David R. Henderson  

A Free Market in Health Care

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Last Saturday, my wife and I got a glimpse of what a free market in health care might look like. We were driving from Monterey to Santa Barbara to stay in a rented house for the week. Along the way, my wife had a symptom. I don't want to name the symptom because I want to respect her privacy. It was a more-extreme symptom than she had previously had of a disease that she had already been diagnosed with. It happened so suddenly that it scared us both.

Just a few years ago, we probably would have looked up Doctors on Duty, Urgent Care, or some other "docs-in-a-box" facility when we hit Paso Robles or San Luis Obispo. That itself was a nice free-market innovation. But we probably would have taken an hour to find it, sit waiting for her appointment, and then have the appointment. And it would have likely been with a generalist, not a specialist.

But 2 months earlier, after much prompting from my students to get with the decade, I finally had bought an iPad. We had it with us. I was driving and so my wife got on the iPad and did a Google search. What came up was a site called "Just Answer." She clicked on the link for "Doctors and Nurses" and registered. She had two choices: (1) pay $24 and wait who knows how long for an answer or (2) pay $38 for an expedited answer. We were concerned enough that she did the latter. She keyed in her symptoms and some of her medical history. About an hour later, a specialist--a neurologist--was on her case and she and I my wife went back and forth on a "chat" feature on the site that also allowed my wife to "save" the conversation. Bottom line: deal with the symptoms while we were in Santa Barbara for a week and then get some blood tests when she returned. My guess is that she would have gotten a similar response from Doctors on Duty or Urgent Care. But we would have been slowed down, we would have paid a multiple of the $38, and we wouldn't have had a specialist.

One great thing about free markets is they tend to break out when not totally oppressed. There's an obvious reason: gains from exchange. And the web often facilitates that breakout.



COMMENTS (34 to date)

I'm old enough to have experienced free market health care--if we ignore occupational licensure laws. When I was a child my doctor came to see me. House calls were a normal thing then.

And doctors extended credit to their customers.

david writes:

House calls still happen, but labour wages for doctors are now so high that the costs generated as travel time are no longer worth the expense.

Unless you're a doctor contracted to see the employees on-site for mass regular checkups. Hence, 'house calls'.

Joe Cushing writes:

Great story. Markets are powerful forces and they often find ways to exist in even the most restrictive societies--even in the old Soviet Union or in North Korea. I'm sure the government will find a way to squash this though. It's too out in the open to be safe from government rule.

Greg G writes:

First of all, sorry to hear your wife was sick. I hope she is feeling better.

I think you have put your finger on a feature that any health care system should have, even a government run system. With non-emergency care, people who are willing to pay for shorter wait times should be able to get shorter wait times. People who expect to pay a lesser share of the cost should wait longer.

David R. Henderson writes:

@Greg G,
First of all, sorry to hear your wife was sick. I hope she is feeling better.
Thanks, Greg. She is.
I think you have put your finger on a feature that any health care system should have, even a government run system. With non-emergency care, people who are willing to pay for shorter wait times should be able to get shorter wait times. People who expect to pay a lesser share of the cost should wait longer.
We agree.

Michael F. Cannon writes:

Very. Cool.

I hope you will update this with any subsequent observations about the quality of the service you received.

Katharina writes:

Hi David,

Good to know your wife is feeling better and that the Just Answers website worked well for her.

Centralizing needed information (practical medical, legal, mechanical help) and advice in real-time is so innovative and creative! It's good to know that this is being done in SF!

Thanks.
Katharina

"5. Information is valuable and costly, and most information that's valuable is inherently decentralized." = one of Dr. David Henderson's principles of economics

Phil writes:

Do these guys serve Canada? They should advertise up here. I'm going to bookmark them.

caltrek writes:

Wow, imagine that. One can obtain information over the internet. Who would have thunk that?

Isn't that the same internet that, in that horribly mis-understood claim, Al Gore "invented"? The internet that came about as a result, in no small part, by government design and regulation?

Sure, it is cool that a live person was contacted for a small additional fee. This would be a fair arrangement if all had the same income and wealth. Given an inequality in income and wealth, a certain class stands to better benefit from this "market" feature. I suppose if you are a member of that class, you are motivated to cheer for that outcome.

At any rate, my best wishes for a good outcome for Mrs Henderson.

