Responding to Sen. Johnson on Health Care

Sen. Ron Johnson (R-Wisc.) recently penned an op-ed for The Times, “Where the Senate Health Care Bill Fails.” Mr. Johnson’s moral outrage seems fundamentally misdirected, and his understanding of the free market and how it functions, particularly in regards to health care, is wholly flawed.

Rather than focusing on the 20 million people who will lose insurance over the next 10 years or the upward redistribution of wealth through unnecessary tax cuts, he laments the government’s failure in obstructing the forces of the free market and the projected deficit increases that will result from the Senate bill.

“A truly moral and compassionate society,” Mr. Johnson says, “does not impoverish future generations to bestow benefits in the here and now.”

First, the Reagan-esque tax cuts for the wealthy, which lie at the core of the Senate health care bill, impoverishes future generations to bestow benefits in the here and now to those who don’t need them. Second, the tendency of Mr. Johnson and many of his Republican colleagues to frame the moral component of health care in economic and political costs rather than the costs of human suffering and death is truly stunning.

What’s more stunning is that we Americans have largely accepted the premise that health care markets function like other commodity markets. As a result, we no longer appear to question that in the case of problems like rising premiums and deductibles, to use Mr. Johnson’s words, “a simple solution is obvious. Loosen up regulations and mandates, so that Americans can choose to purchase insurance that suits their needs and that they can afford.”

Health care is not simple, but we’ve been fooled into believing it is because of our national, zealous belief in the power of the free market and a false notion that health operates under normal market rules. I’d like to demonstrate this point by looking at the crux of Mr. Johnson’s argument:

“Layer upon layer of laws, rules and regulations have made our health care-financing system a complex mess, separating patients from direct payment for health care. As a result, patients neither know nor care what things cost. We have virtually eliminated the power of consumer-driven, free-market discipline from one-sixth of our economy.”

It’s worth noting here that no market is truly free. In his book “Saving Capitalism,” Robert Reich clearly explains how all markets are governed by rules, and those rules are not inherent, but rather set by those in positions of power, often governmental forces. So, while Mr. Johnson asserts that laws, rules and regulations alter the rules of the market, the very same could be said for any repeal of laws, rules or regulations. Each are simply means to alter how the “free” market is governed.

Still, any functioning “free” market operates under certain assumptions, namely the transparency of costs, the ability to make choices based on those costs and the ability to freely enter and exit the market.

Mr. Johnson is absolutely correct that patients are largely ignorant of health care costs. In 2013, Steven Brill wrote an exceptional piece for Time on the inconsistent prices for services set by hospital chargemasters and the lack of transparency regarding the process for setting those prices and the eventual costs billed to patients and insurers.

I’d wager to guess that almost nobody reading this piece could name the cost of a physical, even though many of us get one every year. Even worse, the cost of a physical from Dr. A might be half that of Dr. B even though their offices are only three miles apart. The arbitrary and often secretive nature of service pricing makes it cumbersome if not impossible to comparison shop. Right away, we’ve violated our first market assumption, transparency of costs.

Moreover, this lack of transparency essentially violates the second assumption that we can choose services and providers based upon those costs. But let’s assume by some miracle we all knew the cost of every service and insurance plan available. Even under these fanciful circumstances, choice remains largely an illusion.

Let’s look at insurance plans first. According to the Kaiser Family Foundation, 49 percent of Americans receive insurance through their employers. Typically those plans are far better than those on the individual market. However, your choices are rather limited. An employer might offer three different plans, all of which are packaged with predetermined premiums, deductibles, copays and levels of coverage. Not a lot of choice.

And your ability to choose services might be more limited based on the type of plan you select. Let’s say you have an HMO, which typically mandates you select a primary care physician to address your basic needs and refer you to specialists.

So you select Dr. A, who charges less for physicals than Dr. B. But what happens when you need another service from Dr. A, like an x-ray for a sprained ankle. Sure, Dr. B doesn’t charge as much for that service, but you’re locked in to Dr. A, so you have to pay the higher costs, even if by some miracle you could research those costs an endured the pain of a possibly broken ankle long enough to investigate them.

And this brings us to the final assumption of most markets, namely that we have the ability to freely enter and exit based on cost and choice. Mr. Johnson feeds us an atypical example – all but parroting his colleague Sen. Rand Paul (R-Ky.), an ophthalmologist: “Look no further than how laser eye surgery went from exotic to affordable during the years it was not covered by most insurance.”

While Mr. Johnson’s statement regarding the decreased cost of laser eye surgery is technically true, it’s incredibly misleading. Market rules actually do apply to this sector of health care, unlike most others.

I happen to wear to glasses, and I am a prime candidate for corrective laser surgery. Eye surgeons are relatively transparent about the price for this procedure, and I can easily evaluate my options and thus make an informed decision based on price and expertise. Moreover, I can choose to enter and exit this market at will because, regardless of how much I may want the surgery, I don’t need it. My glasses work fine. It’s this very fact that I don’t need the surgery now that affords me the time to comparison shop.

However, let’s look at other sectors of the health care market, namely emergency care. Let’s say I’m at home and I have a heart attack. I’m in the health care market now, and you can bet I didn’t choose to be.

I call an ambulance to take me to the hospital. Many rural and small town Americans are serviced by a single hospital, so if these folks have heart attacks, that’s where they go and they pay the prices set by the hospital at a rate negotiated by their insurance. Again, little choice.

But I’m fortunate. My town has three hospitals. Let’s say against all odds I actually know the cost of heart surgery at each of them, and in the throws of cardiac arrest, I manage to instruct the EMT to drive me to the cheapest one. Even in this most unlikely of scenarios, that’s still not going to happen, as most EMTs are required to take patients to the nearest hospital, for obvious reasons: I’m more likely to live if I’m treated sooner.

This is a perfect example of why free market policies don’t align with the reality of health care in this country. Costs are secretive; even if we learn those costs, we’re limited in our ability make choices based upon those costs; and we can’t choose to enter and exit the health care market.

Admittedly, some of those issues could and should be addressed. Health care providers should be regulated to keep the cost of services down and relatively equal within certain medical sectors and geographic areas.

However, any insurance system that remotely resembles our current one will necessarily limit choice, as the only way to control costs is to collectively bargain, meaning most of us have to sign on to limited numbers of group plans. Regardless, the unpredictable nature of illness will always prohibit free entry and exit of the health care market place.

Mr. Johnson’s longing for free market solutions to health care may appeal to our ideological sensibilities, but in a practical sense they will never work because health care does not operate like most markets. Addressing America’s health care problems will require inventive solutions based in reality, not rhetoric, the latter of which appears to be all Mr. Johnson can provide.