Is Real Free-Market Health Care Even Possible?

Having backed away from a vote on health care this week, the GOPs chances of replacing the Affordable Care Act hang by a tenuous thread. So why cant Republicans (who dont need a single Democratic vote to pass this bill) come together on this?

Thats what conservatives like Hugh Hewitt are wondering. The GOP health care bill may not be perfect, they concede, but its better than Obamacareand its a start. Republicans, they say, shouldnt make the perfect the enemy of the good.

A competing conservative theory (held by Senators Paul, Cruz, Lee, and Johnson) rejects this incrementalism. If Republicans are going to be blamed for kicking millions of people off their health care coverage, shouldnt they at least have something to show for it that, you know, isnt Obamacare Lite?

Incrementalism may sound commonsensical, and opposing it might sound sacrilegious, but its not always wise. Lets say you want to move from New York to California, and someone offers to drive you halfway there. Is it wise to accept the offer? If you are able to immediately hitch another ride from Nebraska to California, it might make perfect sense. But what if youend up staying in Nebraska for the rest of your life?

No offense to Nebraska (Im actually a fan of Omaha), but this is basically the state of our health care system now, which is neither fish nor fowl. The odds of circling back at a later date and fixing the problems associated with this bill seem long. Do we really want to keep settling for half measures that end up satisfying nobody?

Politics is about compromise, but liberals have a built-in advantage when it comes to health care. Consider this: If a progressive wants a single-payer system but instead settles for a watered-down version that doesnt work, eventually the solution will be more governmental involvement. So liberals benefit from incrementalism. But if a quasi-conservative model using Rube Goldberg gimmicks to incentivize universal coverage fails, the solution is never going to be a pure laissez-faire system. The next step always includes more governmental involvement.

That is the pattern. Here, a quick history is in order.

According to Christy Ford Chapin, author of Ensuring Americas Health: The Public Creation of the Corporate Health Care System, there were more health care options 100 years ago. There were union plans. There were consumer cooperative plans. Mutual aid societies had their own health care programs. There were pre-paid physician groups, which are very similar to some of the physician health care cooperatives we have that are being tried today, Chapin recently told economist Russ Roberts. So, you had all these different models. And some of them were very elegant and very efficientmade consumers and health care analysts very happy. But, the AMA (American Medical Association) made an intervention at the end of the 1930s.

One of the most interesting ideas Chapin cited was the Prepaid Physician Group. Instead of buying insurance, you would pay a doctor in advance for future care. And because this doctor had a reputation to protect (in the hopes of winning future business), he had an incentive to provide good service at a good price. These are decisions I think we want to have made at thephysician-patient level, and not by insurance companies, government officials, or whoever it might be, many layers up. We want these decisions made on the ground, Chapin explained.

Of course, that wasnt the only force behind the disintermediation of our health care. During World War II, government intervention in wage controls had unintended consequences that are still being felt today. Businesses couldnt woo top talent by offering them more money, so they instead sweetened job offers by adding fringe benefits, including health care. The result was a Catch-22: Because health insurance was paid for by a third party (your employer) instead of the beneficiary (you), there was no incentive to keep costs low. As a result, almost everybody had to be an employeebecause health care costs were too high to pay for out-of-pocket.

Were still living with the consequences today. As Sen. Rand Paul recently observed, The reason capitalism doesnt work in health care is the consumer is disconnected from the product When you connect with the consumer, and the consumer cares about the price, guess what? The consumer will shop. And when the consumer shops, competition works. But were not really doing that in health care.

And as Jeff Jacoby noted years ago, Why is it that in every other field where enormous technological strides have been made, total costs have fallen over time, but in health care they have increased? The answer is simple: Health care costs so much because most of us pay so little for it. And we pay so littleout-of-pocket expenses amount to just 14 cents of every health dollar spent in this countrybecause a third party nearly always picks up the tab. For most working Americans, that third party is an insurance company paid by their employers.

The next big change occurred in 2010, when the Affordable Care Act enshrined health care as a public responsibility.Once this paradigm has shifted, it becomes virtually impossible to introduce true competition into the market. Even when problems are caused by governmental interference, the solution will always be more governmental interference.

Its nave to think that we could return to the days before the AMA and government distorted the marketor before it was accepted that the government was responsible for your health care. In the old days, churches and charities could help take care of the poor and indigent. Any modern plan would have to include Medicaid as an alternative. And even if we could return to the days of pre-paid physicians groups, is it realistic to think that the incentives to maintain a sterling reputation would apply to people living in an anonymous big city like they did for people living in tight-knit communities? (Remember how much mockery Nevada Republican Sue Lowden endured when she mentioned bartering for health care?) Our only hope is that perhaps the internet has helped restore the ability to reward and punish people based on their reputation.

It might be a pipe dream, but dont expect Republicans to be excited about anything that doesnt at least begin to address the third-party payer problem. Its no wonder conservative senators dont see this health care bill as a hill theyd want to die on.

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