Ted Levy writes:

I'm sure many of my traditionalist physician colleagues would note that one can't do a physical exam--traditionally one of the hallmarks of a standard physician visit--over the Internet or via apps. But then again, you pay more than $38 for a traditional office visit. (I wonder what legal liability the service faces for misdiagnosis based on not performing a physical exam?)

The irony is that even in a current typical office visit, based on several personal experiences recently, one no longer gets what was in the past standard treatment. The detailed physician-obtained history is replaced in large part by patient-filled-out questionnaires provided by the front desk at check in. One no longer has to disrobe for most visits, and blood pressure measurements, lung and cardiac auscultations, and abdominal palpations are all done through street clothes, something that would have led to failing grades a generation ago. I get the strong impression these are now perfunctory and largely ritualistic acts, no longer the essence of physician diagnosis passed on from generation to generation.

Why the change? It might be (at least) one or more of the following: to maintain their incomes, physicians must see more patients per hour, so less time is available for thorough physical exams and detailed questioning; advanced imaging (CT, MR, US) make detailed exams less important, in the sense that even if you miss something, you'll eventually order a test that will show the problem; today's doctors emerge from medical school training that no longer even teaches the subtle details of physical exams.

But of course, all industries change and evolve over time. It's not clear knowing how to do good physical exams is any more important for physicians today than knowing how to shoe horses is important for a Lexus mechanic.

The problem, of course, is that all of this change is occurring without anything remotely resembling a free and unregulated price system, and therefore no way of knowing whether any of these changes move in the direction of greater social efficiency or away from it.

Tim Ozenne writes:

I'm a big fan of non-government health care, but in your case I wonder how one decides if the $38 would be well invested. There is, by comparison, a market in data about "who called me," promising data on the source of the call and such. But this makes me nervous since, if I think the service was a waste of money, I have no resort.
How does one know, even approximately, if one's money will have any return?

David R. Henderson writes:

@Michael Cannon,
Very. Cool.
I hope you will update this with any subsequent observations about the quality of the service you received.

Thanks. Of course, it will be hard to judge quality, as Tim Ozenne points out in a comment below yours.
@Katharina,
Good to know your wife is feeling better and that the Just Answers website worked well for her.
Thanks, and, furthermore, it warms the cockles of my teaching economist’s heart to see that you correctly linked it up with Pillar #5.
@Phil,
Do these guys serve Canada? They should advertise up here.
Good question. I know that it’s illegal to sell most services covered by Medicare (Canada’s single-payer system) in most parts of Canada. But it would be hard for the government to enforce across borders. I’m guessing that it would be clearly illegal to advertise in Canada, though. Of course, is advertising on the web really advertising in Canada?
@caltrek,
Sure, it is cool that a live person was contacted for a small additional fee. This would be a fair arrangement if all had the same income and wealth. Given an inequality in income and wealth, a certain class stands to better benefit from this "market" feature. I suppose if you are a member of that class, you are motivated to cheer for that outcome.
Actually, it’s fair for everyone. It gives rich and poor an option they didn’t have. Notice the price, caltrek. It’s one that even fairly low-wealth people could occasionally afford. If we wait until there’s total equality of income and wealth before allowing new products and services, we will wait forever and everyone will be worse off. Ask yourself this: did you think, back in 1988, that over 70% of the population would have cell phones by now? But I’m sure that the rich got them first.
At any rate, my best wishes for a good outcome for Mrs Henderson.
Thank you, caltrek.
@Ted Levy,
Thank you for those insights. Those changes you describe were so gradual that I hadn’t noticed them. Thanks for reminding us.

caltrek writes:

@ Dave Henderson,

I would agree that it is impractical to wait for an absolute equality before introducing innovations or devices such as cell phones. I would also agree that the market is good at rewarding efficient performers. I think all but the most fanatical centralized planner advocate would agree with that point.

I would point out that your argument could just as easily be used to justify the privleges accorded to royalty. "By developing innovations that royalty can first enjoy, we can pave the way for the rest of the population to enjoy those innovations."

So, a lot depends upon the perception of fairness in the rest of society. In recent years, virtually all of the benefits of increased productivity have gone to the wealthy. The Occupy Wall Street movement has arisen in fundamental protest to this unequal situation.

