Ostensibly, conversations about “health care” in the United States of America are conducted within the prevailing framework of market capitalism. Distilling the debates to their essence typically reveals a legitimate disagreement between the concern for moral hazard (e.g.: those with fire insurance tend to have more fires, or those with unemployment insurance are less motivated to get jobs) and the concern for moral neglect (e.g.: it’s immoral to let people suffer and die in a society that has ample aggregate means to get everyone the medical attention they “need”). Some may object to my assertion that our society can “afford” it in terms of national debt, et cetera, but that is ultimately a governmental budgeting issue under the federal tax regime, and as such, is beside the immediate point.

It has been amply demonstrated that there is no shortage of arguments about how to reconcile the problem of health care within the bounds of market capitalism. Likewise, great lengths have been taken to demonize certain options as socialist in nature. I assert that all such arguments arranging possible solutions into a capitalist versus socialist dichotomy obscure the fundamental issue on the side of the problem. In other words, arguing about “who pays” is irrelevant because the “what we’re paying for” side of the equation doesn’t qualify as capitalism (or socialism for that matter). This is true for [at least] two reasons.

Capitalism is an economic system in which the means of production are privately owned and operated for a private profit; decisions regarding supply, demand, price, distribution, and investments are made by private actors in the free market; profit is distributed to owners who invest in businesses, and wages are paid to workers employed by businesses and companies. –Wikipedia

To call something market capitalism, it must conform to [at least] two criteria:

  1. The private actors involved must be making a[n uncoerced] decision.
  2. The supply, demand, price, distribution, and investments must be subject to market forces.

The health care system exploits evolved human nature

Rational choice ends where questions of health and survival begin. This is true of food and exercise choices. Evolution has a nasty habit of biasing organisms to weight their immediate impulses much higher than future probabilities. The classic example of this from behavioral economics is giving people a choice between receiving $100 today or $110 tomorrow. Then, ask the same people to choose between receiving $100 dollars in 30 days or $110 in 31 days. For our purposes, the number of people who choose $100 today or $110 tomorrow isn’t important. What is important is that almost everybody chooses $110 in 31 days in the second case, including the people who chose $100 today in the first case. From a rational standpoint, the absolute difference in waiting is identical in both scenarios, but people value the future 1-day wait as much less painful than the time from now to tomorrow. That’s some insight into why we’ll make unhealthy nutrition and fitness decisions today even though we’ll pay for it in the future, but it isn’t all we need to know in our discussion of health care.

The Darwinian imperative of all things is to survive to reproduce. In humans, we have not only similar survival instincts as other animals, but also an extra layer of conscious awareness that allows us to imagine the future. We don’t just act to avoid death, we engage in conscious mental gymnastics to avoid death. Despite zero empirical evidence, many humans go so far as to believe in a ghost that survives their body at death. Our dual levels of instinct and thought about instinct puts us in a remarkable category of death avoiders. How does this influence our ability to make health care decisions?

In short, our survival bias negates anything that might resemble a decision or choice when matters of life and limb are ate stake. When asked the question, “how much is it worth to save my legs,” what is the answer? I suggest the answer is “however much I have to give”. Taken from the other direction… When presented with the information that, “to save your legs will cost $70,000, are you willing to pay it?”, what is your answer? I suggest that the question you answer is not, “are you willing to pay”, but “do I have (or can I come up with) the money?” If that is possible, the answer is yes.

There are limits to the value of limbs of course. When Aron Ralston was faced with the scenario, “how much are you willing to pay to survive?”, the answer was: “my arm”. However, to give a value to that choice, we would have to know the dollar value placed on his life, AND whether he would have been willing to also give his other arm, or two legs, et cetera. Ultimately, survival is the most important, but we “know” that losing a limb is bad for survival/reproduction probability. We know because we can picture the difficulties of missing limbs, and we know because of the physical pain that provides a direct signal.

No, there is no effective decision involved in the evaluation of serious medical care. The price is almost infinitely variable depending on a subjective ability to arrange funds, and not an objective utility valuation; the answer is always yes if the funds can be arranged. To capitalize on individuals with no effective decision is the very definition of extortion.

