, but don’t pay, and those people do not have their requests sent out. Believe it or not, that’s our biggest complaint! Once you pay though, your request is sent to thousands of doctors across the US and overseas, and they all get to respond with a custom bid for the particular services you have requested.