If all the free market crowd has to offer is a system that reproduces the fundamental inequalities that already exist within our society, then why should anybody consider that offering as legitimate?

Costard writes:

@ caltrek: So, by finding a cheaper way to provide a service, the market only "reproduces the fundamental inequalities that already exist within our society"? Maybe so, but at least it is progress. What manner of system would you prefer; and if it prevents innovation or impedes improvement, how fair would it be to future generations? If equality means a lower standard of living, would you embrace that?

"In recent years, virtually all of the benefits of increased productivity have gone to the wealthy."

The third world has benefited greatly. Do they not count? Does the 99% not include the 95% who don't live in the U.S.?

Ted Levy writes:

Caltrek might benefit from reading this weekend's WSJ interview with CEO Leslie Michelson, founder of his privately held company PrivateHealth, who now provides a wonderful individually directed approach to healthcare, affordable to only his very rich clients. As he explains in the interview, his ultimate goal--a goal he couldn't hope to achieve if he hadn't first worked out the model by selling it to his very rich clients--is to broaden his base to the masses by lowering his prices.

Jim Rose writes:

My district health board recently was made to publish an annual list of how many people died while on public hospital surgery waiting lists.

Jim Rose writes:

Patrick R. Sullivan, my father used to go on those after-hours house calls. The three doctors in his country town practice offered a 24/7 house calls service.

People would ring the doctor even when there was a sudden death. I remember this well as a kid because I answered such a call on the way out of the house to go to school.

When universal health insurance came in, dad's income rose. One reason was no one defaulted on their bills. A business with no bad debts is a good investment.

Ted Levy writes:

Jim Rose: There's no question that SOME people are better off with universal healthcare legislation becomes law. It's actually quite difficult to write legislation that doesn't benefit ANYONE. But there's a big difference between saying a law benefits some group (often called "special interests") and saying it benefits society as a whole.

Jim Rose writes:

thanks Ted Levy, I was talking of a few decades ago.

there are now few if any after-hours calls services now but there are many 24/7 medical centres. Much of these service changes would be due to the rising cost of time of doctors and patients.

caltrek writes:

Costard: So, by finding a cheaper way to provide a service, the market only "reproduces the fundamental inequalities that already exist within our society"?

caltrek: Thereby missing my point about how all of the benefits of increased productivity have gone to the wealthy.

Costard: What manner of system would you prefer; and if it prevents innovation or impedes improvement, how fair would it be to future generations?

caltrek: If the benefits are not shared on a fair basis, then what is to prevent future population segments from not having their fair share?

I have already conceded that some market incentives will be needed to promote development. That does not mean that resources should be allocated exclusively through the market place. Who is to say that an optimal solution would not involve a mixture? Even in Mr. Henderson's example, I point out the role of the internet, a technological development that involved government in its initial technologolgical development and regulation in order to get started and operate.

Costard: If equality means a lower standard of living, would you embrace that?

caltrek: A more refined explanation and description of "lower standard of living" would be needed. Lower standard for who? Why would the sacrifice be needed? How can the free market crowd insist that it has the most optimum solution, and then turn around and imply that it's solution might not be fair and that a fair solution might involve a "lower standard of living"?


Costard: The third world has benefited greatly.

caltrek: Oh really? I suggest you read Confessions of an Economic Hit Man by John Perkins before coming to such a conclusion.

Remember, there are competing systems of development out there. It is not at all clear which system is the best. Certainly, no system to date has depended exclusively on the free market. All have involved some mix, at least to my knowledge.

Mr. Perkins book clearly demonstrates that actually existing modern day capitalism, in partnership with U.S. government and international aid agencies, have been far from a completely constructive force in the development of the "third world".

Daublin writes:

@caltrek, you write:

"In recent years, virtually all of the benefits of increased productivity have gone to the wealthy."

The Internet is a strong counter-example. Think about Wikipedia, Craigslist, EBay, Amazon, and of course the site that David describes. Think about sites like this, where the general public can engage with the best economists in the world.

The Internet has made human life better to an enormous degree. It's comparable to the harnessing and use of electricity. Moreover, the benefits of the Internet apply heavily to poorer people. The Internet doesn't enable anything that was before impossible; it simply reduces the transaction costs. Things that before would require hiring a retained specialist, are now available to anyone who can afford an Internet hookup.

