September 21, 2009
I’m fascinated by the debate over fixing/expanding the healthcare system in the United States. The issue is so complex that people understandably fall back on basic philosophies of the free market system to reach an opinion. For example, if you think the government tends to screw up everything it touches, and the free market does a good job, you might come down on the side of less government involvement in the healthcare system. But that view ignores the confusopoly effect.
A confusopoly – a term I concocted several years ago – is any industry that intentionally makes its products and services too complicated for comparison shopping. The best examples of confusopolies are cell phone carriers and insurance companies. And health insurance companies might be the most confusing confusopoly of all. I suspect that no individual has the knowledge, time, and information necessary to effectively compare two health insurance plans. And in that environment the free market doesn’t operate efficiently.
Some people support the so-called Public Option for healthcare, where the government would offer health care in competition with the free market. The idea is that private companies would eventually lower prices to compete with the government’s low cost option. That sounds good on paper, but the reality is that the private industry folks would use the uncertainty of the confusopoly to convince people that the government option would somehow end up killing its subscribers, e.g. “Sure, it looks inexpensive until your kidney starts hurting.”
I think a better role for government would be shining a light on the existing private healthcare plans in a way that would help consumers choose the most economical option. The government did this successfully with the bank loan industry when it required all loans to have an APR, which is a single number that allows consumers to compare one loan to another. Healthcare can’t be boiled down to a single number, but I suspect you could come up with a report card and some sort of average cost per subscriber. That way, consumers could shop wisely, and the free market might work the way it is meant to work.
Here’s a concrete example. I have a health care plan that allows me to e-mail my doctor through the plan’s website, and I usually get an answer in an hour or two. For 90% of the minor issues that would otherwise require a visit to the doctor, my doctor handles them in about half a minute by e-mail, including sending an electronic prescription to the pharmacy if needed. It is a HUGE time saver for me, and a big money saver for them, which I hope gets translated into keeping my premiums low. So here’s my question to you: Which health care insurance do I use?
If you know the answer from something I wrote in the past, don’t give it away in the comments. The point is that you can Google all day long and never find a way to compare health insurance plans on price or features. That’s a problem that I think the government could fix.