How Would You Lower Healthcare Costs Through the Free Market?

Hint: It requires you cover pre-existing conditions.

The Brain That Wouldn’t Die (1962)

Although dropping the guarantee of insurance coverage for people with pre-existing conditions is cruel and murderous, it may not surprise you to know it’s also stupid, for a pretty simple reason: why do markets work?

Have you thought about it? Even if you’re a communist (welcome, comrade), put yourself in the shoes of a small-government conservative for a second. What is it that markets do that is so good? How do they produce a “fair” price and lower overall costs, while simultaneously allowing everyone to act self-interested? What is the invisible hand?

Information.

Markets work, when they work, because of information. They are massive, crowdsourced, information-gathering machines. That’s most of what competitive edge is: I figure out a better, faster shipping route than yours, and I reap the benefits until you figure out how to duplicate what I did. Then I look around for another way to innovate and nose ahead of you. Our competition drives us to constantly get better, faster, to copy the best ideas and jettison the bad ones.

The premise of the stock market, and the value of active investors like Warren Buffet, is that they pay attention to what companies are doing, and whether they seem like they’re worth what the stock price suggests they are. That’s it. That’s how they make their money: by collecting information. The rest of us benefit because we see how they act on that information, and we find out too, just a step behind.

Hence we have laws about required financial disclosures; hence stock values are publically listed; hence a Ponzi investment scheme is an illegal con; hence we ban insider trading, so there’s not a financial incentive to keep secrets — to keep valuable information out of the market.

When information can’t move, the market breaks. It stops being able to function as a market, and turns into something like gambling or extortion. Any invisible hand stuff goes out the window, and prices are whatever one strongman wants to charge. Not a free market.

Note this is the core of the argument against socialized medicine — that it’s not competitive, that there will not be small firms competing to find the best information and leverage it to lower prices while delivering better service. That, theoretically, is what Republicans hate about the current ACA and want to fix.

Except…

Allowing discrimination against people with pre-existing conditions fucks over the information flow of the market. I’m sorry but I can’t come up with a less profane way to say that. It destroys the market’s ability to produce low, competitive prices, because it hugely incentivizes a lot of market participants to NOT discover information.

“Wait, what? Isn’t it more information discovery, insurers being able to ask about pre-existing conditions?” No. Insurers aren’t the market. The market is the exchange between insurers and the people who want insurance.

If you want to extend the stock market metaphor, they’re investors; we’re the companies they’re buying into. And we, the people buying insurance, are not only going to lie like hell, but will deliberately avoid finding out what’s wrong with us, early on, when it could be cheaply fixed.

Here’s an example:

It’s cheaper for everyone if I find out that I have elevated cholesterol numbers, take statins, and bring that down. That is some grade-A personal responsibility, right there. It’s not only clean living; it is way less costly than waiting until I have a heart attack and need emergency triple bypass surgery — cheaper for me, cheaper for insurers, cheaper for surgeons who don’t have to carry malpractice insurance for a difficult procedure they had no chance to prep for, cheaper for everyone else in my insurance pool and everyone else who uses the hospital.

No way in hell I’m going to get my cholesterol tested if it could boot me off insurance. I mean, what if I manage my cholesterol just fine, but get meningitis and my previous responsible behavior means I die from it — from responsibly managing my cholesterol? I’m going to avoid routine physicals entirely.

This is not a hypothetical. This is what I did prior to Obamacare, even though I had insurance — first through the private market, then through my employer. Oh, sure, if I found something, I’d still be insurable as long as I didn’t have a gap — but what if I did have a gap later on? I’m planning to live another 50 years or so; that’s what I assume when I save for retirement. Am I so sure there’s never going to be a gap?

Nope. So I’m going to fight like mad to stay blissfully ignorant about my own health. That’s me being a rational actor.

It is so, so, so cost-shifting, I don’t even know how to tell you. It’s maximally deceptive. I become a stone wall concealing information about my health — the very thing insurers need to know in order to make informed, cost-lowering decisions. And you will be doing the same.

It’s terrible for insurers. Sure, being able to deny people gives them a little more wiggle room with the known dangers, but it turns almost every one of us into an unknown unknown. We’d be fools to give anything away about ourselves — to get our moles checked before we’re sure they’re cancerous, or enroll in a weight-lifting class that will help delay the onset of osteoparosis (dead giveaway we’re worried about osteoparosis!)

If Republicans were serious about controlling healthcare costs through the forceful virtues of a free market, they’d scrap all of Obamacare except:

  • denial of pre-existing conditions
  • individual coverage mandate

And maybe they’d add a requirement for an annual physical, the same way we require car inspections.

They are not doing that. They’re doing the opposite. They’re getting rid of those parts, and keeping some other junk.

They’re getting rid of the market-making parts.

That’s how you know they’re not serious.


Romie Stott has an official piece of paper that says she knows a lot about economics. She’s lived under the healthcare systems of three countries and has deliberately lost most of her medical records. But she’s perfectly healthy, she swears.