Time for some healthcare economics 101
If there’s one thing that we can all agree on, it’s that healthcare should be cheaper. It’s not that healthcare is overpriced — although honestly if you live in the US you’re probably paying double what anyone else is — but that it’s a large cost that takes up a huge amount of our budget and it would be really nice if it was less expensive.
Also, it’s WAY overpriced.
So how do we lower healthcare costs? It’s a question that a lot of people around the world have asked, in many different ways. And the Republican Party, in all their wisdom, have come up with an answer:
The idea is simple: let the free market take care of the healthcare economy. What’s wrong with the US system is that people are tied to providers and/or insurers — what we really need is a completely open market with more choice which will drive healthcare costs down!
And, of course, healthy people shouldn’t have to pay for the sick. Because no one should be forced into humanity. If I want to let sick people die, that’s my right as a human being!
But do you know the funny thing?
Turns out it’s actually cheaper for healthy people to subsidize the sick.
Free Market Madness
It’s a common refrain of people who have a lot to say but almost no knowledge of healthcare markets that the main problem with health spending is that there isn’t enough choice. “Make the market more free” they say, “and cheap healthcare will magically pop out”.
I’m paraphrasing, but seriously, this is what some people believe.
There are entire libraries devoted to why free markets don’t lower healthcare spending, but since we’ve only got a few hundred words let’s focus on the three big reasons:
1People Will Pay Anything To Not Die: Free markets rely on one all-important principle; that people will change their behavior based on price. So, for example, if Apple doubled the cost of their Macbook Air, people would probably move to another brand.
But what happens when your choice is to pay or to die?
To put it simply, people will pay anything. Epipen has famously jacked up their price in the US, but people will happily fork out $600 because the alternative is using an unfamiliar product and dying. If you’ve got a life-saving treatment the sky’s the limit, because regardless of what you charge people will pay it.
2No One Knows Anything In The Healthcare Market: Free markets rely on the idea that everyone has enough knowledge to make informed choices. In healthcare markets, this means that patients know what they are buying and insurers know what they are insuring.
Let’s test this idea.
Think about your health insurance. Can you name every condition that it doesn’t cover? What about the circumstances in which you won’t be covered for common complaints? As a healthcare worker who knows quite a bit about the system, I can happily say that I have pretty much no idea what my insurance really covers, because it’s an impossible pig sty of contradictory information.
On the other hand, what about your insurer? Do they know all of your health problems? Do you? Can you honestly say that they have enough information to cover you faithfully?
No one knows anything about anyone else, which means that, in a free market, the costs just keep going up. Insurers have to charge more, because they don’t have great information on you, and you feel rorted because you are paying massively high costs without understanding why.
3External (non-market) Factors: This one is pretty simple. A free market relies on costs being driven by the market. Does a company make good phones? Great! They can charge more.
But in healthcare, there are thousands of factors that have nothing to do with the market. Socio-economic status is the best example; in a free market poor people will have higher costs for health insurance, despite being significantly more at-risk of health problems just because of where they live.
Subsidizing The Sick
So, the free market alone doesn’t work.
Well, there’s quite a bit of research into this issue. And it turns out that countries that increase the amount of government control into their healthcare system actually end up paying less.
Australia is a brilliant example. In many ways it’s similar to America — in demographics, legal systems, opinion on which game David Beckham plays (it’s soccer, dammit!) — but there’s one big difference. Australia has a universal health insurer that covers every citizen in the country, payed for with a 2% levy on every taxpayer.
It’s literally the healthy paying for the sick.
Australia also has a lot more government regulation surrounding things like drug prices, surgery costs, and generally regulates healthcare to a much higher degree than the US does.
And guess what?
It spends about half as much for what is universally considered to be a better healthcare system than the US.
It turns out that if healthy people pay a bit more for their healthcare — sometimes as little as 5% — costs for the entire system decrease. This is due to a number of very complex reasons, but basically boils down to the fact that sick people are also generally older and less wealthy than healthy people, so they find it harder to pay for their healthcare.
This means they put off getting treated, which means that when they finally do go and see a doctor, they are much sicker than they would otherwise be — and cost way more. It also means that they ignore things like preventative care, because if you’re old and poor the last thing you need is another burden on your limited budget.
What does this mean?
If we want to pay less for our healthcare, the best system is also the fairest system.
When healthy people pay some of the health costs of sick people, everyone ends up paying less
Or, about half.
With a single payer, with the healthy subsidizing the sick, with government regulation far exceeding that of the US — all things that the Republican Party has declared are driving healthcare costs up — Australians still pay half what Americans pay for their healthcare.
Ultimately, it’s pretty simple. If you want a healthcare system that costs less, you make sure that everyone is insured. And you make sure that that insurance is worth something.
And if that means healthy people have to pay a little bit more?
It’s a small price to pay.