What does it mean to have a private health care system?, Megan McArdle asks:
Now, at this point in the discussion, some interlocutor starts chanting what I’ve come to think of as “the mantra”: othercountriesspendlessandhavelongerlifespans. Then they ask me how I can ignore the overwhelming evidence that national health care is superior to our terrible system. Now, what’s odd about this is that all of those countries do precisely what I am concerned about: slap price controls on the inputs, particularly pharmaceuticals. Their overwhelming evidence indicates that I am 100% correct that a government run system in the US will destroy the last really profitable market for drugs and medical technology, and thereby cause the rate of medical innovation to slow to a crawl.To which [Matt Steinglass] rejoinders that all the Dutch insurance companies are private. Indeed they are, but they’re essentially tightly regulated utilities. There’s no market discovery of drug prices; instead, the prices are set by looking at an average of the rates paid by government systems in nearby countries. The government decides what is reimburseable. It further defines the basic health package that everyone gets, though as I understand it most people also purchase top-off insurance. The supplemental insurance functions more like an actual insurance market. As I understand it, there’s considerable pressure to stop that. And the markets are in peripheral services that mostly aren’t reimbursed by health insurance here, either, like eyeglasses and dental.
The things that make markets innovate — profit potential — have been mostly squeezed out of the system. The things that hasten market discover — prices — have also been increasingly relegated to central authority. Having something like that in the United States would produce exactly the outcome I’m worried about. So if Matt is right, and this is where the slippery slope ends up, my nightmare will have been realized.
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Critics of our system say that it is horribly wasteful and inefficient. I quite agree. But innovation is horribly wasteful and inefficient. It’s quite common for drug researchers at mean-old profit-oriented pharma to go their entire lives without working on a drug that actually makes it past Phase III trials and into patients. Those kinds of crazy bets are exactly the kind of thing that the centralized, rational, efficient systems that progressives like to build (or at least, dream of building) have the hardest time allowing. And when such systems do make start spending big, they don’t tend to get made where the biggest market is — i.e. the most patients with the strongest demand. Instead the decisions are political: which disease has the best organized interest group to lobby the government?Those are just inherent qualities of a government system. They’re the qualities of the systems that progressives lionize in government — the reason that othercountriesspendless. I acknowledge that it can work very well as long as there are some irrational, decentralized, uncontrolled countries in the mix figuring out how to deliver the technology you’ll eventually use, for the same reason that a really surprisingly large number of children can forego vaccination without risking disease. But at this point, the US is the only country left providing a hefty incentive for inventing new treatments. If we stop, the whole world suffers, and we along with it. So for all the many bad points about our system, for now, I’d like to stick with it.