Toyotas NOT Ladas: Markets For Health Care . . . And Health Care Reform

If you want to lower costs, increase quality and improve access to services in health care, you must leverage market forces.  If you want to sell health care reform, you need to propose a plan somebody wants.

About 15 years ago, Health Maintenance Organization (“HMO”) products came to dominate the market for health insurance, because they were much cheaper than indemnity insurance and because employers had to cut costs to compete in an increasingly competitive national market and in a much more competitive global market.

HMOs were intrusive.  They put a bureaucrat between you and your doctor to “manage” care.  There was a perception that non-medical HMO employees interfered with medical decisions for economic reasons.   People didn’t like these products, as demonstrated by Helen Hunt’s anti-HMO rant in the 1997 film As Good As It Gets.

So payors, mostly for-profits, came up with a new product, PPOs, which combined the discount from providers that came from HMOs with the choice people had with indemnity insurance (e.g., your old time, 80-20% Blue Cross/Blue Shield plan).

People liked these PPO products, since they were less intrusive.  People were willing to share more costs, through higher co-pays and by paying a premium to see a doctor outside the network (a physician who did not participate in the plan) in order to have access to these plans.  Employers liked PPOs because employees were willing to share more of the cost and because PPOs were still cheaper than indemnity insurance.

The market acted, within maybe 2 years, to create a new and better product.  Better stuff at a lower price in a short time is what markets give you: consider the merits of the the Lada versus the Corvette, or perhaps given sales under “Cash for Clunkers,” the Lada versus the Toyota .

To address the problems with the PPO system (and there are problems, doctors and hospitals are getting wrung for discounts and employer/employee premiums and employee co-pays are rising alarmingly), you want more markets, not less.  You want more informed buyers who drive a hard-bargain and have the market-power to make that power stick on controlling co-pays and premiums.  You want something that makes it economically feasible to cover the uninsured.

In the same way, if you want to sell health care reform, you need to propose a plan that somebody, somewhere supports.

Someone once said that a camel is a horse designed by a committee.  If so, the House and Senate proposals are camels.  President Obama’s  supporters generally tend to fall into one of two groups on health care reform:

1) those who support single-payor systems, like Canadian or Australian Medicare; and

2) those who support market-based reforms, something like the German or French systems or USAA in auto insurance .

Neither the House Plan nor the Senate plans are either of these.  As a result, the President’s base is not galvanized by these plans and they aren’t vocally supporting these proposals.

On the other hand, Conservatives and Libertarians (and people who are not political) HATE these plans.   As described above, the demise of HMO products at the hands of PPO products meant that people were willing to pay to be able to choose their doctor, their health plan and whether or not to see a specialist without a referral.  Nothing shows where people stand quite as well as their being willing to pony up cold, hard cash.

So when the Press Secretary says that there is some vast, Rick Scott conspiracy to flood the Town Hall Meetings with “villagers with torches,” he is way off base.  These plans run straight into the third rail of health care reform: patient choice.

In fact, Mr. Scott’s involvement is a sign of just how strong the opposition is to the proposed Plans.  While it is a matter of public record that Mr. Scott was neither indicted nor convicted for any crimes nor was Columbia HCA, Mr. Scott was forced out in the late 1990s by the Board of then-Columbia HCA after it came under Federal scrutiny for billing irregularities in a case that later resulted in a plea agreement without any criminal charges.   Sen. Frist’s brother, a co-founder of the business, became CEO and the corporation returned to its original name of Hospital Corporation of America in 1999.

Given this earlier controversy, and Mr. Scott’s willingness to be the face and voice of Conservatives for Patient’s Rights, the fact that many people are willing to listen to that group’s message and come out to vocally oppose these plans is a sign that the message is stronger than the medium.  People are willing to suspend any qualms that they may possible feel for Mr. Scott because they have greater qualms about these proposed plans.

It is time to go back to the drawing board and come up with workable, market-based reform.