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Why No “Market-Based” Health Care Reform Can Succeed

Friday, October 28, 2016 10:14
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(Before It's News)

The cost of health care vs. the consumer price index for the last ten years (source; click to enlarge). Note especially 2009 and 2010, recession years for the CPI. If you do click through to the source, note that its author apparently doesn't understand the relationship between monopolies and pricing power.

by Gaius Publius

A little while ago I speculated on the future of the ACA given its recent problems and said I wasn't sure whether it would survive or not. Meanwhile, others are predicting its demise.

It's certainly true that the ACA attempts to be a so-called “free market” solution to providing health insurance and health care. And it's also true that the ACA does not have within it mechanisms to restrain the cost of either the insurance itself or the health care that citizens are buying the insurance for.

In the light of those facts, let's look again at the questions I asked earlier:

  • Is the ACA poised to collapse?
  • Will the ACA be fixed? (Or even, can the ACA be fixed?)

Benjamin Day writing at Jacobin would answer Yes to the first question and No to either of the second. His reason: No “free market” solution to providing health care can work without price controls. Is he right? Let's take a look.

(By the way, the reason I put “free market” in quotes above is that the health insurance market is actually highly consolidated and monopolistic, and no monopoly-controlled market — think Standard Oil and the petroleum market at the turn of the 20th century, or Comcast today — is in any sense “free.” If you need it, you pay what the only supplier will charge you.)

Day's analysis starts with this (emphasis mine):

Why Obamacare Didn’t Work

Obamacare has failed, and so will other market-based plans. We need a socialized system.

News broke late last month that yet another of the nation’s largest health insurers, Aetna, is pulling out of state health exchanges in 2017. The company’s action marks the failure of every market-based reform included in the Affordable Care Act (ACA).

The insurers that remain in the exchanges find themselves with unprecedented leverage to demand double-digit premium increases next year, which will leave eleven million patients with few options. The collapse of policies designed to increase competition between health insurers should serve as a lesson in an election year when both candidates, Donald Trump and Hillary Clinton, have been running on the promise of even more such reforms.

He then expands his theme of the failure of “market-based reform”:

The first market-based reform to collapse was the introduction of CO-OPs, new consumer-owned health insurers designed to compete with large commercial plans. Of the twenty-three CO-OPs launched for 2014, sixteen have already closed their doors or been shut down by state regulators. The CO-OPs failed in part because they expected government subsidies that never arrived, but more importantly they didn’t have the size or leverage to negotiate rates with large hospital and physician groups, paying more for the same patient care than the dominant insurers they were competing with.

Not having market pricing leverage matters, obviously. In other countries, “market-based” solutions work because of decidedly non market-based practices, like government-mandated price-setting. Day again:

Most countries put hospitals on fixed budgets under a universal health-care system, but the few with private health insurers set uniform rates so market power doesn’t matter for the price of care. The Wild West capitalism that characterizes health care in the United States actually works against competition, rewarding mergers and consolidation by both insurers and providers, and undermines competition-based policy initiatives like the CO-OPs.

Any solution that places pricing power in the hands of monopolies and near-monopolies will always fail to deliver an affordable product, whether that market is cable TV or health insurance. Monopolies inevitably lead to high prices.

Day then looks at both the Clinton and Trump proposals for reform. After dismissing Trump's proposal, he says this about Clinton's proposal, the public option:

Clinton has promised to revive the Democratic campaign for a “public option,” a publicly administered health insurance plan that would compete with private insurers on the exchanges. If a new public insurance plan must negotiate with providers while trying to attract new enrollees, it’s likely to meet the same fate as the CO-OPs.

If allowed to use Medicare’s provider network and Medicare’s payment rates, a public option would have a tremendous advantage over private insurers since Medicare pays lower rates and few providers can afford to opt out of accepting Medicare patients. A weak public option that has to negotiate health-care costs as a small startup plan will fail, while a strong public option allowed to pay Medicare’s low rates is more likely to replace private insurers than compete with them.

Again, a “weak public option” will fail and a “strong public option” will replace private insurers, not compete with them. The second, replacing private insurers, is obviously a problem for the program's designers, since the ACA was created to prop up private insurers, not undermine their profitability. Day:

The last gasp of the ACA’s market-based reforms reveals an uncomfortable truth about our health-care system: we cannot afford to expand or even maintain our current access to care without cost controls, and health-care costs cannot be controlled with competition or markets.

The only cost control that works without undermining access to care is also the kind that Republican and Democratic leadership have foresworn this election: public budgeting and rate-setting through a single-payer system, or regulations that force nonprofit insurers to act like a single-payer.

And there you have it. American elite policymakers, from Clinton to Trump, from mainstream Democrats to any kind of Republican, are hell-bent on a “market” solution to health care reform, and Day is certain no market-based reform can succeed. I think he's right.

Day's piece is called “Why Obamacare Didn't Work.” But it hasn't failed … yet. In my present view, though, that's just a matter of time. What's next? This brings us back to the clash between the Sanders wing and the neoliberal (republican-aligned) wing of the Democratic Party. Until that's resolved, perhaps nothing is next but the shambles of what we have now.


“When fascism comes to America, it will be wrapped in the flag and carrying the cross.” — Sinclair Lewis


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