The future of free-market healthcare

By Douglas Holtz-Eakin and Avik Roy
February 20, 2013

Over nearly a century, progressives have pressed for a national, single-payer healthcare system. When it comes to health reform, what have conservatives stood for?

For far too long, conservatives have failed to coalesce around a long-term vision of what a free-market healthcare system should look like. Republican attention to healthcare, in turn, has only arisen sporadically, in response to Democratic initiatives.

Obamacare is the logical byproduct of this conservative policy neglect. President Barack Obama’s re-election was a strategic victory for his signature healthcare law. Once the bulk of the program begins to be implemented in 2014 — especially its trillions of dollars in new health-insurance subsidies — it will become politically impossible to repeal. And as the baby boomers retire and Obamacare is fully operational, government health spending will reach unsustainable levels.

The great irony of Obama’s triumph, however, is that it can pave the way for Republicans to adopt a comprehensive, market-oriented healthcare agenda.  The market-oriented prescription drug program in Medicare has controlled the growth of government health spending. Similarly, conservatives can use Obamacare’s important concession to the private sector — its establishment of subsidized insurance marketplaces — as a vehicle for broader entitlement reforms.

While most Americans view their healthcare system as “free-market,” Switzerland actually has the most market-oriented healthcare system in the West. It translates into universal coverage and low entitlement costs. Swiss government entities spent about 3.5 percent of gross domestic product on healthcare in 2010, compared to 8.5 percent in the United States. That’s a difference of more than $5 trillion over 10 years: real money, especially relative to our $16 trillion debt.

There is no “public option” in Switzerland. Instead, citizens qualify for means-tested, sliding-scale subsidies and choose among a variety of regulated, private-sector insurance products. The Swiss have the freedom to choose their own doctors, as Americans do, and access to the latest medical technologies. They also have short waiting times for appointments.

Both Representative Paul Ryan’s “premium support” proposal for Medicare and Obamacare’s exchanges are modeled on the Swiss system. If premium support is a dastardly right-wing plot, despite its origins in Democratic circles, applying Obamacare’s exchanges to Medicare is even more so. After all, Obamacare’s subsidies only apply to those with incomes below four times the federal poverty level: $60,520 for a family of two. By contrast, Medicare subsidies apply to every American over age 65.

Shifting Medicare to the exchanges would save trillions of taxpayer dollars in future entitlement spending. After all, why should middle-class taxpayers be forced to pay for Warren Buffett’s health insurance?

There is, indeed, a way to use health-insurance exchanges to both reform our healthcare entitlements and reduce premiums for those with private insurance. This transition could take four steps.

The first is to replace or reform Obamacare’s exchanges, which are larded with costly mandates and regulations. These drive up the price of insurance, while limiting insurers’ ability to come up with more innovative, cost-efficient products.

“Community rating,” for example, will dramatically increase premiums for young people, a counterproductive approach when one considers that most uninsured Americans are in their 20s and 30s. States should build free-market exchanges with affordable health plans — as Utah has done — and demonstrate their superiority to Obamacare’s costlier approach.

Second, Republicans in Congress should put the size, scale and growth of Obamacare’s insurance subsidies on the table in all current and future budget talks. The subsidies should end at 300 percent of the federal poverty level, as they do in Massachusetts, instead of 400 percent. And they should not grow at a faster rate than the economy, as they are now designed to do.

Third, we should use the insurance exchanges in the service of Medicare reform. Instead of bothering with complex legislation, Congress should raise the eligibility age for traditional Medicare by three months each year — for the foreseeable future. Retirees will then gradually migrate into the exchanges’ premium-support systems.

Medicaid-eligible seniors should also be offered exchange-based coverage, to improve the quality and coordination of their care.

Fourth is to gradually shift the remainder of Medicaid’s low-income enrollees into the exchanges. Today, Medicaid recipients face a strong disincentive to seek work, because entry-level jobs can force them to give up their health coverage in exchange for modestly higher income. The exchanges would allow these workers to climb up the income ladder while maintaining their insurance.

The end result would be a fiscally sustainable, fully reformed set of entitlement and insurance programs that place American families in charge of their own health dollars. In other words, everything that conservatives have always wanted. And we’d have Obama, in part, to thank.

