Much has been said about the concept of healthcare "market failure". The notion started with the (valid) problem of adverse selection and took a life of its own to imply that market principles are somehow not applicable to healthcare in any way, shape or form.

The ideas in this post are going to challenge the belief system on both extremes of the political spectrum. If your mind is already made up that either single payor or HSA/HDHP is THE only magic wand that will somehow fix all the problems in our healthcare system you may see the following argument as heresy. But I care most about addressing the folks who are willing to set ideology aside and think rationally.

So where the idea of healthcare "market failure" comes from?

From a very real problem, that Marc Kashinsky summarized so well: "How good is your health insurance". It costs more to provide needed healthcare to the sick people that to healthy ones. If you are running a health insurer this means you are pushed to "cherry-pick": not write new policies for sick people, deny care and drop coverage if you can find an excuse. Recent LA Times story highlights some of the most egregioius examples of this phenomenon in action. So the insurance market in absence of regulation really does fail its customers.

Is there a difference between private and public sector?

There is a great temptation to pin all the blame on insurer "profit motive" and call for single payor as the only solution. But is there a real difference between who owns and operates the insurers? Not really. Sick people still cost as much and the pressure to stay within budget costs is no different for public or private entities. If you look at most individual patient horror stories, you would be hard-pressed to guess whether they are about battling Blue Cross, Medicaid / Medicare or Canadian system, without being told in advance. The problem with single-payor is forcing one-size-(does-not)-fit-all rules on everyone and the problem of HSA/HDHP is cherry-picking free-for-all.

Does this idea of "failure" spread beyond insurance?

Not really and I welcome anyone to show otherwise. At the line-item level of purchasing healthcare services (doctor visits, labs, surgeries, etc) the laws of supply and demand are no different from any other market. That is when the market is given a chance to properly work, which has NEVER been the case is US despite having a for-profit system. For starters, markets work efficiently only when there is enough transparency about price and quality. Instead, US market has been perversely distorted for the benefit of the largest healthcare institutions, both insurers and integrated health systems. At the expense of individual consumers and physicians, this insider cartel has been setting the prices and terms, charging individuals x3, x10 and x100 over negotiated rates and sowing uncertainty over doctor reimbursement.

What about rationing vs. foregoing care due to inability to pay?

A valid criticism of any healthcare system that emphasizes self-pay services is that people forego care because they cannot pay. Fair enough, this is an important difference from markets for services that are not "must-have". But the alternative is rationing by public or private insurers, where neither consumer nor physician has much say. Dr. Bob aptly described the problem in his post: "Insurance Based Medicine" replacing "Evidence Based Medicine". To be clear, insurance is not going to go away anytime soon, since this is the only sensible way to deal with catastrophic and end-of-life situations. "Denial distortion" of the healthcare market due to resource limitations is undeniable. The question is how to balance the insurer's role of the "risk-balancer and steward of funds" with patients' and physicians' demand for real choice.

"Insurance failure" stems from the lack of transparency!

So if the above paragraphs describe what the insurance failure is, next step is to identify what is the root cause. I blame this on the lack of transparency, sometimes bordering on fraud. Purchasing insurance usually means buying a "pig-in-the-poke", whether you get a PPO plan or HSA/HDHP with your money or a single-payor system with your votes and taxes. If you do not have certainty over what is covered when push comes to shove and the denials are based on the whim of "care managers", instead of clear and public criteria, what is the point? I concur with William Plested, president-elect of the American Medical Association, who says insurers should be the first to go transparent.

Market failure: Is there anything left to it?

So if we set the insurance failure aside and presume that it can be fixed by completely opening up insurers' decision making to public scrutiny, mandating a sensible risk pooling and increasing flexibility to consumer and physician, is there anything left to the argument over "market failure" in healthcare? Not that I can see. This sort of functioning market may be equally unsettling to the advocates of single payor and the proponents of business-as-usual in insurance industry. But this just might be the best deal for consumers and physicians.

So here is the challenge to all participants of healthcare reform debate. Drop the rhetoric and pre-conceived assumptions. Stop ignoring inconvenient facts and rationalizing the indefensible. Propose real solutions or get out of the way of the people who do.

A famous WWI figure (and a doctor to boot) said that war is too important to leave to generals. Let's all agree that healthcare is too important to leave to experts, lobbyists and political hacks.