A Couple More Thoughts About Healthcare

Back on my latest I’m-going-to-be-blogging-about-healthcare post, reader Seth makes a few points in the comments. Here’s the first one:

Making healthcare cheaper by saving money on billing data, etc. is saving money on clerks and bookkeepers. Whether the amount is large or small, it has no effect on the amount of healthcare provided (except perhaps by doctors who do their own billing, of which I know of none).

At first I thought Seth was simply wrong, but when I thought about it some more, I realized the reason he’s wrong is more complex, and to the extent that he’s throwing my own words back at me, I’m wrong too. Seth is referring to the third item I listed:

The reason some people can’t get healthcare is because it’s a scarce commodity: There aren’t enough doctors, hospitals, nurses, drugs, and medical equipment to give everyone the care they want.  That some people can’t afford healthcare is merely a symptom of its scarcity.

I overstated my case in the last sentence. I was thinking of pricing in the very short term.

For example, when a hurricane does unexpected amounts of damage, there’s often a sudden spike in the price of building materials, especially wood for boarding up windows. This is often denounced as price-gouging, but the economic reason for the high prices is that wood has suddenly become scarce relative to the demand, and buyers bid the prices way up.

Legislatures can pass anti-gouging laws, and politicians can crack down on suppliers, but none of those things can increase the amount of wood. If wood prices are held low, it changes who gets the wood—it now goes to the people who get there first, rather than the people with lots of money—but there still isn’t any more wood to go around.

A similar problem would arise from any attempt to hold down healthcare costs through price controls or through single-payer bargaining power: Healthcare won’t be just for the wealthy anymore, but there still won’t be any more of it.

(Actually, history suggests that the wealthy will somehow find a way to prevail, but that’s another story.)

In the longer term, however, the supply of healthcare is not fixed. People involved in the prodution of healthcare—from doctors to hospitals to pharmaceutical companies—will provide more healthcare if it becomes more profitable for them to do so.

So, for example, reducing the clerical costs of operating a doctor’s office increases the efficiency with which patients’ money ends up in doctors’ bank accounts. The medical professions become more profitable, and more doctors enter the field, providing more healthcare.

(Other outcomes are possible. Instead of more people becoming doctors, it’s possible that doctors will start working longer hours, which still leads to more healthcare. Alternatively, maybe instead of the saved clerical money going to doctors, it could end up in the hands of the patients in the form of reduced fees. This would not lead directly to an increase in healthcare, but presumably the patients would spend it on something that improves their lives, so it’s still a good thing. Technically, they could even spend the extra money on more healthcare.)

Seth’s other point is this:

A problem with your solution to the problem of pre-existing conditions is that it isn’t clear how to attribute costs with multiple causes (e.g. osteoporosis found during coverage by one company, person falls off a ladder while covered by another, and gets a lot more bones broken than someone without osteoporosis would). But I suspect the companies would come up with some way to handle that, mostly because they’ll be on both sides equally so won’t really care.

Yeah, that’s just an idea I tossed out, and it needs a lot of fleshing out. I’m sort of assuming it’s not that hard because insurance companies already make these kinds of decisions about pre-existing conditions. It’s just that now there’d be two companies arguing about it. If insurance laws required that one of them has to pay, they’d probably work out a solution.

I imagine a system similar to no-fault auto insurance: Your current company pays for your treatment, and then they try to collect from previous companies for pre-existing conditions. I think companies on the hook for pre-existing conditions would probably try to unload them on the new insurance companies. For example, the company on the hook for the osteoporosis might pay the new company $20,000 to take responsibility for the condition. It’s sort of like having people with pre-existing conditions come with a signing bonus for their new insurance company. As the system matured, the companies would probably create a clearinghouse to make these transactions more efficient.