EDITORS’ NOTE: This piece provoked a wide-ranging web discussion, including arguments from The New York Times’ Paul Krugman on his The Conscience of a Liberal blog, Andrew Sullivan in The DishJosh Barro for Bloomberg View’s The Ticker, Matt Yglesias on Slate’s Moneybox, Aaron Carroll on The Washington Monthly and Walter Russel Mead on his Via Media blog, 

Holtz-Eakin and Roy wrote an extensive response to these rebuttals and you can find it here.

 

PHOTO (Top): Medical supplies in a pediatrician’s office in Encinitas, California July 30, 2009. REUTERS/Mike Blake

PHOTO (Insert): Representative Paul Ryan (R-Wis.) during a hearing on Capitol Hill in Washington June 1, 2012. REUTERS/Kevin Lamarque

31 comments

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“Free market healhcare” is an oxymoron (with stress on the “moron” portion of the word).

“Free markets” are not the solution, but the problem whenever they are applied to anything that serves the “public good”, such as public utilities.

Prices go up and services go down as monoplies form, which hardly serves the public good.

Only the wealthy profit, literally, from the free market.

Posted by PseudoTurtle | Report as abusive

“The market-oriented prescription drug program in Medicare has controlled the growth of government health spending.” Totally wrong. By not using the leverage of massive purchasing to get “good prices”, Medicare Part D became “welfare” for “Big Pharma”

My wife lost her free access to an expensive Astrozeneca drug and Astrozeneca charged her Part D Plan full retail until her benefit was drained, at which time they had a “new assistance program” one MIGHT qualify for for the remainder of the year (at which time the whole cycle began again). So Astrozeneca TOOK a “benefit” intended for “we, the people”. We lost a LOT of time jumping though an otherwise unnecessary administrative obstacle course for NO personal financial benefit.

We also found it advantageous to buy ALL her other medications outside the program from the Costco mail order pharmacy. Their price, timewly delivered, was usually half what it would have been for the same drugs and quantities through our Part D “provider”.

Also, before Part D, her doctor would prescribe medications in hundred-pill quantity at double strength she could split. Under regulations, patients are limited to 90-day use quantities. That does NOT benefit patients!

“…Medicaid recipients” are not the only ones who “…face a strong disincentive to seek work…”. Income from even a good middle-class job is but a pittance when compared to rapidly accruing medical expenses for the uninsured because it is “worth” so much less than the care available through community outreach or charity medical care assistance to those “unemployed”. Serious late-stage cancer treatment can bankrupt families with GOOD insurance still “on the hook” for 20% of “retail price” medical care.

Posted by OneOfTheSheep | Report as abusive

Wow, how grossly irresponsible to discuss a market-based approach to US healthcare without once mentioning profit. Come on, guys. Why do you think companies that make up the US healthcare industry are in business? That’s like writing a piece on bird migration without bothering to factor in why birds migrate in the first place. You have to factor in company profit if you expect your piece to retain any credibility. It’s the companies that make up our healthcare industry that are in charge of healthcare policy, either through the corporate decisions they make at their board meetings or by applying pressure on our policy-making legislators. Make no mistake, their primary goal is for us–as individuals and as tax payers–to pay as much as they can get away with making us pay and by giving us as little as they can get away with giving us for our money, and still remain competitive. You can’t pretend that’s not the case.

Posted by flashrooster | Report as abusive

Obamacare withholds subsidies from states if the federal government establishes the exchange.

Half the states opted against exchanges.

The Administration is trying to back-door subsidies, but they simply aren’t provided for by statute.

Far from being politically impossible for the Republicans to get rid of, they are politically impossible for the Democrats to enact.

It’s over. Sure, they can kick and drag this out for the next 4 or 5 years, but Obamacare is finished.

Posted by apetra | Report as abusive

@flashrooster,

“Profit” in a capitalistic system is included in the “price” and the “price” is ALWAYS “what the market will bear”. “What the market will bear” is largely dependent on demand and competition. This “is the case” and has always been.

What’s your point? When it comes to medical and medicinal progress, if “compassion” is to limit profit, then there must be a government “sweetener” that essentially decides what diseases will get “priority” to cure and funding for related research. Choices must be made from the possible, and any “deal” acceptable to all necessary parties.

Posted by OneOfTheSheep | Report as abusive

Free markets do not work for consumers when they are not informed enough to make choices to their benefit. How we got Obamacare is the pre-existing condition escape cause in privet insurance. The average consumer has no knowledge of medicine until he has a problem for a long time. Even if he did he does not know the real meaning of the words in his insurance contract until he need things. He also only knows his doctors fake smile until he needs his skill and time.