There is no free market for health care services

We must be careful to resist seduction by the illusion of market forces. It is true that there is a sort of quasi-market in health care services. In some instances, insurance companies influence prices, and the prices insurance companies are willing to pay impacts the market to some extent. However, this is merely inverted extortion in that medical service providers are coerced by the threat of payment refusal. The nuances here are irrelevant because this dynamic merely represents the price fluctuations of a quasi-market.

Two conditions must be met for a free market to exist. One, there must be price competition between providers. Two, the private actors ostensibly making the decisions must exert choice influence on the service providers.

Neither of  the above conditions are met in the health care “market”. In most situations, service providers are chosen by geographic necessity. Further, competition between providers is largely based on reputation and referral, not price. Thus, the first condition fails on either of two counts. Typically, prices for procedures are not known until after they have been performed. Upon admission for a procedure, an effective blank check must be agreed upon by the consumer of services. Options may be given, but they are typically framed in cost-benefit terms revolving around probability of success or failure, and various side-effects or discomforts to be expected. Again, not in terms of price.

To compound the lack of the market meeting conditions to be called a free market, all of this is amplified by the characteristic non-decision of the previous section. When there is no effective decision, there is no mechanism through which the consumer of health care services could exert choice influence even if there was a functioning market.

The business of health care is fundamentally anti-capitalist

I haven’t introduced anything novel. I have merely laid out the definition of capitalism and pointed out that health care meets none of the requirements of a system that can be defined as capitalism. The only thing resembling market capitalism is the flow of money. If the health care business does not qualify as capitalism, what is it?

It’s safe to say that it isn’t socialism. No, the lack of customer influence upon the pricing mechanism in combination with the extortionate property of de facto non-decision most closely resembles a point somewhere between authoritarianism and totalitarianism.

With no real influence on price, and no real choice, why should we be content to discuss the capitalist or socialist ramifications of who will pay for the services. Whether payment is from individuals, or the collective, true capitalists should be outraged at the unquestioned authoritarian monolith that’s willing to take money from anyone and everyone who agrees to be subject to its predatory tendencies.

Note: I don’t find it necessary to delve into conspiracy theories or the specter of “evil” insurance companies to explain this. While those things are interesting discussions, all of this can be a true outgrowth of emergent properties in the system without invoking them. I hope it goes without saying that doctors and other workers in the health care system don’t create the systemic problems either.

  1. Scotlyn 13 years ago

    As an inhabitant of Ireland, with a "two tier" health system – both a "socialised" and a "capitalist" one (and possibly the worst aspects of both), I couldn't agree more. Drug companies, primarily, are happy, and equally capable, of extorting money from both systems, imposing their "numbers management" system equally on each.

    A health care system (whoever pays for it) that was oriented towards healthcare that people actually need, for example, would be putting a lot more effort into developing new anti-biotics round about now. Not a good choice for drug companies solely motivated by profit (clients will either die or get up again after taking them for a bare week or so), nevertheless, none of modern medicine makes sense without (try to imagine any kind of surgery, or immunosuppressive therapy, without effective antibiotics). cont'd…

  2. Scotlyn 13 years ago

    …cont'd…All this "footering" with long term medications that are designed to micro-adjust "risk factors" rather than treat actual disease, are great money spinners, but in terms of the total healthcare project are pretty useless. I picture them like cuckoo chicks that the drug companies have planted in our nests – we feed them instead of our own chicks, and don't even realise it.

    So how did we get here, and how to get out?

  3. js290 13 years ago

    "Market forces" would seem to imply that supply, demand, price, distribution and investments are not constrained artificially, particularly by policy or laws. What we have now is an artificially inflated demand caused largely by poor diets thanks to the USDA Food Pyramid. We also have artificially low supply of healthcare providers thanks to the AMA lobbying against RN's and nurse practitioners, essentially protecting the MD education inflation for the healing profession. With high demand and low supply, prices are artificially kept high.

