Why the United States will Eventually Adopt Universal Health Care

After the failure in the Senate of the awfully written Health Care Freedom Act, and the apparently dead on arrival last ditch effort by Senators Bill Cassidy and Lindsey Graham to repeal Obamacare, the big question is where do we go from here? In the short term, I don’t know. The Republicans seem pretty committed to passing something that would have a devastating impact on health care.

But, in the long term, the United States — with 100% certainty — will eventually adopt a universal health care system — something that might look very similar to the Medicare for All plan promoted by Bernie Sanders. How can I be so certain of this? Because health care is fundamentally different than most other products and services, and universal health care is the only solution that addresses these differences. To understand why this is the case, I’m going to have to don my economics-nerd hat, and explain what economists would refer to as a product in a perfectly competitive market, and then contrast that with health care as a product.

A brief aside before diving into this exposition: I had the great fortune while working toward my degree in economics at U.C. Berkeley to study under two different Nobel prize winning economists. Gerard Debreu earned his Nobel for his work in the late 1950s and early 1960s showing (with a dizzying amount of maths) how perfect markets worked. George Akerlof won the Nobel for his work in the early 1970s showing that unfortunately, not all products or services allow those perfect market conditions described by Gerard Debreu to exist. Health care and health insurance was one of the primary examples he illustrated in his seminal paper “The Market for Lemons”. This essay is in essence the debate between the 1950s work of Debreu, and the 1970s understanding of markets following Akerlof

So what does a product in a perfect (Debreu) market look like? Coffee is a great example. Close your eyes and imagine walking into a Starbucks. You can smell the coffee and pastry. I know that not everyone loves Starbucks, but they have any impressive level of consistency between stores, so you know precisely what the experience will be like. Arrayed on the wall behind the counter is an extensive price list detailing the price for each item on the menu. You make your selection, which for the sake of simplicity in this example, we’ll assume is just a medium dark roast coffee. When you reach the counter, you order your coffee. The barista takes your order, tells you the price, then watches as you count out a few dollars, or swipe you credit card. From the perspective of Starbucks, they also know everything about the product they are producing. They know the cost of the coffee beans, the cost of the grinders, roasters, and brewing machines. Starbucks knows the payroll costs of the employees, and the rent they are paying at each store. Also, when you hand over your cash for payment, they are sure that you have (and can) pay for the product (the cup of coffee) before they give it to you.

Coffee is a classic example of a product with perfect information. At a coffee shop like Starbucks, products are displayed on brightly lit shelves, with prices clearly visible behind the counter. Both parties know everything about the transaction.

In Economics, this situation is called perfect information. Both the buyer of the product, and the seller of the product have complete information about every element of the transaction. The buyer knows every detail about the product (its coffee from Starbucks), the price of the product (its posted visibly on the wall behind the barista), and that he has enough money to pay for the product (he can count the bills in his wallet). Similarly the seller (Starbucks) knows every detail of the product he is selling (all the costs of producing it), and that the buyer has sufficient money to pay for it at the time the transaction occurs. This is the type of product that Gerard Debreu describes in his Nobel winning work. Markets work better than any other solution in that situation.

Now contrast that with health care. Close your eyes again and imagine walking into a hospital. Except that you don’t walk in, you are wheeled in on a gurney directly from an ambulance, unconscious after a bad car crash. You don’t know anything about the product or service being offered, and can’t know anything because you are unconscious. You are relying on the doctor to make the proper decisions about your care without any input or direction from yourself. You also don’t know what the care will cost, and the doctor cannot even communicate a range of costs to you because, well, you are unconscious. Similarly, the doctor doesn’t have complete information about the product and service he will provide. He may quickly observe your extensive injuries, and have heard about your vital signs from the paramedics, but until he starts operating, he might not know the full degree of your injuries. Only then can he start to estimate the cost of the procedures required to save your life. Further, the doctor might not know if you are able to pay for his services before starting to provide care. You may not have proof of insurance on you, and since you are unconscious, the doctor can’t ask you about your insurance status. In many life threatening cases, the doctor also can’t wait to find out you payment status before starting care, lest you expire while waiting for confirmation that you can pay.

An entrance to a hospital emergency room. But where are the prices, and what product will you receive? And how can you make a conscious choice about the service you’re going to receive if you’re wheeled in unconscious on a gurney?

