December 5th, 2013 | Economics | Healthcare | Politics
Conservatives are known for their belief that free markets are the answer to all problems—including those like healthcare. The idea is elegant: you have a problem and you unleash the free market upon it. Companies will compete, and you’ll have the best outcomes. Done and done.
It’s been intuitive to me that there is an inexorable conflict here, but it’s important to isolate and call it out explicitly. The issue is that these free market companies are designed to make money, not to provide the best services, and the mistake made by the free market religionists is believing that these are the same.
Healthcare is a demonstrative case in point. Quite simply, the so-called “healthcare” companies are all “profit” companies first—they simply have a healthcare theme. If ACMEHealth can make more money by providing worse care, they will do so. And so will all their competitors.
“That’s why there’s choice…”
The rebuttal made by free market believers is that in situations where companies are putting profit before outcomes, competitors will surface that provide better services, and consumers will have the option to reward those companies with their business (assuming government doesn’t get in their way).
This is fantasy.
This unicorn company they’re referring to will face one of three obstacles:
- They will not survive because they can’t make enough money providing the healthcare that the people require
- The now-established industry will leverage powerful corporate lawyers and lobbyists to attack the newcomer and ensure they cannot survive
- The naive company will replace its idealists with realists, i.e. those willing to cut services to make more money, and will over time become just like the others
The gravest threat is #1—it might be bad business to provide the healthcare that people actually need.
Well…there’s your problem.
This is the fundamental discord between business and core services: for a core service, profit isn’t the goal—outcomes are. Yes, do it as efficiently as possible, but never take your eye off the outcomes.
With business, the thing to never take your eye off of is profit, not the product (healthcare, education, etc.) This is a conflict that cannot be fixed by adding competitors who have the same conflict.
The lack of this fundamental conflict, and the incentive to focus on the outcomes, is precisely the reason government is the best entity to provide core services. Do they lack the aggressive sense of efficiency and optimization that the private sector has? Yes, they often do, and it’s a perpetual opportunity for improvement.
But if you’re going to build a society based on one of these two flawed models, go with the one that is properly incentivized, yet struggles with inefficiency, vs. the one we know to be rotten at its core due to the conflict between profit and outcomes.