One of the biggest problems we face as a nation is the dramatic rise in health care costs. Some of this is to be expected and even welcome. As new medical technologies are invented and new cures and vacinations are discovered, people will willingly pay more to take advantage of these new life enhancing and life expanding medical breakthroughs. However, the cost of general care now easily surpasses the rate of inflation, leaving nearly 45 million citizens without health insurance.
Arnold Rehman has a very interesting piece on the state of the US health care system in the New Republic. Rehman argues that the market for health care does not represent the typical marketplace and thus should not be subject to the same freedom of the marketplace as are most other goods and services. On this point, I agree with him, but strongly disagree with his conclusions:
During the past four decades our health policies have failed to meet national needs because they have been heavily influenced by the delusion that medical care is essentially a business. This delusion stubbornly persists, and current proposals for a more "consumer-driven" health system are likely to make our predicament even worse. I wish to examine these proposals and to explain why I think they are fundamentally flawed. A different kind of approach could solve our problems, but it would mean a major reform of the entire system, not only the way it is financed and insured, but also how physicians are organized in practice and how they are paid. Since such a reform would threaten the financial interests of investors, insurers, and many vendors and providers of health services, the short-term political prospects for such reform are not very good. But I am convinced that a complete overhaul is inevitable, because in the long run nothing else is likely to work.
Most economists agree that many of the fundamental problems in health care arise from problems that markets do not consider internally, such as adverse selection
, asymmetric information
, and moral hazards
. Rehman argues that the general direction of the US health care system - toward a consumer oriented system he refers to as "consumer-driven health care," or CDHC, is doomed to failure. While the more individualistic oriented CDHC system does in fact negate some of the advantages of insurance, specifically the pooling of risk over a large population, Rehman seems to neglect the very real advantages that CDHC can have in taming the problems that the marketplace doesn't consider.
The creation of Health Savings Accounts (HSAs) that combine high deductible health insurance plans with savings accounts that can be invested and gain interest, and most notably are owned
by the individual consumer of health care, move the health care system to a more genuine and informed marketplace. Whereas typical for-profit health insurance plans practically beg doctors to take advantage of patients who lack information on what types of care they really need or should receive, HSAs encourage consumers to "shop around" for care that best suits their needs and to save money. They also encourage consumers to avoid unnecessary trips to the doctors for head colds or the flu, which drive up insurance costs for everyone else, since even meager costs are pooled in insurance.
How does this all relate to baseball? Two words: Juan Gonzalez
. In baseball, free agency is a common occurence where a player is free to put his talent on the market and find the bidder of his choosing. Juan Gonzalez, a fantastic baseball player and former MVP back in his hey-day was heading towards free agency with the Texas Rangers back in 2000. Fearing Gonzalez would bolt the team, the Rangers traded him to the Detroit Tigers for several marginal players, among whom only one - Francisco Cordero
- was successful. Gonzalez went on to have a terrible season, which many attributed to a nagging back injury.
As part of the free agency period, the former MVP Gonzalez was subject to several physicals from many teams, eliminating any potential economic problems such as asymmetric information about Gonzalez's health. Gonzalez ultimately signed an incentive laden deal with the Cleveland Indians and produced a monster season, batting .325 with with 35 home runs and 140 RBIs. Nonetheless, Gonzalez still didn't get the coveted multiyear, megabucks deal he had coveted while with the Rangers. Potential consumers of Gonzalez's talents were well aware that his back was still shaky at best and were wary to sign him to any lengthy deal.
Since his first year with the Indians, Gonzalez has been relegated to small base pay salaries with large performance incentives, and his performance has been shaky at best, including another injury plagued 2004 season with the Kansas City Royals. The analogy of major league baseball's free agency market to the health care market (while far from perfect, but hey, this is a baseball blog so take what you can get) shows the advantages of consumers who are empowered with information. Whereas baseball owners are always looking for more information to enhance their ability to make "purchases" of players talents, health care consumers have been generally left in the dark, a major concern that CDHC can help alleviate to a large extent. CDHC is not a cure all solution, but could be a giant step in the right direction.