Friday, May 05, 2017

Health Care, from the Top

We cannot vote away scarcity.

By Kevin D. Williamson — May 5, 2017
Image result for health care
Our ongoing troubles with health care stem from an unwillingness to deal with certain facts. One of those facts is scarcity.

“Scarcity” is a term from economics, and it refers to the fact that there is never enough of anything to satisfy every possible desire — the universe holds only so much, and human desire has a way of outgrowing whatever we have. So we have to come up with a way of dividing up that which is scarce. We have tried many different ways of doing that — war, caste systems, central planning — though mostly we’ve relied on the fact that everybody wants lots of different things, which makes it possible to trade. But buying and selling stuff is not, to be sure, the only way to divide up that which is scarce.

Medical care is scarce: There are only so many doctors and hospital rooms; the pill factories can make only so many pills, and there are real limitations on the raw materials used to make those pills; heart stents don’t grow on trees, but, even if they did, they would be scarce, like apples and oranges and pears and avocados.

An example: A few years ago, a friend of mine was deathly sick with a chronic cardiac condition. He learned that a doctor in another country — on another continent — had developed an experimental treatment for his condition. The chances of its working were not very high, but it had worked on others. The problem was, there were something like three doctors in the world who did that procedure, and approximately one who had done it with a great deal of success. His insurance would not pay for it, and the public-health system in his country would not even think of paying for it. But my friend was vastly wealthy, so he called up that doctor, offered him what I assume was a very large sum of money, put him on an airplane, and rented out space in the finest private hospital money could buy. Unhappily, the procedure was not successful, and he died.

We cannot offer the same level of care to everybody with the same condition. They number in the millions, and the doctors who can perform that procedure number about three. (Or, at least they did ten years ago.) Even if they worked 16-hour shifts, seven days a week — even if we pressed them into slavery — they could see only so many patients and perform so many procedures, and those would amount to a tiny fraction of the number of people who might benefit from their attention.

Because of scarcity, medical care eventually reaches the point where one of three things happens: Somebody puts out his hand and says “Pay me,” an officer of the government or an insurance company refuses to approve some treatment, or you die.

Because we are a largely cooperative species, we do not like that very much. It seems unfair and unkind. So we try to make an end run around scarcity with things such as health insurance and government medical plans, both of which are based on the same economic principle: Someone else pays. But scarcity does not care who is paying: Scarcity is scarcity. In the most monopolistic public-health systems (e.g., the ones in the United Kingdom and Canada), there is a lot of saying “No,” though it is what we might call a “Japanese no” — saying “no” without actually saying it. They put you on a waiting list and hope you die before they actually have to say “No,” or they simply expect you to accept that some services and treatments are categorically unavailable. There is a reason New York City’s hospitals are full of rich Canadians who cannot afford the free health care at home.

But a polite, indirect “No” is still a “No.” No means no.

Insurance companies say “No” all the time, and we hate them for it. That is because of another fact that we refuse to deal with like mature, responsible adults: Insurance is not a medical product — it is a financial product. Most of us do not need to spend a great deal of money on health care during any given year for most of our lives. I myself pay for most of my medical expenses out-of-pocket, and, in any given year, they rarely add up to what my health-insurance premiums cost. But I do not have health insurance, and pay premiums for that health insurance, in order to have somebody else pay for my annual check-up or routine dental work. I have insurance because I might get hit by a bus or cancer or a heart attack, and, secondarily, because one day I will be old, if I am lucky, and old people have lots of medical expenses.
Scarcity exists because of the nature of the physical universe, not because insurance executives are big meanies.
Scarcity exists because of the nature of the physical universe, not because insurance executives are big meanies. (It’s okay to hate insurance executives — everybody hates insurance executives.) Insurance companies have to say “No” a great deal, whether they are run by nice people or by the sort of people who ordinarily run insurance companies. The Canadian government health-care system is in essence a big, generous insurance company owned by its customers and perfectly happy to run large losses indefinitely, and it still has to say “No” pretty often.

