Comments Guidelines

All comments are pre-moderated. No spam, slurs, personal attacks, or foul language will be allowed.

Friday, August 23, 2013

Republicans' "Market-Oriented" Health Care Reforms Won't Work, Part 1

This has been a week of Republicans saying they have actual ideas for replacing Obamacare, rather than just repealing it. The centerpiece has been an article by Karl Rove in the Wall Street Journal (paywalled) detailing all the swell ideas Republicans have. In addition, a non-blogger friend points me to an earlier analysis based ultimately on a group called Docs 4 Patient Care that sounds essentially identical to Rove's article.

Before I get back to Rove, let's talk first about the  earlier analysis, which highlights two supposed alternatives: selling alternatives across state lines, thereby increasing competition in the health insurance market; and tort reform. These sound like great ideas in theory, but in practice both are deeply flawed. Today I'll take on selling insurance across state lines, while my next post will go on to tort reform and beyond.

Selling insurance across state lines: Aaron Carroll points out that this is a funny point for people so frequently protective of "states' rights" to be making. That's because the essence of this proposal is to end states' current right to regulate their insurance market. He predicts, on the basis of what happened in the credit card industry, pointing to this piece at Salon, that insurance companies would only sell policies from states with the weakest consumer protections. This race-to-the-bottom dynamic is one we see in in my work on competition for investment, and I'm quite sure Carroll is right. Moreover, he points out that some insurance companies do sell policies in many states; they just have to make sure they comply with each state's regulations.

But there's another reason to doubt that increasing competition in the insurance industry will reduce health care spending. We have data! We live in the industrialized world's biggest experiment in market-oriented health care and, rather than being cheaper, it's the most expensive in the world by far. Here are the figures for per-capita health care expenditures from the Organization for Economic Cooperation and Development's great online database, OECD StatExtracts (

Top 5 Countries in Per-Capita Health Care Spending, 2011

United States     8174.9
Switzerland       5642.6
Norway             5458.0
Netherlands       4737.0
Germany           4346.2

Data are in U.S. dollars at purchasing power parity
Source: OECD StatExtracts, then select Data by Theme, then Health, then Health Expenditure and Financing, then Main Indicators, then Health Expenditure Since 2000, then in the table change the Unit to "PPPPER: /capita, US$ purchasing power parity."

To top it all off, in a post yesterday, Aaron Carroll (h/t Paul Krugman) reports that Singapore has just reformed its health care system to look a whole lot like...Obamacare, individual mandate, no discrimination for pre-existing conditions, subsidies, and all.

The bottom line is that competition does not work in the health care area; simplistic economic models are not enough to understand the unique economics of health. America's long experiment with a market model has been a stunning failure costing over $2500 per person per year more than the next most expensive country.

Next up: Tort reform.

Cross-posted at Angry Bear.


  1. "But there's another reason to doubt that increasing competition in the insurance industry will reduce health care spending. We have data!"

    But in fact, we haven't had real competition because it has been virtually impossible to compare policies relative to prices. Competition based on the capacity to deceive does not qualify as genuine competition even in a theoretical laissez-faire model. The Federal minimum standards for the three levels of policies in the exchanges should be seen as a rule-based (as opposed to a case-law-based) effort to eliminate rampant, endemic fraud -- good old consumer protection.

  2. What possible definitions of "a market model" and "competition" does our current system of employer-provided health insurance fall under?

    It is not a market-model system when the people paying for it are not the people using it. Heck, if my employer were to pay 75% of my car insurance, I'd want it to pay for tire rotations, oil changes, and anything else I could get. Sure, it would drive prices up -- more people would use it for routine maintenance, and the bureaucracy needed to keep track of it would certainly add to the cost -- but why should I care if my employer is eating the cost?

    A competitive, market-based model would have everyone who wants insurance buying his own. As for pre-existing conditions, they would have to be covered by the policy in effect when the condition was diagnosed. If I change my car insurance next Monday, but get in an accident Sunday, the policy in effect Sunday has to pay for the repair, even if I no longer have insurance with that company. So if you are diagnosed with lung cancer, the policy in effect should have to pay for the lung cancer treatment even if you change policies. That way, they would not jack up your rates or cancel your policy. If they did either, then you would get another policy from another company and the first company would STILL be on the hook for the lung cancer treatment.