The “Free Market Contains Health Care Costs” Myth

Some politicians, who oppose health care reform, have offered a free market argument against regulation. The argument is that people will spend more carefully on healthcare if they have more “skin in the game,” ie. pay for services themselves rather than pay health insurance premiums. The free market is supposed to drive healthcare costs down.

The only problem with this argument is that it’s not based on the realities of the health care, but ideological thinking, analogous to the denial of the science of global climate change, or assertions that women have an internal mechanism to prevent pregnancy in the event of rape.

To illustrate this in more personal terms, why not leave it to a health care professional to explain why the private market can’t get healthcare costs down? Theresa Brown does so in very simple and compelling terms in her New York Times article, Saving Your Own Skin.  She writes:

The visceral phrase “skin in the game” keeps popping up in discussions of American health care policy. It’s the idea that if patients spend their own money on care, they will spend it more carefully, and health care costs will go down. Conservatives worry that as the government becomes more involved with health care, patients will become less responsible about costs because the money being spent — their “skin” — is not their own.

What “Skin in the Game” Literally Means

Ms. Brown tells the story of a patient of hers whose skin was literally in the game. Let’s call him John.

John had been a diagnosed with leukemia, been treated and relapsed. His only option for a possible cure was an allogeneic stem cell transplant — a donation of cells from another person, which he got.

But then he developed graft-versus-host disease of the skin in which the donated stem cells attack the patient’s body. This patient had Grade 4, the worst grade of the disease, typically fatal.

As he lost skin, leaving raw patches, the pain caused by the dressing changes was excruciating. But the medical team couldn’t premedicate him with narcotics before the dressing changes because, given his fragile state, they feared opioids would slow his respiratory function. After several weeks of treatment, he died.

What Sort Of Treatment Did John Opt For?

John had good a health insurance plan, and his family used it freely to provide him with the prescribed standard of treatment, and as much comfort and care as was possible.

The point: here was a man who literally had “skin in the game,” and the notion that he and his family, would somehow have been more cautious about his health care spending is absurd:

I can’t imagine they’d have acted differently were they paying out of pocket…Patients don’t act according to market models when the “skin in the game” is, well, their own skin.

Why Policy Matters

Ms. Brown puts this in perspective of the health care reform, and the misguided efforts to repeal it:

That distinction underlines the stark differences between the two parties on health care. If re-elected, President Obama would finish implementing Obamacare, the goal of which is to make health insurance affordable for all Americans and to make health care cheaper. Conversely, according to Mitt Romney, “The private market and individual responsibility always work best.” He has specifically taken “skin in the game” as his approach to correcting our growing health care costs.

The problem is, Mr. Romney’s market-based approach fundamentally misunderstands the nature of health care as a commodity. Health care choices made by patients only rarely resemble a penny-wise buyer who, say, needs a car and must choose between a used Buick, a new Hyundai or a shiny new Mercedes.

The Fallacy of Free Market Choices

She explains that, while automobile choices offer different levels of comfort and status, and vary widely in price, when patients need care they rarely have the options between low, medium and high-cost options. There is rarely an option at all.  She provides an analogy: Consider what choices you’d face if you broke a kneecap. Assuming you wants to walk again (you do, don’t you?), here are your options:

  1. Surgery, a cast and physical therapy, or
  2. Forgoing care completely and remaining lame for the rest of your life.

Which course would you choose?

The truth is, patients facing dire situations of illness and injury have no “old Buick alternative. When John first received his diagnosis, there was one first-line chemotherapy regimen that had the potential to save his life, and this is the only approved standard of treatment that John would receive from any oncologist in the nation. As Ms. Brown puts it:

There is no low-cost option, because there aren’t any other options that work as well for the largest number of patients…There’s care that can fix what’s wrong, and anything less is about the same as doing nothing. People typically don’t think about financial incentives, or frugality, when their very well-being is at stake. They just want to get better…My patient knew from the start that his life was on the line. Could anyone have had more skin in the game?