Privet insurance companies have a profit motive not deliver care only take premiums and advertise care.

All markets where the product requires much skill and information for good choices require heavy regulation or government provision. One case in point is construction. Places that have good building inspection and a reasonable building code, do not have many deaths in earth quakes. Others do. Compare Chile and California
results of their last big ones with Russia, China and India when they had big quakes.

Posted by SamuelReich | Report as abusive

If one wants to save money on health care without killing or hurting people. Produce more doctors hospitals (independent of each other), and generic drugs, as well as government oversight. That is free medical schools for students that show progress and schools that take the program’s payment as fees in full. Loans to build independent hospitals and trust busting of the interconnected ones. Government programs to develop generic drugs.

Insurance companies if left to themselves only produce except causes like no pre-existing condition one. When serious common health concerns like heart problems are long term. Obamacare is a reaction to them.

Posted by SamuelReich | Report as abusive

If one wants to save money on health care without killing or hurting people. Produce more doctors hospitals (independent of each other), and generic drugs, as well as government oversight. That is free medical schools for students that show progress and schools that take the program’s payment as fees in full. Loans to build independent hospitals and trust busting of the interconnected ones. Government programs to develop generic drugs.

Insurance companies if left to themselves only produce except causes like no pre-existing condition one. When serious common health concerns like heart problems are long term. Obamacare is a reaction to them.

Posted by SamuelReich | Report as abusive

You didn’t so your research before writing this did you? The Swiss system is highly regulated and has price controls. But if that’s what you think we should strive for I am all for it. Single payer, no more employer based healthcare and cradle to grave coverage for everyone.

Posted by yakdriver | Report as abusive

Here a few free market reforms which could immediately lower costs:

1. Open up health care competition nationwide. This is one area where using the commerce clause to expand competition would actually help consumers rather than special interests.

2. Bifurcate health insurance into catastrophic policies and and health savings accounts for day-to-day coverage. Insurance company actuaries can easily quantify the risk serious illness or injury, resulting into affordable catastrophic policies. And like term life insurance, the younger one obtains the policy the cheaper the premium. And tax-effective health savings accounts would allow most individuals to set aside enough funds for regular health care services. And for those without the means for either approach, government subsidies, which would be more affordable, could be provided.

3. Only cover the cost of treating illness or injury. Health coverage shouldn’t be a stealthy way of furthering social policies (i.e., contraception).

4. Capitate ineffective programs. Although we all want those with mental health or substance abuse issues to obtain treatment, the fact is that existing treatment has a very low success rate.

The fact is that health care, at its most fundamental, is simply a kind of service. There’s no reason these services would be immune from market efficiencies if only the government wouldn’t interfere.

Posted by Spaldeen | Report as abusive

The “public” healthcare system (Obamacare) will resemble the “public” education system within a few years.

The the resulting medical lower rung will be reserved to the masses just as public education is reserved to those who can’t afford private education.

Those with money will pay fee for service and avoid the worst of Obamacare and other “public” benefits.

America will soon have “public” education, “public” healthcare, “public” transportation and other “public” benefits paid by the productive class and consumed by the parasite class.

Posted by tim_stevens | Report as abusive

The terms “fiscally sustainable” and “entitlement” are completely incompatible.

Doctors all over the country are establishing a free market for health care. It’s called cash for service. They accept no insurance or entitlement program payment at all.

The authors seem ignorant of what a free market is, and also totally uninformed on the free market that exists today in American medical care.

Posted by thesafesrufer | Report as abusive

The comments and the opinion piece itself all seem to justify a single payer mandated system of sorts. Maybe like ObamaCare, but without the political loop holes in it? Free markets have no business in public utilities and infrastructure. They should be managed by the government. The problem that arise though is that our government is no longer capable of doing anything at all. It can barley maintain itself, never mind doing anything else. So do we fix the chicken? Or the Egg?

Posted by tmc | Report as abusive

Okay, but for one thing. Community rating or something like it is necessary for any scheme to work. The whole point of health care reform is to make those who don’t need care and can pay for it shoulder the costs for those who do need health care and can’t pay for it. So long as the Republicans continue to choke on this point, they will be irrelevant to the debate. Those who need care and can pay for it should be the canaries in the coal mine, so to speak, telling us what it is safe to omit and what must be provided for everyone. The more people who have a pecuniary motive to control their own health care costs, the better. That is real “free market health care.” Another point, it is unwise to limit future expenditures on health care to any fixed proportion of the national GDP. At least it is unwise unless we can foresee the future. No one knows what proportion of our budget we will want to spend on health care 50 years from now. Better to make relatively affluent individuals shoulder more of their own costs. That is the way that Switzerland does it.

