In Healthcare — Governments Should Manage Nets, Not Markets

A Single Payer alternative for a capitalist economy

We are often reminded that America is the only developed nation without universal healthcare coverage. America also has the most expensive healthcare system (by orders of magnitude) in the world, from which you would immediately conclude that the answer is obvious — implement a single-payer system. Many politicians have made it a career goal to enact a single-payer system, praising it as the obvious solution.

The phrase ‘single payer’ is really more a reference to a healthcare philosophy than a specific policy. Whether the U.S. adopts a full coverage single payer model where the government manages and pays for everything or merely pays for a minimum safety net is critically important.

Unlike car insurance, healthcare comes uniquely wrapped in moral concerns, with unique boundary conditions that must be designed to be upfront otherwise the system unravels.

Boundary Conditions:

  1. Everyone gets emergency care, regardless of their ability to pay
  2. Everyone must contribute to an emergency healthcare insurance policy
  3. Children, the poor, and the mentally ill require unique consideration

Design Goals:

  1. High healthcare quality
  2. Healthcare wait times are short
  3. Healthcare is financially efficient

Today, because the consumer is not a customer (i.e. makes payment decisions), the system is not optimized for consumer health. If you’ve ever received medical bills, you understand this.

The customer of the healthcare provider is the insurance company (i.e. the payer). The customer of the insurance company is the employer. Because no one is financially incentivized to improve health outcomes, America continues downward on a spiral of sickness.

Proposed Structure:

  • Catastrophic Single Payer: Everyone contributes to a government insurance fund (i.e. single payer) covering catastrophic care.
  • Mandatory Savings Plan: Everyone is required to save ~10% of their pre-tax income to be spent on routine healthcare procedures.
  • Social Security: Everyone pays a tax to provide healthcare for the poor, children, mentally ill, and severely disabled.

Ideal Guidelines:

  • Everyone should have insurance they can afford.
  • No one should go bankrupt from healthcare payments.
  • Employers should have nothing to do with your healthcare.
  • Regulation kept to a minimum, maximizing long-term innovation.
  • No one should be trying to get “insurance” for pre-existing conditions.
  • Free market forces allow efficient distribution of products and services.

The customer always wins.

The key idea in this proposed system is that people receiving value from healthcare (the consumers), also make the buying decisions and hold all the power.

The key idea is that when you pay for things, you think more critically about their value. When someone else is paying, you’ll get the most you can possibly get, because why not?

When the customer is the consumer, providers will compete for customer service, health outcomes and price.

The Healthcare Market deserves to be free.

Free markets work well because each individual optimizes for their own well-being. By doing so, society as a whole is more productive and efficient. Adam Smith defined this concept as “The unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically, is the invisible hand.”

While healthcare requires special design considerations surrounding legitimate moral concerns, the vast majority of healthcare expenses can and should be made under the guise of a free market.

In free market health care (like all free markets) the customer uses their buying power to determine the value of healthcare resources. They purchase preventative care like Harvey that isn’t covered by insurance today. They research the market, weigh the costs and make informed decisions.

A few years ago I finally built up the courage to get Lasik surgery. I researched the market (asked friends, and Yelped) comparing provider reviews and prices before finally choosing Dr. Lee in K-Town (amazing by the way). He was reasonably priced and did a fantastic job.

Of course not all health care procedures fit into the free market framework. In an emergency situation (i.e. bad car crash), you don’t have the luxury of researching the market. This is the time and place for catastrophic single-payer coverage.

The role of Government is to fill the moral holes in the free market

The free markets for private jets and ice cream operate with the same economic rules. When you don’t have enough money to purchase ice cream or a private jet, you sit on the couch and pout.

In a society as wealthy as America, we should recognize that health care is so effective, it is morally unjust to withhold it from someone because of their inability to pay. Even in wealthy nations, good people fall into circumstances where they can’t afford life-saving (or dramatically improving) healthcare due to no particular fault of their own. In 2015, researchers found that more than a quarter of Americans reported struggling with health care costs.

This is the role of government — to fill in the moral holes left behind by the free market economy.

By creating a social security net, we are effectively taking money from taxpayers to pay healthcare expenses for the needy. If you were born randomly into society, this is how you would want it to look. This redistribution of resources creates a more stable, productive, and pleasant society to live in.

A combination of free-market incentives to spur innovation, alongside a security net to catch people who fall through the cracks, leads to a world that everyone can get excited about.

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