The Perversity of the American Healthcare Market

Many conservatives simply refuse to reckon with the uniqueness of the American healthcare industry.

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Throughout the Obamacare drama of the last couple of years, it's been asserted by reform advocates that the fundamental reason government needs to heavily regulate healthcare is because it's a unique market—and by unique, they mean uniquely, perversely inefficient.

Slate's Matthew Yglesias refers to this glancingly in a colorful column about the recently-deceased Murray Lender, the frozen bagel magnate.


The fundamental story of Lender's Frozen Bagels is that the winning product isn't always the best one. Like Ikea for furniture, H&M for clothing, or the Olive Garden for Italian food, Lender's innovated by finding a way to compromise on quality and reap huge gains in other spheres. To an extent, it's thankless work. Nobody wants to stand up and proudly proclaim, "I changed the world with my inferior products." But often this is how the world changes. And if you look at the health care and higher education corners of the American economy where spiraling costs are bankrupting the middle class, you see sectors that are largely untouched by this kind of low-end innovation. The world could probably use a few more Murray Lenders.

As it relates to healthcare, you can find a deeper explication of this point in a dialogue between David Frum and Mickey Kaus, in which Frum asks, "Where is the Sam Walton of American healthcare?"

[See a collection of political cartoons on healthcare.]

We don't have the finest food or handicrafts. You go to Europe for things like that, Frum notes. "The genius of American business," he continues, "is the ability to produce a good-enough product at a fabulous price and make it available to everybody—to unleash a remorseless seeking after efficiency."

But in the healthcare arena, he says, America is like French cuisine: We have the best of the best care—and at gob-smackingly high prices.

[Read the U.S. News debate: Should the Supreme Court Overturn Obama's Healthcare Law?]

Kaus—no fan of Obamacare or President Obama himself—replies that if it were possible for the Sam Walton (or Murray Lender) of healthcare to ever emerge, he would have done so already. That's because the healthcare market is ... unique:

If you provide better services, you get penalized for it. If you give more and better care to people, sick people will flock to your company, and a vicious cycle will take place where they will drive up your costs and you will lose money.

It's one of the few businesses—schools are another one—where your profits depend on the class of customers you get as opposed to the service you provide. That is a perversity that the market has not overcome.

[Photo Gallery: Supreme Court Hears Health Care Reform Arguments]

This is a reality that many conservatives simply refuse to reckon with. To his credit, as governor of Massachusetts, Mitt Romney accepted it. And now, out of a combination of cravenness and ambition, he's desperately trying to swat it away. Now there's a possibility that, as president, he'll have the responsibility of spearheading a brand new reform effort. Good luck with that square peg and round hole, Mitt.

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