Posted by diodotus | Report as abusive

“Free Markets”..that would mean competition and lower pricing..How can the Medical complex “influence” the Beltway gang without $$$$..?

Posted by rikfre | Report as abusive

OneOfTheSheep: What is my point? I thought I made myself quite clear. To elaborate on my bird migration analogy, if we find there’s a problem associated with a species of bird and their migration habits (as there is with healthcare affordability, the topic of this op-ed), one can’t examine the problem without incorporating why birds migrate in the first place. Likewise, you can’t have a meaningful discussion about healthcare in the US without factoring in why we have a healthcare industry in the first place: for profits.

The reason this is significant is because healthcare is more than just a “product” (the term used in this op-ed) that we can opt to spend our money on. This is what sets healthcare apart from other things available on the market. You describe healthcare as if the price is determined by natural acts of nature, which you refer to as the “market”. If that were true, it would render this entire discussion moot. Understand something, the market is man-made. It’s also manipulated by man–all the time. Why? For profit. This is why healthcare profits MUST be taken into account in any discussion about how the US can make healthcare more affordable.

I repeat what I already stated, the healthcare industry exists for profit in the US. The companies that make up the industry, including insurance companies, have every incentive to increase prices while decreasing their own expenditures. And since the industry determines how it is to be regulated, we have a system that is designed to continuously work against the best interests of the American people, and FOR the profits of the industry. This is why healthcare should not be treated as a product like real estate or computers. Millions of Americans die due to a lack of healthcare. Millions of Americans go bankrupt trying to afford healthcare. And it only happens that way here, in America, which is why no other developed nation has a system like ours. Where US wages have remained pretty much stagnant, healthcare costs have been rising at average annual rate of 6% a year. This is unsustainable, as healthcare continue to eat up a increasingly larger share of our income, not to mention savings, and tax revenue.

This op-ed disingenuously holds up Switzerland as an example of a system these writers are advocating. That’s misleading. As yakdriver correctly points out, the Swiss carefully regulate their healthcare industry, and there are price controls in place. Why? For the reason I already pointed out. People need healthcare to live and if a nation treats it like just another product, millions will go without, and the Swiss care enough about their own not to allow that to happen. We don’t, and shame on us. The authors of this op-ed don’t want a system like Switzerland’s, and they know there’s no way the Republicans would allow it.

A third of the Swiss are subsidized by their government to help pay for their insurance. And as I already mentioned, healthcare prices are regulated by the government. OneOfTheSheep, if what you’re saying was true and the market would automatically adjust healthcare costs in an efficient way, why would the Swiss feel the need to regulate their healthcare prices? Why are more and more Americans unable to afford their healthcare costs? Why is the US the only country where millions are forced into bankruptcy due to healthcare costs? The market is not an efficient way to determine the cost of a nation’s healthcare. This should be obvious.

Posted by flashrooster | Report as abusive

OneOfTheSheep: There’s an excellent article in the latest issue of Time that does a great job of underscoring the points I’m trying to make, about how US healthcare costs are out of control, how dangerously irrational things have become, and how “the market” is failing the American people regarding our healthcare: http://healthland.time.com/2013/02/20/bi tter-pill-why-medical-bills-are-killing- us/

Posted by flashrooster | Report as abusive

OBAMACARE IS ALREADY FALLING APART OF ITS OWN WEIGHT IT WILL BE DOA 2015….THEY ALREADY CANT AFFORD PREEXISTING CONDITIONS..ONCE PEOPLE SEE THE 20 GRAND COMES OUT OF THIER POCKET FOR A FAMILY OF 4 EARNIN 45 GRAND IT WILL QUICKLY BE DISMANTLED..IT WILL NEVER SEE THE LIGHT OF DAY!!! THE PROBLEM WITH OBAMACARE(SOCIALISM) IS YOU RUN OUT OF OTHER PEOPLES MONEY…IT WILL BE THE GREATEST CIVIL DISOBEDIANCE EVER IN REJECTING IT!!!