    Like you said, we're doing it poorly. It's like having the worst of all worlds. But, someone's benefiting from the status quo.

    • BSN 13 years ago

      we have a sick lifestyle that promotes illness
      the treatment system promotes further, unending, treatment
      drugs create side-effects that require more drugs etc
      and there is no funding, no support, no research into alternatives or prevention
      and its all tied to govt control
      it always has been… they have been creating this crisis for decades

  4. BSN 13 years ago

    as a member of the healthcare communityas a member of the healthcare community, i am nauseous every day to think i sunk all my time and money into this crooked machine of american healthcare. it didnt hit home til i was out of school and in the workforce for about a year. i feel as though im trapped, a slave, in an industry that is little more than a sweatshop of disease and disability. and it will only get worse once the govt gets a hold of insurance.
    the insidiousness of the problem goes far beyond the question of capitalism and socialism, and i absolutely agree that it is an authoritarian model that seems to be the goal of our current administration, and others leading up to now. our entire lifestyle in this country is designed to leave us no choice but to accept whatever healthcare we can get. anyone who has ever been seriously ill knows there are no choices.
    and its not the insurance companies driving the industry, although their hands certainly are not clean, it is the pharmaceutical companies… and guess who they answer to? the FDA… lets not forget what F stands for
    once again, the govt creates the crisis, leaves everyone feeling desperate, then rushes in with their grand plan to "take care of everyone" and gain more and more control of our lives and our money

  5. Victoria 13 years ago

    Great post.

    I agree that, by necessity, trauma and life threatening conditions can not be based on a capitalist system. To have someone show up in the ED and then to discuss whether they would like the more expensive limb saving procedure or the budget amputation is not an option. I think that for non-emergent care there could possibly be a case for the development of a capitalist system, however that is not what is allowed by our current system of insurance nor our society's opinion towards health. It is a taboo to ask 'how much will that cost' when you're talking about your health care or the care of a family member you are in charge of. To admit that you were even contemplating the expense of 'health' is to admit that you are a brutish scrooge. The power of prescription eliminates a reasonable chance for capitalism to work with pharmaceuticals (though I don't have a better suggestion). Many physicians will prescribe generic drug, and some thoughtful physicians will select an older class of drug that is off patent in lieu of a new generation, expensive, brand name for patients that are paying 'out of pocket', but frequently this is overlooked, and again it is considered distasteful to even consider the cost-benefit of a drug. I had insurance backfire on me years back (before I knew better), when a Nurse Practitioner (I have nothing against them, and know some great ones, but since they were bandied about as a cure-all in a comment above I will specify) said 'oh you have good insurance, I'll give you this new antibiotic' (that, by the way, is useless for the condition you have). Needless to say, 5 days later I got a friend to call in a prescription for amoxicillin which I filled, sans prescription card, for $4.

    Js290- nothing personal about the NP comment, but if you think the majority of your healthcare dollars go to the actual physician (or nurse practitioner), you are sorely mistaken (can't find a great reference right now, but after you take out overhead, medical billing, etc., the doctor's aren't making out as well as you might think).

    • js290 13 years ago

      My point about NP's, RN's, PA's, or what have you, is the supply of healthcare providers would go up and the price of healthcare would come down. The last thing the AMA would want is a "proper" valuation of an MD degree. As I understand it, the NP and PA's that practice at urgent care facilities are coerced by law to be supervised by a MD.

      As a consumer, where the money goes after I choose to spend it is really none of my concern. I'm more concerned about knowing up front how much I'm going to be spending.

      One thing to point out is elective surgeries (plastic, lasik, etc) actually do compete on price, and to no surprise those prices do keep coming down.

      • Victoria 13 years ago

        I understand your argument, but my point is that no matter how much you flood the market with practitioners of any sort you will not affect the price of healthcare THAT much because most of the bill you pay does not go to the practitioner (NP, RN, PA, MD, or *shudder* ND). Also, from my experience, whether you see an NP or an MD you pay the same office fee: the NP gets a lower salary and the corporation pockets the rest.

