What Does It Mean To Have a Private Health Care System

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Well, I'm still a bit under the weather, but at least I'm up to clear broth with rice noodles.  Meanwhile, there's been a lot of blogging about my healthcare blogging. 

I'll start by responding to Matt Steinglass, who I greatly respect. 

Megan's arguments is predicated on the contention that reform will lead to the effective disappearance of private health care, and complete government dominance of both the health insurance and health care markets. That's what she means by the "camel's nose". The problem is this: countries that have the Bismarck model of universal coverage through regulated private health insurance do not move to single-payer government-controlled systems. Germany started the first Bismarck-style system 126 years ago. It still has it. France, the Netherlands, Switzerland--they all started with regulated private insurance backed by a public plan for the needy, and they all still have regulated private insurance backed by a public plan for the needy. Except for the Netherlands. They used to have a public plan for the needy, but in 2006 they scrapped it and moved to an all-private health insurance system, with subsidies for those who can't afford private coverage. What they have, roughly and leaving some bits out for simplicity's sake, is what the US would have if it passed the current House bill, then eliminated Medicare and Medicaid, and funded the system by handing out subsidies or vouchers so everyone can afford coverage. The direction that Megan envisions things "naturally" going is precisely the opposite of the way they actually went in the Netherlands over the past 20+ years.

I don't think Matt understands what worries me about national health care, or else he doesn't actually understand how the system in the Netherlands works underneath his interaction with an insurance company.  It isn't the cost.  It isn't the taxes.  It isn't the redistribution.  It isn't even the mandate, which is borderline plausible to me in the way that mandatory auto insurance is, and forced retirement savings might be:  the moral hazard is huge, because your neighbors won't let you die.

My objection is primarily, as I've said numerous times, that the government will destroy innovation.  It will do this by deciding what constitutes an acceptable standard of care, and refusing to fund treatment above that.  It will also start controlling prices.

Now, at this point in the discussion, some interlocutor starts chanting what I've come to think of as "the mantra": othercountriesspendlessandhavelongerlifespans.  Then they ask me how I can ignore the overwhelming evidence that national health care is superior to our terrible system.  Now, what's odd about this is that all of those countries do precisely what I am concerned about:  slap price controls on the inputs, particularly pharmaceuticals.  Their overwhelming evidence indicates that I am 100% correct that a government run system in the US will  destroy the last really profitable market for drugs and medical technology, and thereby cause the rate of medical innovation to slow to a crawl.

To which Matt rejoinders that all the Dutch insurance companies are private.  Indeed they are, but they're essentially tightly regulated utilities.  There's no market discovery of drug prices; instead, the prices are set by looking at an average of the rates paid by government systems in nearby countries.  The government decides what is reimburseable.  It further defines the basic health package that everyone gets, though as I understand it most people also purchase top-off insurance.  The supplemental insurance functions more like an actual insurance market.  As I understand it, there's considerable pressure to stop that.  And the markets are in peripheral services that mostly aren't reimbursed by health insurance here, either, like eyeglasses and dental. 

The things that make markets innovate--profit potential--have been mostly squeezed out of the system.  The things that hasten market discover--prices--have also been increasingly relegated to central authority.  Having something like that in the United States would produce exactly the outcome I'm worried about.  So if Matt is right, and this is where the slippery slope ends up, my nightmare will have been realized.

Perhaps this is soothing to some other conservative--one who's worried more about waits at doctor's offices, or government operation of the healthcare system.  But that's not me.  I'm fundamentally worried about a utilitarian calculus.  As long as I think that single-payer will fundamentally depress innovation, I'll remain opposed.

And I do so think.  Profits are the pull on the overwhelming majority of the innovation that actually results in a new drug or piece of equipment--not a good target, not an intriguing idea, but something you can actually use on a patient.  By pointing to the Netherlands as our possible future, Matt concedes that we'll end up removing those profits from the system.  Which I believe anyway, because how can we credibly expect politicians to hand fat profits to pharmaceutical companies now on the grounds that it will help voters twenty years from now maybe get access to new drugs?

Critics of our system say that it is horribly wasteful and inefficient.  I quite agree.  But innovation is horribly wasteful and inefficient.  It's quite common for drug researchers at mean-old profit-oriented pharma to go their entire lives without working on a drug that actually makes it past Phase III trials and into patients.  Those kinds of crazy bets are exactly the kind of thing that the centralized, rational, efficient systems that progressives like to build (or at least, dream of building) have the hardest time allowing.  And when such systems do make start spending big, they don't tend to get made where the biggest market is--i.e. the most patients with the strongest demand.  Instead the decisions are political:  which disease has the best organized interest group to lobby the government?

Those are just inherent qualities of a government system.  They're the qualities of the systems that progressives lionize in government--the reason that othercountriesspendless.  I acknowledge that it can work very well as long as there are some irrational, decentralized, uncontrolled countries in the mix figuring out how to deliver the technology you'll eventually use, for the same reason that a really surprisingly large number of children can forego vaccination without risking disease.  But at this point, the US is the only country left providing a hefty incentive for inventing new treatments.  If we stop, the whole world suffers, and we along with it.  So for all the many bad points about our system, for now, I'd like to stick with it.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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