Free Market Medicine...

Liberty & Power has a recent post detailing the booming medical tourism industry in Mexico. Cross-border medical tourism into Mexico is nothing new, but what is relatively new, as outlined recently by Newsweek, is the extent that private American hospitals and practices are now opening branches in Mexico to specifically service this American medical tourism. Coterminous with this trend is that Insurance companies in border states are beginning to cover and even encourage cross-border medical treatment. Now, call me crazy, call me a "libertarian wacko," but there is something fundamentally askew with this picture. The obvious immediate conclusion to draw is that prices are artificially high in the US, especially for the non-insured who wish to contract for medical/dental services like they would for any other market service.

US Medical Tourism is a spontaneous order or sorts that has grown steadily to escape the increasingly high prices of the Cartelized US Health Care system. A cartelized system is one where price discovery is prevented or impeded, and I can't think of a better example of than the US Health Care system, where one Cartel, the insurance industry, negotiates prices and services with another Cartel, the Medical Industry. This "Health Care Insurance Model" is, of course, protected and encouraged by the State, which not only enforces the high barrier of entry into either Cartel, but also treats health insurance as a non-taxable employment benefit compared to income. It should be no surprise that "Cartel pricing discovery" results in a "crisis" in terms of the "high cost of health care."

Roderick Long, in his essay, How Government Solved the Health Care Crisis...Medical Insurance that Worked Until Government "Fixed" It, details a previous crisis in Health Care before Cartel Pricing, that is, the "crisis" of competition and low barrier of entry making "prices too low." The argument back then, I suppose, was that no one would go to Medical School if true market price discovery for contracted medical services made prices too low. No doubt, the State solved that crisis. When it comes to a crisis of "low prices," I think we can safely say the State is uniquely qualified to resolve these type of crises.

Today, the high prices of the cartelized health insurance model has now led many to adopt the language of "rights" when it comes to Health Care. Typically, high prices are not blamed on cartelization, but rather on market failure, for example, on "information asymmetry," or "inelastic demand," or whatever. However, if high prices were truly a case of market failure, then, obviously, there should be no medical tourist market. That there are such markets indicates empirically that high prices have nothing to do with market failure, and thus appeals to Health Care as a positive right, i.e, a "coercive claim," should be examined skeptically. Frankly, if you ascribe to health Care as a positive right, then you should at least be honest and advocate State takeover of services. It's quite dishonest and more than a bit absurd to make a positive rights claim for "Health Care" when all you are really proposing is tweaking the Cartelized Health Insurance Model.

However, it goes without saying that decreeing Health Care a "Public Good" does not make it so. Health Care is not a non-rivaled good, which explains why any attempts to make it a "Public Good" leads to rationing. The more Statists chirp about the "right" of health care, the more the medical tourism markets seem to exponentially expand.

On final, but marginally related note, it should be obvious how the spontaneous order of Medical Tourism discredits the so-called libertarianism of the Ron Paul Xenophobes. If the Xenophobes had their way, the border would be militarized and relatively closed, thus rendering cross-border medical tourism largely unfeasible. por completo de la mierda...

This "Health Care Insurance Model" is, of course, protected and encouraged by the State, which ...treats health insurance as a non-taxable employment benefit compared to income.

It appears that you are saying that the State is creating demand for the provision of these services, which is a big part of these cartel systems (such as when government hires private firms to provide "public goods") .

I just anted to state this explicitly, for aesthetic reasons.

I was half hoping that Long's essay would describe a market in individual insurance--where individuals, with no innate interest in each other's welfare, created contracts distributing obligations to cover medical expenses. Instead, it describes a system that treated healthcare as a benefit of membership in a particular group--where the group provided many services/goods in addition to healthcare, and more importantly, the group created/reinforced bonds of affection among its members.

Anyway, I had hoped to see an example of a cold-hearted market health care system, because I suspect that such a system is unworkable, yet I can't think of any modern groups that would have an interest in shouldering health-care expenses except for companies and the state. Do we have anything like fraternal societies today? Could we really expect such modern organizations to form the basis of a new health-care system?

I would disagree with that...Health Care is just like any other service and would be priced much less expensively(than in our current Caretlized Model) if there were true market price discovery. The fact that prices are 75% less in Mexico is why you have Medical tourism in the first place. In terms of insurance, other than, say,caustrophobic policies, I'm not all that convinced that health insurance for basic care would necessarily have all that much demand in a true free market. In any event, trade associations, for example, are generally prevented by law to pool together to offer health insurance and certainly don't receive the tax benefits. As I posted, the Health Care system is very much a cartelized model...

I don't see anything preventing health care services from being provided by a regular market--I only see problems with health insurance, specifically with the treatment of chronic diseases. As long as insurance pays out as expenses occur, a person with a chronic disease would be tied to their current insurance program because no-one else would be willing to take them on.

Perhaps if the insurance company treated a diagnosis of chronic disease as a single catastrophic event (perhaps paying a lump sum into a dedicated health-care account), then this type of insurance could work.

If, as you suggest, health insurance only covered catastrophic events (rather than day-to-day health maintenance), then that sort of health insurance market would be more workable.

I don't know how a 21st century free market will deal with medical care, but if we stopped thinking that collective action meant government action, voluntary community-based programs might well be part of the solution. Like Adam, I don't want to see fraternal organizations that are as group identity-based as many of those a century ago were, but I don't think that's much of a danger: I think it far more likely that the groups will be location-based neighborhood organizations.