This situation, which earned George Akerlof his Nobel prize for investigating, is called asymmetric information. Economist call this a market failure — a situation where the free market does not work properly. In this type of market failure, one or both of the parties of the transaction (buyer or seller), don’t have perfect information about the transaction, and as a result can’t make a well informed decision about the transaction. Bad outcomes can, and frequently do happen.

In health care, the problem of asymmetric information is particularly acute. The most significant bad outcome is that the doctor might not get compensated for their services. Ultimately, to have doctors, they must get paid for their services, or they will have to find an alternative career to buy food and put a roof over their head. And, if you then would like to get the services of a doctor, one might not be available, because they elected to work in a more lucrative trade, such as plumbing.

To explore this problem one step further, consider a case where a poor patient without any savings, or living family members, arrives unconscious to the emergency room with life threatening injuries. And after the best efforts of some dedicated doctors and nurses, the patient unfortunately succumbs to his injuries. He has no savings, and no living family members who could possibly be billed for the service of the hospital. Who pays for the treatment? A doctor might be able to afford a few pro bono cases, but if too many patients like this come through the emergency room door eventually this will bleed the doctor of money and force them into bankruptcy.

Also consider what might happen if you show up to the emergency room and the doctors don’t want to provide care because you look like you might be uninsured and unable to pay. In November of 1985 there was a particular poignant example of this situation. Sharon Ford — a young women in active labor — rushed to a hospital to deliver her baby. On arrival in the emergency room, she provided proof of insurance through Medicaid, but the hospital elected to refer her to another hospital that was the indigent care facility that handled Medicaid cases. She drove herself to the second hospital, only to be denied treatment and service due to a paperwork error in the Medicaid system. After driving herself to a third hospital that would finally admit her and provide treatment, her child was born stillborn — a terrible outcome. In response to this horrific case, the US Congress enacted a law on a bipartisan basis to directly address this issue: the EMTALA, or Emergency Medical Treatment & Labor Act. This law required hospitals to accept all emergency patients and treat them until their condition was stable, and insured people that they wouldn’t simply expire in a hospital waiting room trying to convince hospital staff they could pay for treatment. But, the side effect of this law was that the burden of uninsured patients was shifted onto the charity of hospitals to cover. Hospitals are required by law to treat patients with no guarantee of payment.

In countries that have adopted universal health care, this issue of payment isn’t a problem. Generally, everyone pays into the system in some fashion (either taxes, or a payroll fee), and the universal health care program pays for medical services by anyone: problem solved. Doctors get paid, and can go about their trade without fear of bankruptcy. Patients get treated, and don’t have to drive from hospital to hospital hoping that one will accept their payment.

Thankfully in the US, we aren’t completely foolish. Even though we don’t have universal health care like Canada or France, we still have Medicaid that is designed to be the payer of last resort for the uninsured when they receive care. And, we also have the EMTALA to insure that everyone is treated equally when they arrive in an emergency room. But, our system is still plenty foolish. Medicaid is designed to insure that doctors get paid when someone without insurance needs emergency care. But, it doesn’t cover or encourage the uninsured to seek out annual check ups that can help detect health problems early before they grow into expensive, life-threatening issues. Instead, Medicaid only covers issues when the patient is so sick that they must visit the doctor in a hospital. As a result, it only covers treatment when patients are at their sickest point. This makes our system both more expensive than other countries, and one that produces far worse treatment outcomes. The data bears this out. Compared with France for example, we pay about $4,000 more per year per person, and live 1–2 years less. This is hard to overstate: we pay nearly double the amount of most other first world countries for our health care, and have poorer outcomes!

Libertarians and free marketers try to argue that markets shouldn’t be regulated and everyone should be able to freely make choices about how they choose to live. But, in imperfect markets with asymmetric information like health care, my choice to buy or not buy health insurance might impact your ability to get health care. If you want health care, you need me to have insurance so that doctors can get paid.

I don’t necessarily believe that health care is a right like some people argue. But, health care, by its very nature, is fundamentally different from other products. Health care is not a perfect, Debreu-type product. It’s an imperfect, uncertain, Akerlof-type product. Free markets fail, and do not produce optimal outcomes when health care is the product. Eventually the United States will realize this fact, come to the same conclusion about how to solve this problem as the rest of the first world, and adopt a universal, single payer system.

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