Oreos, Family Dollar, and Health Care Reform

Even before the American Health Care Act was officially released this week, I have been pondering a large issue underpinning efforts on health care reform. To be fair, this issue affected the Affordable Care Act as well.

Here’s my issue: Free Markets aren’t Free in all Cases.

Free Market ideas make sense if we think about consumer choices as open and free in a microeconomic fashion. When I go to the grocery store, I get to choose what kind of cookies I buy. Nabisco keeps inventing new versions of Oreos to keep me thinking I need new options. And if Peeps Oreos fails (as it deserves to), they can just stop producing them and keep my brand loyalty.

At the macroeconomic level, markets make sense. If we can find ways of incentivizing private firms toward infrastructure investment, we shift the cost curves allowing them to gain return on investment while meeting a definable public need.

But I’ve been thinking about an segment of the economy where it’s hard to make free markets work. In what I’d call the meso-economic level, it’s hard to understand how we structure appropriate investments and returns that maximize consumer choices (as Hayek and his followers would want).

Efforts at Health Care Reform break down in the meso-level economy. 

The claim that “if you like your doctor, you can keep your doctor” treats health care as a microeconomic matter. If I like Birthday Cake Oreos, I get to buy them. That is until Nabisco stops making them (see above).

I can make my point clearer if I switch metaphors. Let’s move from cookies to shopping.

Family DollarThe town where I teach has two independent shopping options: Family Dollar and Dollar General. This is not uncommon for small towns in the midwest (and maybe nationally).

For the fifteen years prior to living in Spring Arbor I lived in Portland, San Diego, and just outside Pasadena. The range of shopping options available was simply too vast to count. There were still Family Dollar stores in San Diego but they occupy a different role in the market.

Once upon a time, J.C. Penny’s and Sears-Roebuck occupied storefronts in small town America (although Spring Arbor might be too small for that). Then Kresge’s gave way to Kmart. Target developed mid-level shopping centers. Walmart used their mass purchasing and efficient distribution system to populate mid-size towns.

Local shop owners couldn’t compete with these national chains and closed down. Then the markets shifted and Penny’s, Sears, and Kmart started shedding stores. They were trapped between the microeconomic market of a small town (that couldn’t produce operating margins) and the macroeconomic priorities of corporate. They were in turn squeezed by super-malls and online behemoths like Amazon.

One result is that the economic map gets more regionalized. It’s a family trip to the “big” city to hit the Walmart Superstore. What’s left in the small town? Family Dollar.

Family Dollar isn’t a bad company. They buy liquidated or mass quantity or imported products and make them available for lower prices than other outlets. If you travel to Spring Arbor and forgot to buy shampoo, they can bail you out after the other stores close.

But it’s hard to think of them as a free market solution to shopping in the small town.

So when Health Care Reformers talk of not having government in charge of health care, they are counting on my meso-economic markets operating like regular markets. They believe that “promoting competition” will allow lower prices, better access, and higher quality.

Why would that be the case? Because national insurance providers would be motivated to build network relationships with local providers. They would tailor insurance coverage in an a la carte manner to that consumers would buy just what they need.

In short, they are assuming health care is like Oreos. I’ll make choices available from a wide range of health care options and pick the one best for my budget, age, and health condition. Give me a plan that maximizes coverage for sore knees but I don’t need contraception or women’s health care.

But when we shift from Oreos to Family Dollar we see the larger issue. Health care facilities in rural America have a hard time making a go of things. They are closing due to lack of doctors, the difficulty of meeting needs of seniors, and the costs of technology. Unless they are part of a national chain that is willing for them to operate at a loss due to social commitments toward quality health care, they are going to go the way of Kmart.

If so, what will be left behind? Urgent Care clinics that provide minimal outpatient services to deal with patient needs. Serious care will continue to be provided regionally. Even that depends on the macroeconomic competition of national chains.

Or it depends upon the larger society expanding the scale of users in the system. Having more people in the system balances the costs across regions and age groups.  It means that the meso-economic markets can operate at a loss because there is a surplus of insured people who aren’t drawing on the system.

Think of it this way. Health Care choices are not like buying Oreos. Reforms that fail to address regional variation will create a patchwork approach to health care that treat Family Dollar and the Mall of America as equivalent. A national approach to health care will look more like Amazon, where access and costs are spread on a national level (if only we could do surgeries via internet!).

Unless, of course, we are okay as a society with widening mortality rates by region (which is already underway). For all the talk about “Americans Left Behind” over the last year, this regional variation is a significant issue. Those are the very people for whom the meso-economic market doesn’t work.

But they’ll still have Family Dollar to rely on even if they can’t afford health care.

 

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