Price Discovery and Health Care

The issue that could have been driving much of the election fracas right now if it were not for the continued flow of scandals and drama out of each of these candidates is ObamaCare costs, and frankly it could have been a winning issue for Trump coming into the last two weeks of the election even apart from the FBI/Clinton Foundation corruption/email destruction/sexting scandal that has punched the Hillary campaign in the gut.  Ironically, Trump is a past supporter (I think it is past, but I really don’t know what he believes now) of a single-payer health care system, so in theory he shouldn’t have a great political rebut to the ObamaCare problem we are about to evaluate.  But this election has proven that “in theory” nothing makes sense, and regardless of what Trump would or would not do regarding health care policy, he didn’t create or support ObamaCare and it is the cost of health care premiums and ESPECIALLY health care deductibles that are at the heart of the present mess.

This is, above all else, a matter of basic economics, not politics.  Those of us who do economics and actually find politics kind of dirty are in a brutal spot, because no one cares about the economics – at least no one who sets policy.  They care about the politics, and politics says that a headline regarding “affordable health care” and “uninsured people getting coverage” are allegedly good headlines.  In reality, it is the economics that is now overtaking the politics.  Math matters.  Science matters.  And economics matters.  Economics is math, but not merely math.  It is science, but not merely science.  It is fundamentally, human action.  And that is what we are dealing with in American health care!

Underlying the problem of skyrocketing health care premiums and especially deductibles is the indisputable fact that ObamaCare brought in a lot more people required to purchase coverage, and mandated coverage that can be quite expensive for insurance companies around pre-existing conditions.  Ignoring the societal context for both of these things just for a moment, we can all agree it is good to think, all else being equal, that more people might have coverage, and people with pre-existing conditions would have coverage.  Of course, all things are not equal, and we have to have a way to pay for this.  That way is supposed to be a bunch of healthy, young people entering the system, paying premium dollars, lowering costs in the broader risk pool.  But they are not doing so, and the bureaucracy of the whole mess has failed painfully.  The reason deductibles keep going up is because health care costs keep going up, and new premiums are not covering new enrollees with health care costs going higher as they are.  And why are costs going higher?  Because there is no price discovery in our system!

What does this mean?  It means that people have no idea what it costs when they are sick, or need surgery, or need a new limb, or have open heart surgery.  No one sees any cost associated with their care, and the supply chain of their care is deep, long, and complicated.  Costs go higher because there is no transparency, and market competition that has served as the greatest regulator of prices and services in world history across every single part of a free society forever is non-existent.  What people do not know because they have not been taught is that at the heart of a free market is this basic concept F.A. Hayek called price discovery.  Prices provide information.  We make decisions around prices.  We generate efficiencies around prices.  We see profits and wealth creation out of the dynamic process of price setting and price approval.  When that process breaks down, we get a rotten egg.  Our health care system provides stellar health care (for now), but we have too many people getting sick (often poor personal decisions), and care for sickness is too expensive, and insurance to provide for that care is unfathomably expensive (too much government interference with market mechanisms to allow for competitive pricing).  The whole system is a mess.

There are people far smarter than I who have created extraordinary alternatives to what needs to be changed about American health care policy.  My own belief is that a holistic approach would be nice – from the actual reduction of the need for health care, to the improved delivery of that health care, to improved market mechanisms around insuring those health care costs.  I have opinions on all of the above, but those are outside the scope of this article.  The need of the hour that I just cannot emphasize enough is that we continue to educate society about the importance of price discovery.  Bureaucrats and leftists can do a lot to erode our freedoms, but as long as price discovery is present, we have the needed nucleus of a free society.  And where price discovery erodes, we have the needed nucleus for serfdom.