        Yes- PAs and NPs must be 'supervised' by an MD, but that is generally a loose term for 'is there a doctor in the house?'. I've commented on another post about my skepticism of th effectiveness of medical training to encourage actual thinking while practicing medicine, however, theoretically, physicians have the education to understand the mechanism of action of drugs so as to prescribe one that actually works for what you're treating… unlike my experience above.

        • js290 13 years ago

          FWIW, I pay my dentist cash for my dental cleanings. I see now reason why I shouldn't be able to negotiate some fair rate of exchange directly with any other service provider (be it healthcare or otherwise).

  6. Andrew 13 years ago

    I'm using a standard definition of market forces.

    market forces

    Forces of demand and supply representing the aggregate influence of self-interested buyers and sellers on price and quantity of the goods and services offered in a market. In general, excess-demand causes prices and quantity of supply to rise, and excess supply causes them to fall. – emphasis mine [source]

    In this case, the influence of self-interested buyers is wholly disconnected from price. Supply and demand (in terms of number of procedures available/required in the market) do not influence price either. Each individual represents the max limit on the demand curve regardless of the number of points in the distribution. Rather, there is no demand curve, only a point representing an equalized point of maximum (and minimum) demand.

    The pricing mechanism is a function of what the economy (personal and aggregate) will bear and the theoretically infinite self-interest utility value of life-and-limb-saving procedures/treatments.

  7. Emily 13 years ago

    I hardly even know where to start, but an important bit of information to add is that most of our healthcare dollars (something like 60%, if I recall correctly from a Gary Gottleib MD lecture to the Harvard med students 3-4 years ago) are spent rather futilely in the last 6 months of life. Therefore you are looking at a situation where you are under the gun, you have to pay, (but then you die anyway). Any rational system for containing healthcare dollars will have to look at sensible palliative care first, and that's not a popular political subject.

    As to my own situation, I still take insurance, rather liking the patient population. In my field most places I can live without taking insurance and work on the market, which would be fine by me too. I have my system very streamlined so the business of taking insurance is not as heinous as it is for most everyone else. There's enough work (even in my town which is literally 2-3 towns away from Newton that has the distinction of having the highest per capita number of psychiatrists in the *world*) I could see people 24/7 so I'm not worried about excess supply of psychiatrists any time soon. Cost and payment is a big part of the discussion but that may be a bit isolated to psychiatry – and plastic surgery and dermatology, etc.

    For the most part the health-care market is completely insane, with incentives directing patients to follow the wrong advice and doctors/hospitals to deliver the wrong care, or spend much more time "documenting" good care than delivering it.

  8. Andrew 13 years ago

    Just saw this on the blog of Jerry Coyne, author of Why Evolution Is True

    “As surgeries go, it was a minor procedure. It took only a few hours and I was out of the hospital that day, within an hour after waking up. And all went well: I’m fine now.

    But the bill came yesterday. I’m putting it up just so you can see what these things cost in America. The cost of just the surgery was $32,094.84. That doesn’t include the pre-operative and post-operative visits, the fees for the awesome anesthesiologist, nor the two MRIs I had to produce scans to help guide the surgeon. All told, the total bill would be close to forty thousand dollars.” [source]

    This is just the 2nd page of the bill…

    Yes, if you notice in the image, there’s a charge for $8,240 for the first 30 minutes… which was apparently a discounted introductory rate because the next 15 minutes cost $7,064!

    One commenter:

    “As an Anesthesiologist practicing in Canada, I can tell you that the charges levied for the drugs you received are anywhere from 5-10 times the wholesale cost (the cost of what our hospital would pay) for these agents. This degree of profit margin would make a used car salesman or a mob loan shark blush.”

    Yep, that’s 5-10 TIMES markup (500%-1,000%). Of the various retail markets I’ve worked in, markups have ranged from about .3-1 times the wholesale cost (30-100%). And… the margin usually goes down as the pricetag gets higher.

    Anyway, it’s worth reading the rest of the post.

