Saturday, November 15, 2008

Market Capitalism and Health Care--It Will Never Be the Same

Washington Post business page columnist Steven Pearlstein's Friday column, "Toward a New International Capitalism," caught my eye.

Here's a snippet:
"From the Latin American debt crisis of the 1980s to the Asian financial crisis of the 1990s to the Internet craze at the turn of the century to today's economic conflagration, the past 20 years have provided ample evidence that uncontrolled flows of private capital have created massive booms and busts that have overwhelmed the financial system and destabilized the global economy. The booms have misallocated capital, widened the gulf between rich and poor, and eroded the norms of behavior that had contributed to social and political harmony. The busts have brought financial hardship and ruin to innocent businesses and households and saddled governments with huge debts that will take generations to pay off."
Wherever you stand on the longstanding debate over the free market versus government regulation, I will suggest that the recent confluence of catastrophic financial events have pushed the pendulum hard over from the market side to the pro-government regulation side of the debate.

With a new Democratic White House and big Democratic Congressional majorities, all driven by the most recent burst bubble and the resulting financial meltdown, the notion that the market is the place to fix and manage our dysfunctional health care system is clearly out of vogue.

For the last eight years, the health care debate has been dominated by market ideas to deliver better quality and sustainable costs--private Medicare Advantage plans, Part D drug benefits for seniors, a reinvigorated health savings account (HSA) market, and proposals like those offered by President Bush and Senator McCain to restructure our private health insurance system from the traditional employer chassis to one of individual responsibility.

My sense is that the recent election outcome is more than a change in the political cycle. It was also a public verdict on their level of trust in capitalism. Market arguments as a solution for the health care challenges will not be able to avoid the public's overall loss of confidence in the relatively unfettered market.

Does that mean we are all about to become socialists in the European tradition? Does it mean the American people will have lost confidence in American business generally? No. I expect we will always have confidence in the ability of most business--particularly small business people--to build real value. But it does mean that it will be a long time before we put an almost blind confidence in the notion that the market by itself will always go up--the stock market, the housing market, the Internet driven "New Economy."

Read another part of Pearlstein's column but this time think of publicly traded health care industry managers instead of financial executives when you do:
"But there is also no denying that American-style capitalism has been undermined by its own success. In its present incarnation, it rewards manipulation over innovation and speculation over genuine value creation, resulting in massive misallocations of capital and the accumulation of unheard-of wealth in the hands of money managers and top corporate executives who are more lucky than they are skilled."
When the Clinton Health Plan failed in 1994 the consensus was that the health insurance market would have have a wide open shot at proving itself since no one would dare put a government health care plan back on the table in the wake of that failure--for at least 10 years.

Let me be clear that I have always believed in the market. But I also believe the past 15 years have amounted to an enormous squandered lost opportunity for the market to prove its value to our health care system.

Fifteen years later, the market has not brought health care costs under control because too much of the entrepreneurial energy in the health care market was used to simply manipulate the massive cash flow provided by a sector of our economy that made up 16% of our GDP. There was no reason to manage health care costs and quality to a better outcome if soaring costs just meant more cash flow to manipulate. Faced with longer-term business objectives--like a sustainable business model based on creating real value--or making shorter-term earnings objectives and stock options, the choice was easy.

Fifteen years later, the health care marketplace has little or nothing to point to in its defense in the face of Democratic control of our government and our capitalist system in a shambles.

At the wild west Wall Street alter everyone has been worshiping at, I suppose there was no alternative.

Will for-profit health care become extinct and replaced by a government-run health care system? As bad as things are, I doubt it. We aren't anywhere near the point where Americans are about to trade their general fear of big government for that.

But the days of the private market saving Medicare and Medicaid, or a reinvigorated private health insurance market, as part of our future? Just a few weeks after John McCain was preaching the virtues of the market as a solution for our health care problems all of that sounds pretty passé now.

For-profit health care players--particularly health insurers--will continue to have a big place in our system. We really have no alternative--that's what the system is built upon.

But trusted to save it? Trusted to operate less regulated? Looked upon as the means to improve cost and quality? An attractive growth stock in the face of the regulation that is coming?

In Pearlstein's words, here is how I will suggest health care capitalism will be seen for many years to come:
" rewards manipulation over innovation and speculation over genuine value creation, resulting in massive misallocations of capital and the accumulation of unheard-of wealth in the hands of money managers and top corporate executives who are more lucky than they are skilled."
And it will be so treated.
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