Why Can't the Market Control Health Care Costs?

The terrifying answer to this question is "maybe it does!"

Proponents of a public option for health care argue that the private sector has proven itself unable to control the rising costs of health care, and that government is uniquely able to strong-arm better prices. There's something to be said here (that I'm not exactly qualified to comment on) about private, employer-provided and tax-free health insurance creating distortions in how much people have to pay for what they get, and this generally driving up the cost of care. But this doesn't explain why private health insurers (and they are enormous, with enormous amounts of baraining power) wouldn't have incentives to keep costs down, even if YOU don't.

This morning on Morning Joe, Howard Dean tried to explain it:

His answer: CEO salaries!

Does this make any sense? Why should CEO salaries have any relation to health insurance companies' incentives to keep costs down? Your typical greedy corporation should want to do both, after all. Keeping down costs has the effect of drawing more business, increasing equity and leaving more cash on the table for big, fat CEO salaries.

Proponents also argue that creating a public option is the way to deal with this problem. But Medicare is already an enormous program with huge amounts of bargaining clout. What cost-control power will a new public option have that Medicare (or for that matter, equally enormous private insurers) doesn't?

The most dramatic change would likely come from changing medical malpractice liability so that doctors will have less incentive to throw every expensive test at a problem. Right now the cost of avoiding malpractice suits is being passed along to insurance companies which are, in turn, passing it along to the employers which are providing insurance to their employees. A public option only stands a chance of lowering costs if those doctors are less vulnerable to medical malpractice claims. But then ask yourself "Do I want to see a doctor that is really difficult to sue?"