By Thomas P. Miller

The oversimplified
summary of Say’s Law of Markets states that supply creates its own demand. But
one cannot so easily assume there will be sufficient demand (particularly in
political markets) for supply of any particular good or
service. Hence, the Sisyphean challenges to the repeated political supply of
reforms and replacements for employer-sponsored insurance (ESI) that never
registers enough sales to take hold. As suggested in Part I, the ordeal of change regarding our workplace
arrangements for health insurance must overcome more than just an accident of
history.

One common critique
of ESI is that employers’ offers of health benefits fail to match the preferences of their individual workers.
Compared to what? In our particularly American iteration of the health care
multiverse, every individual principal must reach an accommodation with
imperfect agents. When we find equal or greater failings in the performance of
government or private insurance third-party intermediaries as well, and refrain
from taking full management of our health care risks and transactions in a more
atomized yet still largely opaque spot market, the pre-assembled boxes of ESI
(with a tax exclusion prize inside) don’t look quite so bad after all.

The far broader
failings in our health care system revolve around a persistent flight from
accountability. Cost and quality problems always are someone else’s fault, and
hope never fades that they can at least be shifted to some degree to somewhere
else (health policy and politics in a nutshell!). Hence, the revolving door for
stints in the spotlight as the designated villain on which other parties can
agree, for the moment, as the product of political art, not empirical science.
These traits are accentuated by the time inconsistencies of consumer demand
that push against more stable long-term agreements. Commitments to mutually
binding, lower-cost arrangements prove harder to maintain and enforce when
healthy insurance purchasers become more costly patients. (“Just in time works
better on someone else’s dime.”) Similarly, the perennial tensions between
standardization and customization, as well as between equity and efficiency, in
health care helps produce the lowest common denominator equilibrium of uneven
quality and unnecessary costs. One man’s floor for essential care guarantees
can look like another man’s ceiling on innovative excellence.

Theoretical reform
models that assume their own solutions of either consumer-choice-designed
individual insurance markets or managed competition menus driven by efficient
production and pricing suffer from selective lapses of long-term political
memory. They airbrush away the residual legacies of history and habit, such as
the managed care backlash of the 1990s and the political economy of autoimmune
health care regulation. However, other players still instinctively recoil from
wearing the black hat of care denial or leaving the insurance buffet line too
early.

Most recently,
revived hope springs infernal that more vigorous antitrust enforcement can be
harnessed to constrain hospital pricing power in consolidated markets. A few
caveats remain in order. Beneath the lofty rhetoric, antitrust remains government
regulation by other means, subject to swings of political excess and special
interest influence. Today’s consolidated markets grew despite, and sometimes
because of, “competition” policies of the recent past. The most-cited
statistical measures of market consolidation (the Herfindahl-Hirschman Index)
usually are only preliminary screening indicators. They also remain subject to
gaming in market definition. Antitrust merger tools work better prospectively
than retrospectively and operate slowly on a case-by-case basis. Aside from
other government policies that enable and sustain anti-competitive practices,
what could go wrong?

Our assorted health
policy morality plays frequently operate as proxy wars seeking a different sort
of larger market share—the one for enhanced political power over what remains
privately owned, if not all that market-driven and competitively accountable in
its own respects.

On balance,
employers have more flexibility, shorter feedback loops, and fewer put options
than government decision makers do. They must correct their worst errors sooner
or lose workers and revenue later. Yet they do still lack scale to dent the
cost curve on their own. ESI should not be given even more special advantages
(ERISA regulation, tax exclusion, shedding costlier risks to public programs),
but the political clock is ticking on the choice between pretending to go it
alone and finding more common ground with other employers on more coordinated
bargaining, administration, and information sharing.

Competitive barriers
on the supply side certainly need more attention, through policies that expand
market entry and do not cushion against necessary market exit. We should
consider real curbs on anti-competitive contracting practices, loosening of
medical licensing, accelerated enforcement of information transparency rules,
and more creative promotion of interstate competition in health care services.
But as long as no single sector on the demand side—employer groups, individual
purchasers, insurers, or government program decision makers—really wants to
take substantial responsibility on its own to insist on more affordable value
combinations, and consumers don’t realize they have other more attractive
places to spend their marginal dollars, blaming someone else will remain the
primary default choice.

Will we make unexpected progress in untying this Gordian knot? Nah. I don’t think so. And I’ve never wrong about this stuff. Never.

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