Health Care Bill
The Health Care Fiasco
Only a large monopoly could go about the gargantuan task of restructuring the health care industry and markets in the manner we have witnessed in 2009. It is surreal to watch. We could talk for hours on the media coverage alone. Democracies were not made for accomplishing such a task. They are intentionally committee bound, inefficient and filled with compromise. There is no avenue for a monopoly to replicate innovation as inspired by thousands of experiments and failures.
If we wish a creative, low cost, reliable and adaptive health care system, we need to inject a complex system into the industry. Currently it is so highly bureaucratic and influenced by government regulated spending that innovation has no chance to drive down costs or spawn varying service and price points.
A complex system in health care would be a free market. To use the food industry as example, costs have declined for decades due to technology and productivity. The government subsidizes means-tested individuals, not institutions.
I took a few hours to write up the ingredients necessary for a free market in health care. Not that it has any practical chance of being implemented. But a free health care system is possible, and it could have 100% coverage without government mandates. My estimate would be that it would cost about 7-8% of GDP, which is a far cry from the 15+% of GDP that the government controlled system now costs.
Characteristics
We need no multi-million dollar research to predict what the complex system looks like. The salient points include:
- No good can come from employer based health care. The autonomous user agent, the consumer, must be self-organizing and in charge. The tax sheltered employer system is easily changed to be revenue neutral for the consumer. It also solves the out-of-work and uninsured dilemma.
- Competition by providers. No market can work without innovation. Innovation requires evolution. Evolution depends on competition. Bureaucracy or committee are not substitutes. Just as importantly, competition will encourage scale free networks without which the industry will remain inefficient.
- Information. Complex systems depend on communication and information to work. Agents in the health care industry need information on provider pricing and effectiveness, and consumers. We suspect that if consumers were in charge of spending, provider information would quickly and naturally evolve. Imagine a store without prices. It could not survive a free market. If the public is illogically dead set against sharing their information (credit is already shared), then provider information alone would reduce the cost of health care by hundreds of billions of dollars a year. The reason is simple; absent a market, prices within even small geographies will vary by hundreds of percent regardless of quality. Research confirms this to be case in health care. A market will rationalize pricing almost immediately. One of the key debates by the Obama administration has been how to replicate this phenomenon with bureaucrats. The dirty secret is that there is no mathematical method of doing so. Ask Russia. It is one example of how complex systems are more than the sum of their parts. Controlled systems most definitely are not.
- A drastic reduction in the legislation restricting and describing diagnosis and delivery systems. We always get into trouble when we pretend to know the solution or end game of evolution (i.e., innovation). Imagine if the government wrote regulations on PC use. We do not constrain Apple on the development of their IPod. Ants are not told how to forage for food. The food industry is not told how to collect, store and deliver their product. A significant portion of health care’s incredible cost is that market innovation on productivity, specialization of labor, and technology have not been allowed to infiltrate the industry (if you want to see spontaneous combustion, take an efficiency expert to a doctor’s office or hospital). This government intrusion is bureaucracy at its worst. Adaptability and evolution is unpredictable and emergent. Regulation which presupposes the solution is its nemesis.
- A high risk pool for the uninsured. We also expect that health care insurers would quickly offer a catastrophic plan that would be very inexpensive. Health insurance is not health care. It is insurance. Allow it to work. Allow them to compete across large populations. Get them out of paying $20 deductibles. It destroys the self-organizing, autonomous behavior that creates a market. And it is not insurance.
- A revamped or privatized FDA. It is the single highest cost of innovation. A complex system or market in approval would work much more effectively. BTW, Moody’s is no longer an independent agency, and one of the reasons it failed in its fiduciary duty during the financial crisis. That issue has yet to be addressed by any regulation.
- If governments insist on subsidies, they may do so only to help individuals procure plans offered by private organizations. This intrusion on the market would be better accomplished at the state level (to encourage plurality and therefore experiment and failure), and keeps government out of the management of health care as much as possible, allowing the complex system to work.
- Tort reform. The cost to the system is much higher than realized. Every country with socialized plans relies heavily on tort legislation. Our current version of highly regulated health care is partly the worst of both socialized medicine and free markets since tort law is omitted in a highly regulated environment. Innovation and adaptability rely on transaction and contract efficiencies, along with the penalties that implies. It does not rely on barriers. Current tort law in many cases does not even address the issues it purports to cure. We either believe that individuals generally choose ethical approaches as the most effective method of furthering their self-interest, or we do not. The law in general must choose whether to protect, punish but ultimately nurture the agents in the system, or spawn parasites. Is the fox in charge of the hen house? All other nations believe so.
- The tax laws regarding charitable contributions must be prejudiced in their favor, over government intrusion. Markets, like complex systems, depend on charity for innovation and emergence.
There’s a few more, but you get the idea.
Caveat
The biotechnology industry will inevitably change the foundation of medicine and more than likely, life as we know it. Like the industrial revolution, the change will be an avalanche. That we consider anything but a complex system capable of constructively adapting to such a landscape is terrifying to contemplate. It will tear down industries, upend bureaucracies, and threaten the very foundations of inertia bound societies. No committee of politicians with self-election incentives, nor a department of career bureaucrats, is equipped to handle the trillions of decisions that will be made, regulation or no.
Conclusion
Our economies are complex systems. The story of self-organizing, autonomous agents is the story of evolution and humanity’s climb out of the cave, halted only by repression of that choice by bouts of corruption, fascism, and any number of government structures that rob the system of its self-determination. Supported, they can take us to the stars. Hampering and destroying them will impoverish us all.
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