Posted by JOEYD | Report as abusive

We have the best and the brightest attending our medical schools in this country for a good reason, the “market” still dictates what they will earn. I doubt very much that we will have the same bright students attending medical school after the government takes over a sizable share of the medical industry. It’s simple economics… you get what you pay for. Same is true for funding new drug research. The costs and risks are huge. So far, all I read is everyone thinking that healthcare providers should be motivated solely by altruism and charity. What utter nonsense.

Competitive markets are the surest way to bring about the best care, the most advanced medicines, and the most highly skilled care givers. If we enforce the already existing competition laws, then no firm is able to command monopoly profits.

Plain common sense should inform you that driving earnings below a “market” rate of return sought by those who are highly skilled at medical research or as surgeons will drive down quality as well. Competitive markets drive down returns towards true marginal costs. Not so when Congress starts to debate whether doctors should earn more than a plumber in a good year. Then we will lose the best and brightest to other professions where their incomes are not regulated; where they are allowed to earn what the market says their talents are worth. I prefer my brain surgeon makes more than a plumber in a good year, how about you?

Heavy rationing goes on in single payer countries to hold down costs because even in single payer countries we cannot spend money on healthcare without any limit. If you are not aware of the extent to which this rationing goes on, then you’re being too lazy to become well informed. Start here and then do your own research. http://www.bbc.co.uk/news/uk-england-lon don-18557916. It’s not a new phenomenon. http://www.guardian.co.uk/society/2008/d ec/21/nhs-health-operations.

Also, a 2009 University of Pennsylvania study concluded that the US has the best outcomes for several critical medical conditions affecting life expectancy written by Samuel H. Preston and Jessica Ho. “Low Life Expectancy in the United States: Is the Health Care System at Fault?

What we need is to encourage a market not based on fee for services, but based on the model found at the Mayo Clinic where doctors are paid a salary irrespective of what they prescribe. And those salaries paid to Mayo doctors are still determined by the market. Yet, the Mayo Clinic is heralded as one of the leading medical centers of the world, and the cost is often if not always lower than that charged by other hospitals of lesser quality.

Posted by Anonymous | Report as abusive

Back in 2009 Krugman was arguing in favor of Obamacare because it was like a successful system already in existence — the Swiss system!

http://www.nytimes.com/2009/08/17/opinio n/17krugman.html?_r=0

Posted by jack512 | Report as abusive

OneOfTheSheep, and anyone else really interested in this topic. Just wanted to give you people a heads up on a movie that’s coming out soon about our healthcare system. It’s called Escape Fire: The Fight to Rescue American Healthcare. Here’s a trailer: http://www.upworthy.com/the-one-totally- stupid-thing-that-will-decide-the-fate-o f-our-entire-economy?c=cp2
It should dispel any myths still being clung to about our healthcare system being basically sound. It’s important to understand, whether you approve of Obamacare or not, that the Republicans have been fighting to retain our current healthcare system as if the nation’s future depended on it. Actually, the opposite is true. Our nation’s future is in peril if we don’t fix our healthcare system. And the Republicans know this.

Posted by flashrooster | Report as abusive

Anonymous, you ignoramus. The bulk of drug research funding is shouldered by the Taxpayer! NIH alone accounts for something like 40% of drugs research. Then add all the basic science research that is paid for by all the public universities, not just in America (but chiefly). Then try again to explain why drug companies should be allowed to charge monopoly pricing on “new patents” which is really just one innovation, after stealing dozens of innovations from the public sector, and putting their own logo on it. Another hypocritical example of socialism for the rich, externalizing the risks on the public. Shameful.

Posted by Benny27 | Report as abusive

However disastrous Obamacare is, isn’t, or may become has yet to be seen. Though, fundamentally it marks a dramatic departure from a broad economic model that has persisted well for some 200+ years; and that despite our various democratic regimes. The model of course is that of capitalism. Healthcare has always stood out as more vulnerable to swing into govt. control, but always held a “stake in the ground”; a pillar of laissez-faire or market competition. It was indeed a large piece of the pie, which defined us for so long as a free market society.
Well… no more. Crushed under the weight of a new electorate, fortified in numbers, with a new errrr old way of thinking, conservative America has had to yield. As this article points out we have likely swung on this issue to the point of no return, with O’s second term landmark win. In truth, the GOP is likely the unsaid author of this monster, having offered up no substantial reform proposals leading up to this point (or 2008). That said, we will have to play the cards we’ve been dealt now. As the article states, with this event will come new opportunities for reform (e.g., Paul Ryan’s “premium support” proposal for Medicare and Obamacare’s exchanges modeled on the Swiss healthcare system). The GOP must seize such opportunities and demonstrate leadership on this issue going forward, or America will be over-run by the ever growing welfare state and it’s spurious agenda.

