The New York Times published an interminable article on health care recently. Plenty of facts — how scrupulous are these journalists! — but the article displayed absolutely no comprehension of the basics of cause and effect. I was left wondering about the whole point.
The article details how the health care system rewards specialists to an extraordinary extent. For example, if you want a minor dermatological operation, you end up paying a half a dozen different layers of service providers. You cough up thousands for a very simple operation, have no choice, and are offered no explanation. The article recounts examples: $500 for wart removal, $25,000 for the removal of a white spot, $14,407 for a tiny scar removal.
It seems like what it is: a racket.
But how does this happen and why? The article is overtly silent. But the deeper overtone here is that we need some kind of regulation to stop this patient exploitation. After all, how else can we stop different layers of production from charging tremendous amounts for their services even as the customer feels helpless to stop this practice?
Well, maybe there is something we can learn from the restaurant industry, a sector where there are just as many production layers and potential specialists, yet somehow, mysteriously and magically, prices keep falling.
So let me tell you the story of lunch that same day. I was at a startup luncheon spot. The waiter came over and announced that the place was offering a special that day: $5 bottles of wine.
I almost couldn’t believe my ears. You can’t even get a bottle of wine at the store for that low a price! Why not just come to this place instead of going to the store? Remarkable.
How can they make this work? The waiter’s theory was surely wrong. He said that they sell tons of it every Sunday — making up in volume what they lose per unit. On this particular point, it’s a good thing he is not in charge. You lose more on volume if you lose any per unit! More likely the wine is “loss leader,” something that draws people in to spend on food. Somehow they make it work.
I’m not too fussy about wine, but this stuff turned out to be pretty grim. Even for me, it was rough. Of course, I could have sent it back and paid for a $20 bottle like most places sell. But did I? Nope. I was too intrigued by the wonderful reality that I had received a full bottle of wine for $5! I wasn’t going to let that opportunity pass me by.
In any case, whenever I have a bad wine, I reflect on how little we actually know about how wine tasted in centuries past. Did the king of France in the 14th century have access to as high a quality of wine as we have today? Or was his best wine the equivalent of a screw-top jug today? Hard to say, really. Maybe our worst wine was his best wine. We really can’t know for sure.
Then it was time for food. I ordered a burger. The price was posted: $7. I could have bought a more expensive burger, but I didn’t. So the total tab: $12. Again, this is for a bottle of wine and a burger. The result was an extremely happy mouth.
Now, let’s just replay this situation according to modern health care rules, which is to pretend that the food market plays by the same rules as the medical market.
You walk in and ask about the special of the day. The waiter wants to see your food insurance card. So you dig around and find it. He points out that you have a high deductible. This means you have a minimum amount to pay if you happen to order anything that is not covered on your food plan. But you don’t happen to have your food plan on you, so you really don’t know if burgers and wine are covered.
In any case, you order wine, but there’s only one kind available. So you ask the price. They don’t know. They are stunned that you would even ask. It will show up on the final bill, and much of how much you pay depends on your food planners and the plan you’re on.
Fine. Let’s move on to the meal. You’d like a burger, but you need to know the various options. Again, the waiter points out that the need to have a burger is a matter of human dignity. Human beings cannot and should not be tainted by issues of choice over what you’d be willing to pay for. This is why we have food insurance: so that no one may ever go hungry.
But wait just a minute. What if you’re actually concerned that you’ll get too much to eat? What’s the point of paying for tons of things you don’t actually want?
Plus, the only cheese I truly love is pepper jack. I’ve tried cheddar, provolone, American, Swiss, and all the rest, but I only actually connect at a deeper level with pepper jack. Criticize me if you want. It’s just the way it is.
The waiter rolls his eyes: the burger experts know what is best. He has no idea why I’m being such a problem eater. I should be a “good eater” just like “good patients” in hospitals and just accept what is coming to them. This is how we go about doing our part to serve the common good.
Several months later, you finally see the bill for your meal. Part of it is paid by the food insurer and part is paid out of pocket. The hamburger fryer has his bill, as does the bun person, and the waiter gets his cut… well, you get the point.
There is a huge number of specialists involved here! We dare not deny them their income, else we find ourselves without food! Never mind that the bill is through the roof. Hundreds of dollars, even thousands.
This scene has a lot in common with the way American health care operates. It is not a competitive market. It is something else. It is subsidized, truncated, planned, protected from competition, replete with scams and rackets, and walled off from actual consumer choice.
How to fix the problems with American health care? The last thing we need is another government plan. We need to completely blow up the current system, removing every aspect of compulsion from it and unleashing the forces of the market to make sense of the entire sector. Until we do that, none of it will make sense, costs will keep rising, service will grow worse, innovation will suffer, and consumers will not be in charge.
Now, I’m quite sure that the reporters for The New York Times have gone out to eat in New York City from time to time. There is a menu. There are prices. The consumers pay. The producers serve.
This is how the world works. It’s how we function in that world. So how can these same people write our health care laws and not notice the extent that the market is not an authentic market at all? If you imposed this system on any sector of life, you’d make a terrible mess. That is exactly what we have in health care today.