Putting mandates on insurance companies is not a cure for scarcity. Sometimes, it makes things worse. Insurance companies operate by making a very careful study of actuarial information, which allows them to make remarkably accurate predictions about the medical needs of large populations with known demographic characteristics. Nobody knows whether any given 60-year-old man will have a heart attack this year, but stack up 10 million of them, and the pointy-headed actuarial nerds can tell you with a high degree of accuracy how many of them will. But we want insurance to be something different: We want it to be the conqueror of scarcity. So we do things like mandate coverage of preexisting medical conditions, which is to say, we demand that they place bets against things that already have happened. The usual metaphor here is offering fire insurance after the house already has burned down, and that is apt. We are asking them to bet against the Patriots in the 2017 Super Bowl after the fact, in 2018, in 2019, 2020, etc.
What might a health-care program that deals with reality look like?

We could probably lower the cost of prescription drugs significantly by making the approval process less cumbrous and expensive, and maybe by tweaking a few intellectual-property procedures. We could do the same with medical devices and the like, though the so-called Affordable Care Act took the opposite approach, taxing those devices and making them scarcer. 
If we want more doctors, there are probably 1 million top-shelf physicians from around the world who would immigrate to the United States yesterday if we gave them the go-ahead. (Yes, that probably would lower the incomes of native-born doctors; we are going to be adults for the moment, and this is a question of trade-offs.) We could reduce the regulatory burden on insurance companies in an effort to lure more of them into the market, whereas the ACA added to their burdens and drove many of them from the marketplace.
We could try to make ordinary, non-emergency medical care more of an ordinary product, one that people pay for the way they pay for food and housing and cars and World of Warcraft expansion packs.
We could try to make ordinary, non-emergency medical care more of an ordinary product, one that people pay for the way they pay for food and housing and cars and World of Warcraft expansion packs and the other necessities of modern life, allowing insurance to be insurance: a financial product that helps to mitigate certain risks related to unexpected health-care costs. This would allow for the emergence of robust, competitive, consumer-oriented markets like we have in cellphones and pornography and other innovative markets where choices abound and prices keep going down because the consumer is king.

But there will be scarcity. Somebody will put his hand out and say, “Pay me.”

This brings up something economists call “elasticity of demand.” That is a fancy way of saying that when you roll into the local BMW dealer and find out that that i8 costs $150,000, you say, “No, thanks,” and you get a Honda Civic instead, but when you are rolled into the emergency room with a broken leg or a non-functioning heart, you don’t talk about prices at all, and, even if you did, you aren’t normally going to say “No” to any price when the alternative is sickness and pain and death. But not every medical procedure is a life-and-death matter, and, even in the matter of serial chronic conditions such as diabetes, there is opportunity for comparison shopping and negotiating. The other kind of medical problem is why you have insurance.

We have perfectly functional markets in all sorts of life-and-death goods. They expect you to pay up at the grocery store, too, but poor people are not starving in the American streets, because we came up with this so-crazy-it-just-might-work idea of giving poor people money and money analogues (such as food stamps) to pay for food. It is not a perfect system, but it is preferable, as we know from unhappy experiences abroad, to having the government try to run the farms, as government did in the Soviet Union, or the grocery stores, as government does in hungry, miserable Venezuela. The Apple Store has its shortcomings, to be sure, but I’d rather have a health-care system that looks like the Apple Store than one that looks like a Venezuelan grocery store.

There is a certain libertarian tendency to look at messes such as the Affordable Care Act and the American Health Care Act and throw up one’s hands, exclaiming: “Just let markets work!” We should certainly let markets work, but not “just.” We aren’t going to let children with congenital birth defects suffer just because they might have stupid and irresponsible parents, and we are not going to let old people who have outlived their retirement savings die of pneumonia because we don’t want to spend a couple of thousand bucks treating them. But we also do not have a society in which everybody is on Section 8 and food stamps, nor do we want one. Developing sensible, intelligently run, reasonably generous welfare programs for those who cannot or simply have not done it for themselves is a relatively small project, but trying to have government impose some kind of political discipline on the entirety of the health-care system — which is as explicit a part of the current daft Republican health-care program as it is of Obamacare — is a different kind of project entirely.

Scarcity is not an economic theory. You can experience it for yourself any time you like, on a desert island or the streets of New York City. It is an aspect of reality, and the health-care reformers eventually will have to get around to taking reality into consideration.


— Kevin D. Williamson is National Review’s roving correspondent.

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