Posted by rgnocks | Report as abusive

@flashrooster,

If you read what I said reasonable care you should have figured out that we essentially agree that our present “system” is both inadequate and unresponsive. I don’t trust movies to be reliably factual. Perhaps this is the best current online synopsis of the problem:

http://healthland.time.com/2013/02/20/bi tter-pill-why-medical-bills-are-killing- us/print/

That said, Anonymous makes some good points no serious person should dismiss, although I think (along with you?) that the conclusion suggested (continuing the status quo) is inappropriate to any reasonable “system” of modern day health care.

Posted by OneOfTheSheep | Report as abusive

@ Benny 27 for his or her Feb 22, 2013 7:25 pm post responding to mine of Feb 21, 2013 11:48 pm posted as from “Anonymous”

Thanks for your erudite comments. However, may I be so bold as to point out a few facts as well?

First, I hope that your criticism’s focus on drug research in relation to my remarks indicates that you otherwise agree with my concern about Congress dictating the earnings that doctors and surgeons should be allowed to make. That’s an aspect of central economic planning that I hope remains discredited with the fall of the Soviet Union. We don’t need a healthcare commissar let alone 535 healthcare commissars in Congress dictating to doctors and other healthcare professionals what their fees and salaries will be.

Second, no doubt you picked on what you perceive as the soft spot in my opinion that warned of the unintended consequences that will result from the government’s ham handed intervention into the healthcare market. You attack my remarks by claiming that drug research and its costs are largely subsidized and little or no credit should be given to private capital in the form of retained profits being risked in new drug research.

My perspective differs from yours in that I do not place a lot of reliance on sources that are on a mission to justify driving our healthcare system towards socialized medicine. Rather, I chose to rely on unbiased sources, like the Congressional Budget Office.

The CBO had published some time ago a rather succinct report on drug research in this country. It’s worth a read for you and hopefully may cause you to at least begin to question the authenticity of your own sources on this topic. Hopefully you will not conclude the CBO is peopled by ignoramuses in having dispelled your populist myth.

There are two different types of research involved: Basic research and applied research. The government focuses on the former, and in doing so stimulates private investment in the latter. The government’s involvement, however, is not a whole substitute for applied research, does not guarantee that applied research by private capital will be successful or that it is without significant risks. The pharmaceutical industry spends more on R & D relative to its revenue than almost any other industry. So says the CBO in its report. Indeed, it spends more than 5 times the average of US industries generally on R & D.

The CBO report includes the study published around 2000 that found it cost on average $800 million in applied research to bring a new molecular entity out into the market place as a new drug. The FTC supposedly attempted to duplicate the result of that study, and found substantially similar average research durations and timelines. That is also recounted by the CBO at pages 20 and 21 of its report.

http://www.cbo.gov/sites/default/files/c bofiles/ftpdocs/76xx/doc7615/10-02-drugr -d.pdf

The problem is accounting. Like software companies, pharmaceutical companies have tremendous upfront costs that are expensed immediately, but then when a drug is successfully brought to market, its marginal cost does not reflect that initial investment that was expensed earlier. So people focus on the relatively low marginal cost to produce dosages of new medicines, and love to depreciate the role of private R & D investment in bringing new drugs to the market place.

Read business news articles, and you will see that the price of drug company stocks are fairly volatile depending on the outcome of clinical trials for new drugs, or FDA approval of a new drug. The market recognizes the risks as being real and quite significant to the prospects of a drug company’s profitability.

Sorry, but you get only what you pay for. If there is one economic principle that stands out above all others, it is this: There is no free lunch. And the other important principle to remember is this: Central economic planning is not a viable substitute for markets.

I remain, Mr. Benny27, your obedient servant and admirer of your profound knowledge of all things affecting the economics of healthcare.

Posted by Anonymous | Report as abusive

Dear One of the Sheep:

I believe we can learn from the Swiss when it comes to healthcare. But note this. The Swiss realize healthcare has to be rationed. The demand is inelastic (we all want it when we need it), but it is simply not realistic to think that any government can afford to give every one of its citizens the keys to a Cadillac healthcare program or policy allowing them to spend with hardly any limits. Chevy’s yes. And that’s what the Swiss do. For the Swiss, if you want more than a Chevy, then it’s you who have to be able to afford more and pay for it above a basic subsidized plan or policy.

