Sorry, submitted too soon, needs some work; see post 2.
A lot of people are saying that what we really need in health insurance is competition. I don’t think this is always true. Competition is good for some things. It’s not an economic panacea.
(Sorry if this is a bit abstruse.)
Competition on one side of an economic sector makes that side of the sector more amenable to the desires of the other side. A fragmented populace does not have the will of a united one.
Supply-side competition brings prices down somewhat, if indirectly. A seller may lower his profit somewhat to undersell his competitor. A seller with no competitors may choose to supply less service at a higher price.
Demand-side competition does not intrinsically accomplish this. A multiplicity of buyers, in fact, should mean a greater likelihood of someone paying a higher price.
But not everyone. Lack of competition in purchasing can matter; someone contracted to buy on behalf of a large number of persons could collude with the seller to make his clients pay a higher price. But then, he’s serving the other side & not his clients. So, it depends on the integrity of such a buyer.
If there’s a surplus of supply, then demand competition may keep prices down better than consolidated buying (due to the corruption problem). But if there’s a shortage, then competition for buyers among sellers will drive prices up. But will it drive them up more than a consolidated system? I don’t know.
In both of those cases, buyer competition is facilitating the price correction due to supply & demand. In any case, I should note, the total availability of a service is more important to price than competition (on either side) as such.
I’m concerned with this argument as it applies to health insurance, but I’m using this as an example of a larger economic principle.
We could use some additional supply (both competition & availability) of actual health services: Hospital rooms; medical labs; trained nurses & physicians; the schools to train lab techs, nurses & physicians. (I’m going to lump these together as “medicos” for the sake of this argument.) More availability can bring costs down–pure supply/demand. More competition on the supply side–having multiple urologists in a small county, say–can help with this.
But in health insurance, it’s more complex than that.
The maximum amount of competition (or privatization, or fragmentation) in health insurance would be an absence of health insurance. Everyone would be accountable for his own health care. But that’s competition on the demand side, so it doesn’t act to lower prices in itself (except as the corruption of insurers would raise prices). In fact, it might raise them. In another sector, that might be desirable. We might want to deliver fewer widgets at greater profit to the widget-maker. In the present health care sector, we may assume a hypothetical imperative to make it affordable. There’s a reason health insurers exist.
Where are health insurers in this sector anyway? On the supply side or the demand side? Well, it depends on the model used. An HMO that owns its own hospital is reorganizing the supply side. A plan with no affiliated doctors, like Medicare, funds the demand side. Structurally, health insurers generally add a whole new side, like turning a line between two points into a triangle. There’s an interaction between medico & patient, one between patient & insurer, & one between insurer & medico. The system is three times as complex (possibly more, given how many middlemen there are in the present régime), & this should tend to make it more expensive on a macro level.
But to the degree that health insurance companies are authorized to purchase health care for their clients, they act as a demand-side actor vis-à-vis the medico. One benefit perceived in having this whole other cost center is that insurers have great negotiating power as they handle multiple accounts. Which can be great for the individual patient, if the insurer is really on his side; & can be very bad for the patient if the insurer is not on his side.
The advantage in health insurance is in spreading costs among buyers. Not just risks, though that’s part of it. Health insurance plans don’t simply cover catastrophic care. (This gives fits to those who assume that “insurance” means conventional actuarial insurance, like fire or hurricane insurance. But in health care, paying for proactive care provides better service for the client than paying only for reactive care. So it makes some sense for the insurers to do it.) Less competition, here, means larger risk pools; less statistical likelihood of massive expenses in a given year harming the company; & a tendency toward less cost for administration relative to funds spent on medical services.
But health insurers effectively create an additional supply side, & it seems like competition between them should be good for getting them to provide better service at lower additional cost. (And there’s that corruption thing.)
So which is more important? Competition to keep them honest? Or large risk pools to gain efficiency? Do we get the best deal splitting the difference or going to one extreme?
Here we have what appears to be empirical data. France uses a modified single-payer system, where Germany uses a dirigiste system through private non-profits. France has lower costs overall than Germany, which has lower costs than the US (with its patchwork of public & private systems). But then, it’s France. Maybe they’re just healthier what with all the fruit they eat.
Well, Canada uses a full single-payer system, & they eat poutine. Their costs are also lower than Germany’s, even though Canada hasn’t, in general, been keeping up professional training to meet demand. (They import physicians from South Africa & lawyers from Australia. Really.)
