Market Competition Doesn’t Always Work

It seems likely that the bipartisan commission on Medicare, scheduled to meet this week, will propose restructuring Medicare along the competitive free market lines of the rest of our health care system. There is some irony in this: With respect to health care, the free market has failed the American people.

For a while, the free market seemed to be stabilizing costs; now, costs are shooting up again. The free market has not protected the uninsured; more people--43 million so far--go without insurance every year. And competition has diminished patients’ freedom of choice. The level of citizen anger at being denied the medical procedures, physicians and health care insurance that they would choose must, by now, be felt even in Washington.

These failures do not vindicate the Clinton proposals that were defeated in 1994. The seeds of the system of competition, consolidation and perfervid profitability that has evolved lay in the Clinton plan itself. The president set down the formative policy in a televised pre-inaugural meeting in Little Rock six years ago, declaring that “managed competition” was the way to go. Briskly and obediently, the health care industry went.

Why has the free market failed? Physicians and other medical professionals, though not blind to their own income, clung stubbornly to the idea of giving their patients care of the highest quality, based on their own and their patients’ judgment. Now, HMOs and insurance companies call the shots and for them, quality care is just marketing talk and profit or loss is the stark reality.

In a free market, it was asserted, researchers would develop measures of provider quality and patients would patronize the best providers. This overlooks the fact that it is employers who choose which HMOs their employees may consider and employers focus first on cost.

A primary strategy of insurers trying to maximize profits has been to enroll members who won’t cost them so much. Therefore, marketing is aimed at presumably healthy people; those with a profile suggesting they are risky are avoided. Congress has tried to counter this by, for example, mandating insurance coverage for people who lose it when they become unemployed. Health care corporations, easily equal to such a challenge, agree to cover these people but at impossibly high premiums.

Or, they drop whole categories of costly clients. Recently, without advance notice, several managed care plans announced that they were dropping out of Medicare, leaving 400,000 members to search for new doctors. Other plans have abandoned Medicaid.

Such practices create a hidden, secondary problem. Obviously, the relatively poor are most likely to be unable to afford or to be shunned by private insurance. Haltingly and incrementally, the government has moved to extend Medicaid and other programs designed for poor people to somewhat fewer people. So means-tested programs grow at the margin at which private insurance retracts, and employers may shrink their coverage. Two-class health care becomes policy.

An alternative to managed competition is a nationally financed system in which a national body or several regional bodies negotiates standard fees and reimbursement schedules with providers and oversees capital expenditures of health care institutions.

Those employers who now provide health insurance for their employees would be freed of a burden that puts them at a competitive disadvantage with less responsible businesses.

It has been said that we spend twice as much on health care as Britain. Even assuming that we want to provide better care than Britain, there is ample room to cover everyone in one system of fine quality. And control of medical care would be returned to patients and physicians.

If the National Bipartisan Commission on the Future of Medicare pins its hopes on more competition, however, it will be reminiscent of homeopathic medicine, which prescribes doses of poison for patients who show symptoms of poisoning.