    • js290 13 years ago

      Back in the Spring of 2006, I mistakenly went to the ER for a cut chin. I sat there for 4 hours regularly asking the attendant how much the sutures were going to cost. She couldn't tell me. They finally get to me. 15 minutes and 4 stitches later, I'm off paying my $150 co-pay. As it turns out, my insurance paid them another $450 for a total of $600 for 4 friggin' stitches. The hospital made "adjustments" and sent me a bill for another $200 or so. All told, they charged my insurance company about $1000 for 4 stitches. They could not tell me while I was there how much they were going to charge. Had I known before hand that they were going to charge $250/stitch, I would have walked out and driven 2.5 hours to see my physician cousin, who would have sewn me up for a nice bottle of whiskey. It would have even been okay had they charged me some nominal diagnostic fee so that I could make a better choice. I now know about urgent care clinics. In another incident later in 2007, I went to the urgent care clinic. They took a look at my other cut and put a seal over it. All done for about $175. It healed nicely.

      Like you observed in this blog post, we're not anywhere near a laissez-faire free market healthcare system. Does it really cost $40k to do surgery? Or, is our broken system fixing the prices somehow?

  9. Justin Foerster 13 years ago

    Andrew, finally catching up with my feed reader and I had to comment.

    First of all, holy crap, keep writing. I’m loving your posts.

    This hits home to me. At the beginning of August, I had a relatively not too bad but still pretty nasty bicycle accident. Front tire hit a curb, next thing I know my face is on the ground. With a nasty cut on my chin and three broken teeth. Went to a ER in an ambulance where they strongly suggested a CT scan because of my “head” injury. To the best of my ability, I try to tell the guy that I don’t want a CT scan because I fell on my chin and mouth. He kept pressuring me–“But you have insurance, man”–He kept pressuring me until I gave up from exhaustion and doubt about my own perceived condition.

    Hospitals and ERs are vultures, man.

  10. BigJeff 13 years ago

    I'd just like to point out that in spite of the obscene markup for certain items ($50 Tylenol, $8k for a half hour of office time, etc) the average profit margin for hospitals is only about 5%, and a large portion of hospitals (about a quarter of them) are losing money.

    You've got to remember that you're not just paying for their time, you are also paying for their risks (i.e. malpractice insurance and such) and probably most of all you are paying for some extremely expensive equipment.

    For example, in many areas (particularly the east cost) OBGYNs are getting out of the baby delivery business because they can't break even, in spite of a $20k average bill for a delivery. Doesn't that just blow your mind, and perhaps make you consider that there is more than one side to the story?

    For myself, I wish insurance would go back to being real insurance. That is, you gamble with the insurance company on the likelihood of your getting sick/ill/whatever, and if you get sick/ill/whatever the insurance company pays for whatever the doctor deems necessary (after whatever deductible, of course). Negotiations with the doctor for anything other than absolute price should not be possible (that is, refusal to pay for services already performed, like various diagnostic tests, should not be possible for the insurance company).

    That does pose problems, however, because it opens things up for abuse by doctors and hospitals. However, that can be mitigated by things like discounted rates for going to less expensive hospitals/clinics, which insurance companies would be quick to implement, and competition between hospitals and clinics would shoot up. I believe that forcing insurance companies to act like real insurance instead of allowing them to be the arbiters of all things health care would go a long way to fixing the plethora of problems with the US health care system.

    What you really need is a way to create a feedback loop between the customer and the doctor/hospital, so that doctor/hospital prices influence customer choice, and customer choice therefore influences doctor/hospital prices (that is essentially what your post says). What I described above I think would create a weak feedback loop. I don't really see how to get a stronger one without eliminating health care for the majority of the population. Insurance must be involved, because procedures are simply too expensive for the majority of people to afford, and that isn't like to change much considering hospitals fairly moderate average profit margin.

  11. Takae 11 years ago

    hello!,I love your writing very so much! proportion we keep up a correspondence extra about your post on AOL? I need an expert on this area to resolve my problem.

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