And Great Britain uses a public hospital system with a small private insurance industry on top, & their costs appear to be even lower than those in France or Canada. (I say, “appear to be,” because Britain’s GDP is deformed by an inflated finance sector; but they’re still doing well compared to the US, which also has an
inflated finance sector.)
So let’s see. I think the following points are reasonable assumptions:
A. A priori, the supply of actual health care professionals is always more important (though not overrridingly so) than the organization of middlemen to cost of health services.
B. A posteriori, it appears that the fewer the number of funds into which a society organizes its health care funding, the lower the cost of care overall. So the large risk pools appear to work better at lowering costs than does competition.
This is a grand complex of issues, admittedly, but I am not convinced that competition is the way to control medical costs. It may be counterproductive.
I’m not sure I follow. By way of comparison, do you find roughly the same “grand complex of issues” at play when evaluating competition with regard to, say, auto insurance?
Sorry for the unwieldy opening. I started out with an argument about demand-side competition causing prices to go up, but then I thought, does it really? So I had to go through & rewrite some stuff, & … yeah, it’s just long.
So I’ll & try to explore that a bit & explain it better here.
If demand-side competition goes up because more customers want something, that’s also an increase in demand, & price will go up.
Also, one man who wants to buy 1000 widgets can negotiate a better deal than 1000 men who each want one widget.
So, yeah, my first impulse was partly right: demand-side competition does not lower prices; it might raise them.
But if you keep the number of customers constant, & pool their money to buy a service from an intermediary, it depends on the allegiance of the intermediary. If he serves the supplier, he may simply spread risk usefully, or collude with the supplier to keep rates high. If he serves the customers, he may negotiate harder on their behalf. If he’s just serving himself, then he’s an additional cost center & inflationary.
Why does socialized insurance appear to work so efficiently? I’m not sure. I have some ideas not directly derived from the above, but that’ll take another post.
Of course not. Because automobiles are not human bodies. The grand complex of issues around funding & organizing medicine encompasses far more than I have mentioned in this thread.
An automobile can be, push come to shove, discarded. Our culture doesn’t do that with our own bodies.
And replacing an auto part is no great problem, considering automobiles are assembled from standardized parts anyway. Not even filling a tooth is that smooth.
Let me rephrase.
You’re describing health insurance as a sort of middleman: there are a bunch of guys who (a) would directly pay for health care if anything catastrophic befell them, except that they (b) all pay into the same insurance company, which then pays the health-care providers on any member’s behalf. As far as I can tell, you were saying that’s why health insurance is unusual as regards competition.
I don’t follow that reasoning, because it seems to me that auto insurance works roughly the same way: you’d normally pay to have someone fix your car, but members could pay in to a middleman corporation that would then pay out for any one of 'em.
Obviously there are many ways in which the parallel doesn’t quite fit:
But that’s not the issue. Look, leave insurance out of it for a moment; let’s grant that filling a tooth isn’t as smooth a process as getting your car repaired. So long as we’re merely talking about health care and auto care with no middlemen, doesn’t competition work the same way it does when you’re buying shoes or groceries?
Yes, “automobiles are not human bodies” – and neither cars nor bodies are a can of beans, and none of 'em are a pair of pants. But (setting aside insurance) surgery and repairs and food and clothes would all be subject to free-market forces if purchased directly, right? They’d price out differently because supply and demand shake out very differently in each case, but so what?
Sure, health insurance would price out differently from car insurance, because supply and demand shake out very differently in each case. But so what? You went on and on about health insurance being odd with regard to competition because of its middleman qualities; I’m merely asking whether, to your mind, auto insurance works efficiently.
No, I was perhaps unclear. Or wrong. That could be too.
Middlemen are odd in any case.
Health care is odd because it goes to the very body, the very corpus, of the consumer in a way not even food supply does. It’s not a perfect exemplar of economic sectors in general.
When you say, “supply and demand shake out very differently in each case,” there’s an awful lot in that “shake out differently.”
Are they odd in the case of auto insurance?
Yes, it shakes out differently for health care. That’s why health care costs so much more than auto care. It’s also why competitive health insurance would cost more than competitive auto insurance. But what does that have to do with competition being more effective in one case than in the other?