The American egalitarian penchant causes too many policy makers and wonks to espouse the notion that everyone is to have just as much as they want or need when it comes to healthcare. That is completely unrealistic. It doesn’t happen in single payer countries, and it doesn’t happen in Switzerland either. But Obamacare represents the one size Cadillac for everyone fits best way of thinking.

Posted by Anonymous | Report as abusive

@Flashrooster and some others have made most of the points that need to be made. But here are some odds and ends.

@jack512 says, with an apparent sense of gotcha!

Back in 2009 Krugman was arguing in favor of Obamacare because it was like a successful system already in existence — the Swiss system!

http://www.nytimes.com/2009/08/17/opinio n/17krugman.html?_r=0
Posted by jack512 | Report as abusive

Um, you don’t know, Jack. Try reading “below the fold” in that 2009 post:

“So where does Obamacare fit into all this? Basically, it’s a plan to Swissify America, using regulation and subsidies to ensure universal coverage.

“If we were starting from scratch we probably wouldn’t have chosen this route. True “socialized medicine” would undoubtedly cost less, and a straightforward extension of Medicare-type coverage to all Americans would probably be cheaper than a Swiss-style system. That’s why I and others believe that a true public option competing with private insurers is extremely important: otherwise, rising costs could all too easily undermine the whole effort.

“But a Swiss-style system of universal coverage would be a vast improvement on what we have now. And we already know that such systems work.

“So we can do this. At this point, all that stands in the way of universal health care in America are the greed of the medical-industrial complex, the lies of the right-wing propaganda machine, and the gullibility of voters who believe those lies.”

Hardly an unqualified endorsement of the Swiss system,Jack, and totally consistent with what Krugman was arguing in response to Roy and Holtz-Eakin. Krugman was simply accepting in 2009 the political reality that Obama was not about to get single payer through Congress — and Max Baucus. Not that the Swiss system was some sort of model of perfection.

But on to some more serious nonsense — and sophistry.

Roy and Holtz-Eakin say:

“The Swiss have the freedom to choose their own doctors, as Americans do, and access to the latest medical technologies. They also have short waiting times for appointments.”

The dog whistle here is that the Kenyan Socialist wants to take away your freedom to choose your own doctor, and make you wait forever for appointments.

But guess what? The French — a system with which I and my wife have had a fair amount of first hand experience, and not just for cuts and scrapes — have all of the above listed benefits that Roy and Holtz-Eakin tout for the Swiss in their basically monopsonist system at the primary level, with something like the Swiss system built on top as supplemental insurance. The French pay less for them than the Swiss, have comparable or better outcomes, and, by the way, reflecting these basic facts, finished #1 in the WHO Report comparing and ranking all of the health care systems in the world, and with a very sophisticated and scientifically valid methodology:

http://www.who.int/whr/2000/en/whr00_en. pdf

The Swiss ranked #20, below most other Western European countries. And the U.S., of course, finished #37.

Hey, we’re #37!

http://www.youtube.com/watch?v=yVgOl3cET b4

By the way, it is the Republicans who are basically proposing to force Medicaid patients into HMOs where they won’t be “free” to choose their own doctors, not to mention the HMO structure of many of those Republican supported — and less efficient — Medicare Advantage plans.

Roy and Holtz-Eakin say:

“The first is to replace or reform Obamacare’s exchanges, which are larded with costly mandates and regulations. These drive up the price of insurance, while limiting insurers’ ability to come up with more innovative, cost-efficient products.”

Where to begin?

First, here is the link that R/H refer us to in order to support the sophistical “larded with costly mandates and regulations … [that] drive up the cost of insurance.”

http://tinyurl.com/a94w4ma

When you look at this document you discover that it’s basically challenging the concept of community rating, which R/H do elsewhere in this article. In other words, the private insurer’s dream: get rid of community rating so the insurance company can sell policies only to healthy people and dump the sick off on the government — i.e., the taxpayers.

And despite the drive-by mendacity of what R/H say, the question as to whether Obamacare will, with its mandates and regulations, drive up insurance costs system wide — in a context where we don’t accept as acceptable public policy fobbing off the uninsurable and the poor on the government — was answered by the CBO in scoring Obamacare.

