Universal Health Care: A Near Death Experience for Innovation

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If economies of scale and a government system to compete with the private system are effective price reducing mechanisms, shouldn't we have a government restaurant system to drive the cost of a McDonald's hamburger to 20 cents? Surely we could squeeze a few billion out of these fat restaurant middlemen who stand between us and our food--even from advertising budgets alone. And if that'll work, why not have two national restaurant plans, and force Mickey D's to give us burgers for free?

The national health care government plan conceit isn't much less silly than this. It rests on a misapplied enterprise concept of economies of scale, given muddy transference to industries and nations where it has no realistic application (unless the application is the creation of a giant systemic trap).

In itself, additional health insurance doesn't create any health care. The added insurance plans will be chasing after the same pool of health goods and services, overwhelming any possible pressure on insurance margins to put upward pressure on health care prices--the opposite of what politicians claim. Government is disguising a burden as a relief, and can't possibly have any subsequent choice but to layer mandate after mandate on all parties to try and patch the leaks on the pressure cooker they're creating.

Which is what economies of scale really are at a government level--they're really 'economies' of force and central planning. In a single snapshot these may appear effective, but they amount to a one stage cupboard stripping, and the true price will eventually be paid.

The first time that a king may have undertaken a castle improvement project by conscripting five thousand peasants and commanding that carpenters and masons cough up half their stock of wood and stone, he must have felt clever and efficient. Upon further royal edicts, every peasant who could limp fast and far enough would go into hiding, while tradesmen would retire to subsistence potato farming, or change their business to cut to order (and also hide).

Disguised conscription of health care resources in the deluded pursuit of economies of scale will create shortages and higher prices just on its own non-merits (a la king, so to speak), but even worse is the blocked and severed interaction of the macro mechanisms that actually are critical at that scale-- substitution and innovation.

There is some substitution on the demand side in the current system, as for example when someone uses WebMD, or does nothing for a minor or undiagnosed issue because of their value judgements about the cost or convenience. However, suppliers are forbidden to respond to this the way they would in a normal market.

A nurse or technician can't run a checkup kiosk in a high traffic area to substitute convenience for the state of the art. Nor can an unconventional and driven physician supervise a staff of a hundred technicians and try to bring us a mega-department store model of delivery to offer more or cheaper or both. (And in case you think that's the opposite of the direction health care should go, rest easy, since the opposite opposite is also forbidden: recently a physician practice was cut down for using a payment by subscription method to offer more personal service-oriented care.)

Since alternatives aren't allowed (to 'compete with nothing', as Clayton Christensen might put it), the normal market interplay among and between substitutions and innovations is shut down, and health care forced into one single massive channel. This is the real cause of the rising prices thus far. Not because the 'economies of scale' are missing, but because those methods that are proposed to rescue us have already been here, and already done some of their dirty work.

It would be as if we mandate that no jewelry could be sold unless it contains at least one large top quality precious stone, and at least an ounce of gold, and that it can be manufactured only by a craftsperson with twelve years of top level training in Italy, and distributed only through a licensed and regulated employer-paid jewelry policy. And then we became disquieted when prices went up and many Americans started to go without jewelry. (One can picture the progression. After a few years there'd be heart-wrenching stories on T.V. about young couples forced to marry without access to wedding rings. Subsequently a universal national jewelry plan would be proposed, to set right the 'failure of the private sector'.)

It's not just about offering cheap, low quality stuff. A free market constantly rips goods and services apart and bundles them back up again from a practical infinity of angles, shapes and sizes, to add quality to the cheap stuff and volume to the expensive stuff (to make it cheap). Economically, that's what innovation is-- without it, innovation is essentially gone.

This innovation freeze from a single option market means that tomorrow's improvements will never happen. Even if we contend (absurdly counter to any reasonable observation) that we're going to freeze health care at the highest available level, once again we'd be stabbing the future in the back. We got to have better health care than our grandparents, but are willing to cut off our grandchildren from a near certain repeat of that deal to take pressure off ourselves for a few years--pressure caused in the first place by previous misguided attempts to give our present selves more.

All the evidence from centuries of real economics out in the street is that when goods and services can break into new channels and methods, it soon benefits the consumers of those goods and services. The benefits for those (public and private) who deliver the goods and services are much more uneven. These people will tend to 'talk their books' with a bias to believe that 'the issues are too important to leave to chance.'

The issues are important. But it isn't leaving it to chance, it's leaving it to individual decision making. A little corny sounding, perhaps, but we might even say that it's leaving it to freedom.

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Les Lafave's picture
Columns on STR: 14

Les Lafave works in the insurance industry.  The opinions in this column are his own.