But ka1igu1a is absolutely right that the current system of health insurance is a perversion of the concept: people should only obtain insurance against costs they cannot afford to pay, and that are relatively unpredictable. Today's insurance schemes are like car insurance that pays for gas and oil, and stimulate demand beyond all reason. Correct insurance covers catastrophic costs.

The whole concept of "free market" medicine reminds us not to try to design the spontaneous order: we need to focus on removing the political impediments to voluntary solutions. I tried to offer 7 political changes that might make that possible in my own modest blog post at:

http://anarchywithoutbombs.com/2008/10/27/health-care-solutions/

Oddly, it was inspired in part by the same great Roderick Long post mentioned in this thread.

So one of the core issues here is why we (Americans) identify "health insurance" with a full-service, day-to-day health maintenance system.

It seems that Kaligula's explanation is that the health insurance tax deduction encourages consumers to package as many services as possible into the "health insurance" system. This sounds quite plausible, but I'd like to see what research has been done by economists. If true, this is quite profound, since it would create overconsumption of medical services leading to high prices for a (near) necessity of life, and immense waste of resources.

Alternatively, if we want to try to present the status quo as reasonable, we could suggest that day-to-day health maintenance is intimately tied to those catastrophic expenses that Americans would want insurance for. Consequently, the health insurance companies have an interest in assuring that their customers receive day-to-day health maintenance services, so that we can avoid those health catastrophe that would be costly to the companies. This theory also requires an explanation of why insurance company intervention would improve the situation. One possibility is that people have a hard time judging risks that are very low probability, but very costly (I believe this is well established cognitive science), and insurance companies are in a better situation to judge how many resources should be dedicated to prevention of these low-probability catastrophes, so the insurance companies encourage us to see doctors on a regular basis by covering the costs of those visits.

I hope that economists have been investigating this issue, it seems quite interesting and important. I'll let you guys know if I find anything.

I was looking for information about how the tax-deduction impacts the structure of health insurance plans, and came across some sites describing health insurance for pets. As far as I know, this industry is not subject to the same market distortions that human health insurance is, yet there is still a market for full-service health maintenance plans. I wonder to what extent people buy pet insurance that mirrors the structure of their own health insurance.

There is still a MARKET for full service health maintenance for pets, but I was able to get for my dogs what I couldn't get for myself, a high-deductible plan that doesn't cover routine care but has solid catastrophic (well, dogastrophic) coverage and reasonable exclusions at a fair price.

While ka1igu1a is right about the impact of the differential tax treatment of health care benefits, there are many other contributors to the full service model.

All states have implemented systems of mandates, in which a health insurance plan MUST provide certain coverages that buyers might prefer the option to refuse. Needless to say, the providers of the mandated coverages have been the principal lobbyists for such mandates.

Basically, it is ILLEGAL to offer sensible, catastrophic coverage with money-saving exclusions consumers are willing to accept (do I really need alcohol treatment coverage if I'm a teetotaler?). The insurance companies don't mind: with everyone forced to buy the equivalent of a Lexus or go without a car at all, they make far more money. They love the mandates.

The benefits of preventive medical care have never been established. A 5-year study by the RAND Institute randomly assigned people to different co-pay categories for health care coverage. Needless to say, those with the lowest co-pays consumed far more health care services than those with the highest, but the broad measures of health outcomes were essentially the same for all the groups. It may be that expensive care and constant tests are useless, or that intervention makes problems worse as often as they are made better, or there may be a moral hazard problem in that people whose cost of care is lower don't do as much personally to remain healthy because they don't bear as much of the cost of illness. Or all three.

In a free market, insurance companies would either require or encourage preventive care that ended up maximize profits. Their customers would be the health care users themselves, who would not be forced to use their product. Unresponsive insurance would lose out to those that most satisfied health care users, instead of those that most satisfied government officials and large employers.

Still, I have to admit that it would be nice to see mutual aid agencies return to the high levels of activity they had before the insurance, medical, and pharmaceutical industries used the government to put them out of business. A return of the idea of community as a voluntary expression of mutual respect and compassion instead of a buzzword for government aggression could make catastrophic coverage a flexible response of caring neighbors, and keep business-government partnership models from dominating the discussion.

An implied point I was also making is that without the "differential tax treatment," health insurance companies would likely see a significant erosion of it's customer base. It's little wonder then that the major players are now in favor of the ultimate mandate, that is, full partnership with the State to force everyone to buy their service. Empirical observations of exploding medical tourism markets, and the eagerness of major players to embrace full-blown corporatism indicates an industry saddled with unsound business models. This ultimate rent seeking "solution" strikes me to be more about survival than anything else, another corporate bailout if you will.

In many cases what we see from the population with lower copays is that there is too much health care being consumed. And in the case of health care, sometimes additional service is actually harmful to the health of the individual. In many cases the doctor should tell his patient that there is no problem and send the person home without providing any care at all. Unfortunately this is not the case, and invariably doctors do something.

There are a combination of factors at play. The medical malpractice suits, the insurance coding system, and the lower copays, all contribute to the decreased quality and increased quantity of health care consumption. Currently the country is just throwing a lot of money at health care without any real regard for its benefits or its costs, and that invariable leads to really really unaffordable costs.

Remember back when foreigners came to the US for medical treatment? That's when you knew you had a better system than foreign countries. US could effectively export medical services by getting foreigners to come to the US for their medical treatments. It still might be true for the really high end treatments but for the average citizen, it's no longer an economical idea.

Maybe this is what you meant by "high end"...

I think many people still come to the US to get services that are simply unavailable elsewhere. Examples that come to mind are some transplants, or some drug treatments that are deemed to be too expensive by foreign healthcare providers.