The Health Care Fiasco

If the goal is a creative, low cost, reliable and adaptive health care system with 100% coverage, the answer is surprisingly simple; inject a complex system into the industry.  Currently the industry 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 simple estimate would be that a health care system exhibiting complexity would cost about 7-8% of GDP, which is a far cry from the 15+% of GDP that the government controlled system now costs.

Ladies Benevolent Institution, Montreal, QC, 1909 by Musée McCord Museum, on Flickr

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.  Media coverage is surreal.  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.

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, which preserves autonomy and self-organization.  Think of it; governments hand out food stamps rather than controlling super markets.  Why do they control 90% of hospitals?

No multi-million dollar research projects yield more accurate information than we already know about the topology of the complex system to drive adaptability and innovation and a lower cost curve.  We must introduce a free market as described in summary in the article on pricing commodities.

Self-organization

Direct supply and demand

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 equals uninsured’ dilemma if consumers directly purchase their insurance.

Insurance obstructing health care

Health care insurers also unnecessarily intervene in the complex system of health care. Catastrophic plans with higher deductibles would drastically lower both transaction and delivery costs.  Health insurance is not health care.  It is insurance.  Allow it to work.

Insurance which pays all costs destroys the self-organizing, autonomous behavior that creates a market.  And it is not insurance.  A high risk pool as in other markets could easily handle the relatively few that remain uninsured.

Gradualism

Process regulation

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.

Innovation barriers

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.

Robustness and duplication

Competition

Currently there is little competition by providers; they are protected by state.  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.

Accessible information

Complex systems depend on communication and information to work.   Autonomous agents (most importantly consumers) in the health care industry need information to weight their decisions.  We suspect that if consumers were in charge of spending, provider information would quickly and naturally evolve.  To illustrate, imagine a super market without prices.  It could not survive a free market.

But this is the state of affairs in health care where doctor offices, hospitals and other providers do not compete on readily available prices.  The resulting price variance even in small geographies must be in the hundreds and thousands of percent and unrelated to quality or effectiveness; it is impossible to be otherwise.

Imagine Kroger’s selling milk for $2 while Harris Teeter sold it for $350.  That is the current state of health care, policed only partly by insurance companies attempting to minimize cost.  Notice that without direct payments by consumers to providers, any exercise of their choice tends to drive costs up rather than down.

If the public is illogically dead set against sharing their personal information (credit is already shared), then provider information alone would reduce the cost of health care by hundreds of billions of dollars a year.  One of the key debates by the Obama administration has been how to replicate this cost-curve 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.

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.

Amenable landscapes

Rule of law and tort reform

The cost to the system of current case law 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.

Tax law

The tax laws regarding charitable contributions must be prejudiced in their favor over government intrusion.  As alternative channels, charitable organizations increase the complexity of the system, which increases innovation and emergence.

Biotechnology

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.

Download Health Care Fiasco

Photo courtesy of Musée McCord Museum on Flickr