Healthcare, Part III: To Serve Man

One of the classic old episodes of the classic TV Show, The Twilight Zone, had a story in one of the early seasons when Rod Serling was writing most of the scripts entitled, “To Serve Man.” Basically, the premise of the story was these seemingly benign aliens coming down to earth whose mission they said was to “serve man.” They seemed very nice and made promises of serving man and they duped all these people into getting onto their ship so that these aliens could better serve them on their home planet.

The classic Twilight Zone grotesque kicker in the last scene is that one of the primary humans who had been suspicious of these aliens from the beginning finally uncovers a book from the alien spacecraft which is entitled “To Serve Man.” It turns out the book is a cookbook. The innuendo as the flying saucer is flying away is that the aliens apparently intend to eat the gullible humans they have duped.

I always think of that episode when discussions of economic theory and policy come up. Economic ideologies always claim that they best “serve man.” How exactly they “serve man” is an open question, whether it be capitalism, communism, socialism, or any other –ism. Any economic system is man-made whether it is revolutionary (Marxism) or perhaps it is a system that has evolved over many generations (the slavery system of the Old South for instance).

I bring up American style slavery because I was reminded of a classic work on historical economy a few weeks ago with the passing of Robert Fogel, a name most people were probably unfamiliar with.  He wrote a fascinating economic history of the Old South back in the 1960’s, which is extremely dry in parts, but his conclusions were fascinating. I read most of it some years ago, and I have never forgotten it. Up to the time he wrote the work, most historians believed that had there been no civil war, slavery would eventually have died away naturally because it was an inherently costly, time intensive, and corrupt system for the slave owners. What he proved by looking at a myriad of economic reports from the period was actually just the opposite: the slavery system while immoral (he made no bones about that) was actually incredibly profitable and sustainable from an economic standpoint. His ultimate conclusion was that, in fact, only a direct invention (aka a Civil War) could have ended the system that was so entrenched and profitable. The work is four volumes, but well worth the time. An economy such as that did indeed “serve man.” Some people were served in the sense of making a lot of money, whereas others were served as the means to an end (the slaves) and literally digested by an horrifically immoral system.

I use that as an example because any economic system is made by man. As humans are fallible and sinful, any economic system is likewise sinful and fallible. Humans exploit each other; likewise systems can exploit others. Unrestricted capitalism can exploit, Communism can exploit, Socialism or Collectivism can exploit. There really are no exceptions. Any system can be corrupted. This is where St. Augustine’s City of Man versus City of God dichotomy is so helpful. Only God’s economic system can indeed be free from exploitation and sin.

The American healthcare system is likewise closely tied to the economic system. Employers have the primary responsibility of insuring their workers, often at great economic cost to their bottom line. For corporations with numerous employees that are making money hand over fist, this is not so huge an issue (or should not be). For smaller employers that are just trying to make payroll every week and keep the lights on in the office, this system is an extreme challenge due to the rising cost of healthcare.

This is where there is a disconnect between the economy (and what people expect our economy to be) and how the healthcare system operates. Much of the backlash against healthcare reform was fear that somehow there would be a federal takeover of the healthcare industry. Given the fact that federal power has only expanded in the modern era into virtually all sectors, this is not a completely irrational fear.

The problem is that people think our healthcare system is and should be governed by the free market capitalist system, but this is not really true. The healthcare system is in actual fact a very closed economic market. No one, usually not even the doctors themselves, have any idea what a procedure costs until after the procedure(s) have been done. This is largely an outcropping of the way insurance has evolved. Insurance, if you have it, covers most of major medical fees. You might pay a small co-pay and are responsible for a minority deductible, ranging usually from $500 to $5000. Other than the cost of that, most people have no idea that a medical procedure that lasts maybe 3 hours can cost $100000+, not including stays at the hospital.  

Basically, we have a system where consumers do not know what the prices are in advance, do not really have any way of comparing prices, or negotiating prices. In basic economics, there is a term for this: elasticity of demand. The current American medical world is place where the elasticity of demand is basically zero. Personally, I think this is why the cost of insurance keeps going up exponentially. This concept basically has to do with time and freedom.

The more time you have, the greater the elastic stretch, so to speak, of the demand and the greater the consumer’s freedom is. The best way to explain this concept is to give an example. Let us say that my wife’s birthday is coming up, and if I do not get her a present, I will be in the dog house. Now, if I realize months in advance that her birthday is coming up, I have time to think about what I can get her, I can shop around, weigh the pros and cons of this versus that. I can even maybe haggle a better deal online or at a different store. In this instance, my demand is very elastic, I have the freedom to walk away or negotiate. Conversely, let us say I realize on my drive home from work that my wife’s birthday is today. In such a case, the elasticity of demand in this case is basically zero. I pretty much have to stop at the nearest store and buy whatever I can find at the store’s price, even if that is a candy bar, a ratty card, and a Coke from the local gas station. I have no negotiating power whatsoever.

In the medical world, consumers in American have very little say in costs or insurance. They basically have to accept their employer’s healthcare plan or go without. They basically have to accept whatever tests and procedures a doctor recommends or go without. Consumer choice is extremely low and demand elasticity is zero.

One my issues in the debate with what became the Healthcare Reform Act was that this root issue was not addressed. There was some discussion on the healthcare exchanges, but the governments punted and made states basically have to organize and fund that, and even then the dark side of Obamacare was a massive host of regulations that regulated any consumer freedom gained to death because policy portability across state lines was off the table from square one, as was any real discussion of insurance co-operatives or alternatives to the employer based system.  Cuts to Medicare and Medicaid to pay for Obamacare likewise decreased consumer demand elasticity. I am seeing that at my current place of work: We now lose money seeing Medicare and Medicaid patients to the point we are the only practice in Nebraska west of Lincoln that will touch a Medicaid patient because we literally get reimbursed pennies on the dollar. Medicare is somewhat better, but even then most people have to have supplemental insurance because Medicare only covers part of it.

I had intended to go into the concepts of solidarity and subsidiarity, and I promise I will in my next post. For purposes of today, however, I felt I needs to explain how the American system is currently unfair from the standpoint of economic systems. Any economy exists to primarily serve man (no pun intended). When the economy is being served man (pun intended), something is dreadfully wrong. Such economies are a type of slavery, which, while often profitable to some, is always wrong because it exploits others.