The answer was:

Obamacare would reduce costs over what they would otherwise be, not raise them. The fact that R/H are essentially giving three cheers for free riders is either foolish or knavish, probably a bit of both, so let’s call it knoolish.

By the way, snap quiz. What was the single most important driver of the establishment of Romneycare in Massachusetts?

Time’s up.

It was the scramble by the Governor and the Legislature to maintain $350 million or so in Federal Government subsidies for its uninsured population which was being treated in the most expensive way possible, i.e., for “free” in Emergency Rooms.

The Feds were balking at continuing to subsidize Massachusetts’ growing uninsured treatment reimbursement pool and told them the money would go away unless they cleaned up their act with a more rational and cost effective system.

Presto! With the assistance of the Heritage Foundation and Jonathan Gruber, Massachusetts came up with community rated and mandate driven Romneycare.

So R/E are simply engaging in Fox News style memism when they take swipes at mandates and regulated insurance markets.

By the way, the Swiss market has mandates, and is very heavy with “expensive” regulation. Apparently the Swiss don’t trust the private sector to let their consciences be their guide in providing insurance coverage to the Swiss.

Which brings me to the final bit of disingenuousness in the R/H article that I will mention. Though this hardly exhausts the intellectual smarminess evidenced there.

“[L]imiting insurers’ ability to come up with more innovative, cost-efficient products.”

Translation:

Limiting insurers’ ability to come up with products that cherry pick the population for the most healthy people and offer them high-deductible, lower cost policies that will work just fine — as long as they “decide” to only catch colds and get jock itch.

No heart attacks allowed.

Or, if you do make a “bad choice” to have a heart attack, at that point you can go to the Federal Government and ask them to please cover your expenses because the “innovative” product you have from CIGNA doesn’t quite do the trick.

And if you also made the wrong “choice” to catch a chronic disease, yeah, the Feds may be able to help you out as well.

I mean, guys, we’re in this for the money. Why would we ever want to subject ourselves to adverse selection — unless the sick guy was Warren Buffet or Shel Adelson?

A final, final thought.

The nonsense from supposed professional economists like Holtz-Eakin and Roy — though Roy is not a professional economist; he’s a flak for investing in health care businesses — and the rest of the Republican menagerie that promotes the concept of consumer driven cost control in insurance is beyond depressing from an intellectual point of view.

Kenneth Arrow dispatched this nonsensical thinking 50 years ago in his seminal article, “Uncertainty and the Welfare Economics of Medical Care.”

http://tinyurl.com/alaamxz

The argument in this article has never been refuted. It has, instead, become the bedrock of academic health economics.

I have yet to see one of these Republican-minded health care pundits cite it, let alone provide a critique of its basic premise, namely, that the idea of health care being treated, from an economic point of view, as something functioning according to the laws of so-called free markets is LOL wrongheaded.

But “wrongheaded” sometimes seems to be the principal qualification for being a Republican pundit on health care.

Posted by billyblog | Report as abusive

Since the much-touted part of Obamacare that covers those with pre-existing conditions has already run out of funding and thousands still left without care, what does that say about the remainder of the program?

Doesn’t look good from here.

Posted by AZreb | Report as abusive

What no one seems to really get is that our system, as it currently stands, is not and does not work like a “free market” system. There is little cost transparency, there is virtually no competitiveness for price or quality (though there may be a semblance of that at the top and the bottom of the health care system there may be some), customers don’t shop either price or quality, providers don’t give customers any choice, customers are told WHAT to buy, WHEN to buy, WHERE to buy and HOW to buy by their physicians and the system is a positive feedback loop. How is that ever going to be “free market”…you all know the answer and continuing to promote that it is like a free market is either ignorant or disingenuous…i think i know which!!

Posted by KCJLR | Report as abusive

[…] few months later, former Congressional Budget Office director Douglas Holtz-Eakin and I wrote a similar piece for Reuters, which elicited a broad range of responses from both the left and the […]

[…] few months later, former Congressional Budget Office director Douglas Holtz-Eakin and I wrote a similar piece for Reuters, which elicited a broad range of responses from both the left and the […]

[…] conservative healthcare wonks (such as they are) were all excited about Switzerland. For example, Douglas Holtz-Eakin and Avik Roy wrote, “While most Americans view their healthcare system as ‘free-market,’ […]