THE AMERICAN CONSUMER...

THE AMERICAN CONSUMER IS NOT A GENIUS. Given the sheer variety and innovation Andrew Sullivan exhibits in an average day's adjective choices, there's little doubt that he's a bright guy. But his understanding of health economics could use a little work. Today, he's been purring with pleasure over Mitt Romney's bill, and doing so for all the wrong reasons:

One reason we have a healthcare cost crisis is that the genius of American consumers is kept at arm's length in the healthcare universe. If you establish a base minimum of insurance, subsidize individuals who need financial help, and mandate a universal requirement, you then force everyone to pick and choose from a variety of insurance plans in an insurance "exchange". Inevitably, in such an exchange, you're going to have intermediaries trying to sell various policies, market them, and provide clear consumer advice about what's in them. You get a real market, in other words, where consumers can see trade-offs and make sane decisions. (The current exchange in Massachusetts is currently restricted for smaller businesses, but the principle holds for a more general application.) Make co-payments a percentage of the actual price of drugs, rather than being a standard lump sum, and you could ratchet up the market impact still further.

The "genius" of American consumers? I had no idea that the enthusiastic consumption of total crap qualified us for membership in Mensa. Alright, let's go through this, but slowly: Health care, as it stands, is a supplier's market, which is to say that the suppliers of medical technology and health services exert far more power than individual, or aggregate, consumers of health goods. Sullivan's implication is that this power imbalance is a simple trick o' the light, easily fixed by forcing individuals to bear more risk. Based on that, Sullivan would not qualify for Mensa.

The problem here is that health care is not a traditional good. If I shatter my leg while rock climbing (�cause I'm extreme like that), call an ambulance, and find I don't like the hospital's pricing scheme or service explanations, wandering on home is not really an option. Now up the ante. If your wife has aggressive breast cancer, but you think the drug Avastin, which costs $100,000, is excessively priced, you don't get to wait around. Your wife. Will. Die. And Genentech, Avastin's producer, knows that. Genentech can wait for you to come around, but you can't wait for Genentech to be visited by the ghosts of Christmas past. So they will win, and you will lose.

The secret of the American consumer is not genius, but market share. There are so many of us, and we have so much money, that when banded together we can force enormous efficiencies and cost-savings out of suppliers. But we don't actually coalesce into purchasing cooperatives. What we do is patronize large retailers who purchase on our behalf. Enter Wal-Mart, or Costco. They, and retailers like them, act as countervailing powers to major suppliers, leveraging their enormous market share for better prices. Currently, some of that work is done by large employers, working in concert with large private insurers. Under an individual mandate in a fractured insurance system, less of that work will be done, period. Neither set-up restores enough power to the buyer to force the market back into equilibrium, much less into a balance favoring the consumer.

What would -- what has -- is to make government a purchaser. The Veteran's Administration, through centralized purchasing, gets their drugs for 50-80 percent less than the private insurers participating in the new Medicare Drug Benefit. Canada gets theirs for 50 percent less. Governments are simply bigger than competing insurance companies, and they can thus exert more leverage on suppliers. And, unlike private insurers, the government doesn't have to add in a profit margin atop the price. So they can leverage a larger market and have fewer extraneous costs -- that's why countries with nationalized health systems have lower per-service prices than we do, and why we spend twice as much, per person, as the highest spending universal system. Were the American consumer really such a genius, he'd demand that his country emulate the lower-spending, higher-performing systems of Western Europe and Japan. But the American consumer is not a genius and, worse yet, he has a lot of self-interested ideologues and plutocrats convincing him that the path of wisdom and intelligence is the one that proves the ideologues right and makes the plutocrats rich. And the American consumer is a weakling, because all though he knows better, he ends up listening to them.

--Ezra Klein

You need to be logged in to comment.
(If there's one thing we know about comment trolls, it's that they're lazy)

Connect
, after login or registration your account will be connected.
Advertisement