John Lynch writes:

So what's the problem here?

This "innovation" -and it clearly has its shortcomings (how do you know how qualified this "specialist" is and why do you assume a specialist is always preferable?) - came about under our current system, didn't it? We didn't need a more "free-market" system for it to exist.

So, I repeat, what's the problem here?

http://ourhealthcaresucks.com/obamacare-the-good-the-bad-and-the-missing/

caltrek writes:

Ted Levy: Caltrek might benefit from reading this weekend's WSJ interview with CEO Leslie Michelson, founder of his privately held company PrivateHealth, who now provides a wonderful individually directed approach to healthcare, affordable to only his very rich clients.

caltrek: Thank you for your suggestion. From that article:


"We're a country where economic forces work. What we have is an obligation to provide the people who are at the lowest part of the socioeconomic spectrum a base line safety net of fair and reasonable care. We literally have not been able to do that for decades. The poorest people in this country get the worst care in the industrialized world. And even the richest do not get the quality of care they think they should be getting."


Exactly in conformance with my argument.

Firstly, as a physician, I extend my wishes to your wife for good health and pleasure that she got what she (and you) needed from the experience.

As an MD-systems theorist (meaning I am trying to practice good medicine ... on healthcare), I applaud your demonstration of one of the root causes of sickness in the US healthcare system: disconnection.

As long as patients are disconnected from their money;
as long as incentives are disconnected from behaviors;
as long as desired outcomes are disconnected from the rewards that would facilitate such outcomes,
the system cannot work. That is what I emphasized in Uproot US Healthcare, a doctor's approach to a sick patient named Healthcare.

Your example shows what connection (or possibly re-connection) can accomplish. Joel Brenner in Camden, NJ, showed this even more dramatically. Read about him or read my book(s).

Thank you.
Deane Waldman

Remember, there are competing systems of development out there. It is not at all clear which system is the best.

How ridiculous. The 20th century was a laboratory experiment in which systems worked best. Clearly the free market ones won. The ones where they actively constrained markets--with bullets, if necessary--imploded.

That the socialist countries had to surround their borders with barbed wire, land mines, and machine gun towers to keep their populations from fleeing, might have been a clue too.

Costard writes:

@caltrek: I didn't miss your point. I did however apply it to subject of this thread: $38 medical advice. Was that a mistake? Perhaps you have a blog, or some other venue more appropriate for the discussion of things that have little to do with the OT.

"If the benefits...."
Shared on a fair basis? Future population segments? You've lost me. In any event the Internet is a good example of the market turning swords to plowshares. Its development into something more than a defense system was the unintended result of individuals adapting it to private use, both academic and for-profit. And initially only the privileged had access to it. Would you, at the time, have dismissed those first efforts at privatization as inherently unfair, and denied us the Internet on the basis of the "fundamental inequalities" of the market?
"How can the free market crowd insist that it has the most optimum solution, and then turn around and imply that it's solution might not be fair and that a fair solution might involve a "lower standard of living"?"
This has gone far off-topic. I'll simply point out that equality is not fairness, and neither one is justice. "Optimal policy" is a function of what you are optimizing.
"Oh really? I suggest you read...."
Mr. Perkins may be able to clearly demonstrate your point, in which case, you should let him do so. But assigning homework isn't likely to convince anyone. Putting it simply, the American laborer's loss has been the Chinese laborer's gain. Whether the worker realizes these benefits, or instead they fall to his boss and the Party, is in turn a function of Chinese policy. The fact remains that they are a poorer country than we - their working class more unfortunate than ours - so by your own logic, isn't this fair? It has little to do with American policy and even less to do with free markets, and whether it is constructive or not is an entirely different discussion.
caltrek writes:

Costard: Perhaps you have a blog, or some other venue more appropriate for the discussion of things that have little to do with the OT.

caltrek: Fair enough.

If that doesn't work, try cut and pasting this:

http://www.guideourfuture.org/index.php/forum

Thomas Boyle writes:

What is really, really scary, is to realize how many people there are in the world, who think like caltrek.

It's a wonder progress happens at all.

