Perils of a “Lightly Regulated” Insurance Market
What would George W. Bush do about health care? His former advisor, N. Gregory Mankiw, provides a clue in his article The Pitfalls of a Public Option. Like Bush assuring consumers that “you can go to an emergency room” if you need health care, Mankiw argues that no public option in insurance is necessary: “We don’t need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices.” Here is Paul Krugman’s response:
Economists have known for 45 years — ever since Kenneth Arrow’s seminal paper — that the standard competitive market model just doesn’t work for health care: adverse selection and moral hazard are so central to the enterprise that nobody, nobody expects free-market principles to be enough. To act all wide-eyed and innocent about these problems at this late date is either remarkably ignorant or simply disingenuous.
Krugman actually understates just how unconventional the economics of health care can be. Given these divergences from standard market models, Brad Delong may well be right to say that even Friedrich Hayek could approve the idea of a public plan: it’s a way “to use the market as an institutional discovery mechanism.”
Of course, most modern-day Hayekists are more likely to take Mankiw’s view than Delong’s; namely, that “private insurers, lightly regulated to ensure that the market works well, would offer Americans the best health care at the best prices.” We have a sense of how concentrated the private insurance industry and providers are. What exactly does “light regulation” look like in that context?
Electronic Medicine, iPhones and Path-Dependence
photo by Roberto Garcia via Flickr
Atul Gawande writes about “path-dependence” in his wonderfully thought out article on the evolution of health care systems. If you haven’t yet read it (it’s in the sidebar under “Best of Magazines” and here) I highly recommend you take the time to do so. As it stands, however, I will use his description not in the context within which it was written, but as a means to think about the implications of the rise of iPhone and Blackberry usage for medical applications. He writes:
Every industrialized nation in the world except the United States has a national system that guarantees affordable health care for all its citizens. Nearly all have been popular and successful. But each has taken a drastically different form, and the reason has rarely been ideology. Rather, each country has built on its own history, however imperfect, unusual, and untidy.
Social scientists have a name for this pattern of evolution based on past experience. They call it “path-dependence.” In the battles between Betamax and VHS video recorders, Mac and P.C. computers, the QWERTY typewriter keyboard and alternative designs, they found that small, early events played a far more critical role in the market outcome than did the question of which design was better. Paul Krugman received a Nobel Prize in Economics in part for showing that trade patterns and the geographic location of industrial production are also path-dependent. The first firms to get established in a given industry, he pointed out, attract suppliers, skilled labor, specialized financing, and physical infrastructure. This entrenches local advantages that lead other firms producing similar goods to set up business in the same area-even if prices, taxes, and competition are stiffer. “The long shadow cast by history over location is apparent at all scales, from the smallest to the largest-from the cluster of costume jewelry firms in Providence to the concentration of 60 million people in the Northeast Corridor,” Krugman wrote in 1991.
With path-dependent processes, the outcome is unpredictable at the start. Small, often random events early in the process are “remembered,” continuing to have influence later. And, as you go along, the range of future possibilities gets narrower. It becomes more and more unlikely that you can simply shift from one path to another, even if you are locked in on a path that has a lower payoff than an alternate one.
The political scientist Paul Pierson observed that this sounds a lot like politics, and not just economics. When a social policy entails major setup costs and large numbers of people who must devote time and resources to developing expertise, early choices become difficult to reverse. And if the choices involve what economists call “increasing returns”-where the benefits of a policy increase as more people organize their activities around it-those early decisions become self-reinforcing. America’s transportation system developed this way. The century-old decision to base it on gasoline-powered automobiles led to a gigantic manufacturing capacity, along with roads, repair facilities, and fuelling stations that now make it exceedingly difficult to do things differently.
Increasingly, the primary location for e-Med technology seems to be the pockets of doctors: in iPhones and Windows based Blackberries.
A Washington Post article, “New Tool in the MD’s Bag: A Smartphone,” states that “Nationally, about 64 percent of doctors are now using smartphones, according to a recent report by the market research company Manhattan Research.” Georgetown’s medical school has recently begun requiring them, and Ohio State’s is handing out the iPod Touch (sans phone) to its students. Mike McCarty, the chief network officer at John Hopkins Health Systems, “believes that smartphones will soon assume a permanent place in medicine.”
As such, designers have engineered applications to suit the needs of those doctors. And as a matter of path-dependence, presumably they will continue to do so. WaPo states that “the iTunes app store lists 674 applications related to medicine available.” There are iPhone and Blackberry apps to “pull up instructional diagrams and videos for patients, write electronic prescriptions and check basic information,” “look up drug-to-drug interactions, to view X-rays and MRI scans,” and even determine pill names derived from physical descriptions.
As we posted a while back,
In the words of Dr. Farzad Mostashari, an assistant commissioner in New York City’s health department and head of the much heralded Primary Care Information Project (which is functioning as a sort of I.T. Department for many of the City’s doctors using EMR), “There’s no way small practices can effectively implement electronic health records on their own. This is not the iPhone.”
Later, we noted that in their NEJM article, No Small Change for the Health Information Economy, Kenneth D. Mandl, M.D., M.P.H., and Isaac S. Kohane, M.D., Ph.D. suggest that it should be. That
As do Professors Sharona Hoffman and Andy Podgurski, the authors of “No Small Change…” stress the need for flexibility, interoperability, liquidity of information, and the ability to substitute technologies as the need arises. To do this they propose governmental encouragement of the use of a platform with interoperable applications (blog builders, think: “plug ins” and “widgets”)
similar to the iPhone.
We also noted in that post, “Electronic Medical Records: It’s Not too Late to Build the Tower on an Interoperable Platform,” that
Perhaps the good news here is that the relative scarcity of EMR implementation thus far means that we can yet still devise an interoperable system without rendering substantial but incompatible investments obsolete. Which is to say that we are not yet too far down nine different non-intersecting roads and that “a communicative Tower” can still be built, and sustained, on a Platform.
Now, it seems the path is beginning to emerge–and that interoperable system may actually be the iPhone and Blackberry platforms–which, it seems, are already sitting in doctors’ pockets.
