Why do we need a national health policy, any more than we need a national grocery policy or a national automobile policy or a national matchmaking policy?
Over on another recent thread, one of our commenters keeps pointing to allegedly unique “information issues” in the market for health care. So let’s see how unique those issues really are.
First, there are issues like adverse selection. The very fact that you’re buying insurance makes sellers suspect you’re sick, and they charge accordingly. Therefore if you’re not sick you overpay, and because you overpay you’re likely to underinsure.
That issue is not unique to health insurance. It also plagues the markets for car insurance and homeowner’s insurance, along with plenty of other markets. The very fact that you’re selling a used air conditioner makes buyers suspect there’s something wrong with it, and they lowball their offers accordingly. Therefore, you can’t get a good price even for a perfectly good air conditioner, and because you can’t get a good price you’re less likely to list it for sale in the first place. That’s exactly the same adverse selection problem (with buyers and sellers reversed), but there’s no general clamor for a national used-air-conditioner policy.
That’s not to say that adverse selection is unimportant, or that we shouldn’t try to address it, and it’s not deny that it might loom larger in some markets than others. But it’s far from unique to the market for health insurance.
Another information issue — one being flogged endlessly by a persistent commenter in that other thread — is that providers generally know a lot more than their customers do about the merits of various medical procedures. This is presented as if it were a reason for providers (e.g. doctors, insurance companies, or federal program administrators) to make key decisions, as opposed to presenting the customer with a price list from which to choose — the same method that seems to work perfectly well in restaurants, auto repair shops and lawyers’ offices.
But all of this overlooks the biggest information issue of all which is this: Only the customer knows whether he’d prefer, say, three weeks of pain relief to, say, a new car stereo, or whether he’d prefer, say, a slight lifelong reduction in heart attack risk to, say, an extra five restaurant meals every year.
The whole problem is to combine the specialized knowledge of the providers (what works, what doesn’t work, what works with various probabilities, what the alternatives are, what’s potentially life-threatening, what’s potentially painful, and how much so, etc. etc.) with the specialized knowledge of the customer (what risks and what pain levels are tolerable, whether a little pain relief matters more than a new washing machine, etc. etc.) and bring all of that information to bear on the problem.
This, too, is a problem that is not confined to insurance markets. When the radio stopped working in my car, I had no idea what the problem was or how to fix it. My mechanic was able to tell me that it might be the amplifier or it might be the head unit, gave me his best guess of the probabilities, explained the reasoning behind that guess, and gave me prices for the alternative procedures. My mechanic, by contrast, had no idea how much I cared about having a working radio. I could have tried putting all that in words for him, but I didn’t have to, because our conversation — plus the price list — gave me all the information I needed to make the decision myself. (And of course if I hadn’t trusted my mechanic I’d have sought out another one.) The same procedure works perfectly well when I purchase legal services, of which I am once again as ignorant as I am of auto mechanics or medicine.
This is exactly the sort of information problem that the price system, if it had been designed, would have been designed to solve. It’s the sort of information problem that the price system solves every single day. I’m quite unclear on why people are unwilling to let the price system work its magic in the market for health care.
It does no good to keep repeating the mantra that doctors know so much more than customers about medicine. That mantra is true, but no more true than the counter-mantra that customers know so much more than doctors about what they’re trying to accomplish. Customers, absent crucial information from their doctors, are totally incompetent to make medical decisions. Doctors, absent crucial information from their customers, are equally incompetent. The question is not who is ab initio competent to make these decisions?; it is how to we get information to flow to a decisionmaker? All human experience suggests that the only workable solution to that information problem is embodied in the price system.
I do, incidentally, think that there’s a good case for a national health care policy, for reasons beyond the scope of this post. But the goal of that policy should be to make things work better, not worse, and they can’t work better without prices. When I wake up with chest pains that are almost surely indigestion, and my doctor wants to do an electrocardiogram “just to be sure”, neither I nor my doctor is initially competent to decide whether the ECG is worth the cost. But I can be made competent a lot quicker than my doctor can. For him to make a wise decision, I’d have to acquaint him, for starters, with a rundown of my financial situation, the extent of my preference for restaurant meals, and the condition of my washing machine. For me to make a wise decision, ll I need is a brief discussion about probabilities and a price. That’s what any reasonable health care policy should make it easy for me to get.