Ted Levy writes:

Caltrek, it seems you are completely misreading the Michelson quote you provide above, reprinted here:

"We're a country where economic forces work. What we have is an obligation to provide the people who are at the lowest part of the socioeconomic spectrum a base line safety net of fair and reasonable care. We literally have not been able to do that for decades. The poorest people in this country get the worst care in the industrialized world. And even the richest do not get the quality of care they think they should be getting."

This is NOT "Exactly in conformance with [your] argument." It is instead evidence AGAINST your argument.

The problem is you don't seem to appreciate that Michelson is saying, "We're a country where IN GENERAL economic forces work...BUT THAT IN THE FIELD OF HEALTHCARE We literally have not been able to do that for decades." Not because economic forces don't work in healthcare. Because THEY HAVE NOT BEEN ALLOWED to work in healthcare.

Ted Levy writes:

Patrick Sullivan said above: "I'm old enough to have experienced free market health care--if we ignore occupational licensure laws."

I suspect Mr. Sullivan would enjoy learning much from the excellent history of US government intervention in medicine (which unless he is a candidate for the Guinness world records, long predates his birth) written by the exemplary (and recently, and sadly, deceased) historian Ronald Hamowy: Government and Public Health in America. Government intervention in American healthcare began in the late 18th century and drastically expanded in the late 19th and early 20th centuries. Far more than licensure laws, though that was a major goal of entrenched physician guild interests.

caltrek writes:

@ Ted Levy,

Ok, I give you full credit for not letting me slip that one by you. What you, I, and Mr. Michelson may disagree on is the best method for extending health care to the "lowest part of the socioeconomic spectrum."

In my mind what you, Michelson, and Dave Anderson have failed to explain is how in the devil is the free market going to do that for the poor. I was just at a meeting not too long ago where we discussed the problem certain households were having in paying high utility bills. An individual was reporting the rest of the group about his analysis of the income one of these households. His conclusion, after paying for food, house payments, and the absolute minimum possible in utilities, this household had exactly eight dollars in discretionary income left to them every month. Now I ask you, how in the devil is the free market in medical care supposed to take care of some one who cannot spend more than eights dollars a month on such "luxuries"?

So I quoted Michelson as saying: "What we have is an obligation to provide the people who are at the lowest part of the socioeconomic spectrum a base line safety net of fair and reasonable care. We literally have not been able to do that for decades."

That is the fundamental point that I was making. Now, if you want to argue against the source you brought forth, than be my guest. Oherwise, you and I are in basic agreement, the present system is failing a significant segment of our society. Now if you want to blame government, fine, blame government. Can you understand why I might see that blame as misplaced?

Ted Levy writes:

Caltrek seems to have a fundamental misunderstanding of how markets work. He thinks because I cannot provide a detailed blueprint for the future, the market cannot provide what is desired in the future. That is, he doesn't understand the nature of incentives.

Further, he DOES seem to think that because government officials make detailed promises, this is some guarantee the promises will be fulfilled. That is, he doesn't understand the difference between intent and result.

If Caltrek would spend just a moment looking throughout his day he'd find literally scores of services available to him that he now uses routinely which were not merely out of his price range a mere two decades ago, but didn't even exist (which is to say, had an infinite price). And now he can afford them, and so can most of America's poor. There is no question--and I speak as a physician--the same thing could happen in healthcare if the government would just get out of the way. Professor Henderson's example in this post is just one mere hint of what is potentially possible.

caltrek writes:

Ted Levy and others have made a good point about how market incentives can result in new products and services in the health care industry that are affrodable to a wide range of the population. What gets overlooked in the praise for the market place is how other market incentives can work against the public health.

Take nutrition. Check out the study Captive Kids: Selling Obesity at Schools.

Included in that link: "Many...do not...realize the subtle yet pervasive marketing and advertising practices that students are exposed to on a daily basis at school...Marketing in schools can be increasingly harmful to students as they have repeated exposure to advertisements on school television and public announcement systems, in sponsored curriculum, and on school equipment and facilities, including on vending machines placed in high trafficked areas."

Also, think about how government regulations protect the potability of our water, the cleanliness of or air, the health and safety of the working environment of our work force.

@Patrick Sullivan,

I meant between various mixed systems. The "market" systems that you talk of were actually mixed systems involving both government and the market place. What is unlcear and highly debatable is which mixture is the best.

David R. Henderson writes:

@caltrek,
Who runs those schools that you discuss above?

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