Why Health Care Reform Will Fail
Health Care reform in America will fail. It is good to see so many publicly supporting single payer health care, but efforts at reform will fail.
The reason is overhead and administrative costs. Most Americans think that private sector companies are leaner and more efficient because they are profit driven. Ninety percent of the time this is true.
The exception is when there is information assymetry favoring the buyer over the seller. In other words, if I go to the store to buy beef jerky, the seller knows more critical information about that transaction than I do. The seller knows where the jerky came from, how much it costs in terms of storage and shelf space and how popular the brand name is. He is therefore in a better bargaining position than I am.
If, on the other hand, I go across town to buy some car insurance, than I am in a better bargaining position than the seller. Why? Well, between the two of us, I am the only one who knows how I really drive. As a buyer, I have a clearer idea of the actual business cost of insuring me than the insurer does. I am, therefore, in a better bargaining position than the auto insurance seller.
Health care is the same way. Hospital administrators, on any given day, have no idea who is going to need their services or how those people live, whether they smoke, do drugs, exercise, etc. etc. The best that they can do is build up statistical models which are prone to failure.
Many industries are subject to the weakness called information assymmetry. Financial service companies, insurance companies, and banks all suffer from this disadvantage. They have armies of lawyers to lobby congress in the hopes of creating an artificial benefit for themselves. If they didn’t, they would lose money constantly. What this means for the rank and file worker is that there is a mountain of legal paperwork to be read and signed before, during and after any transaction. This is expensive, time-consuming liability control. All of this increases overhead.
Then there is the issued of the Doctor as Double Agent. Because the Doctor is an expert in a field not easily understood by lay people, we expect the Doctor to act as an agent in our best interest. But, in a profit driven system, the Doctor is also a business man in charge of a practice. He is therefore in a moral quandary that, on the one hand, inspires him to sell you unnecessary treatment (a.k.a Supplier Induced Demand) and, on the other hand, expects him to inform you of all of your options.
American health care will likely remain private sector and profit driven. Most Americans do not understand that, in this case, the private sector is actually substantially less efficient than its government counterpart.