Market failures kill solvency---consumers choose poorly and ignore social externalities.

Introduction Many believe that health care is, or should be treated as, a "typical" economic good. 1 As such, its delivery and distribution should be governed by "standard economic theory," 2 in the context of a "free" 3 or [*704] "competitive" 4 market. While each of these terms means something different, all of the terms share one characteristic: the primacy of consumers having "complete" or "perfect" knowledge of the good being sold. 5 This knowledge is related to the "value" of the good - its price and quality - so that consumers can make informed choices. 6 Even a cursory review of the attributes of the health care market, however, raises serious questions as to whether consumers have, or can ever have, the knowledge necessary for a competitive market to work in health care. 7 Medical care is complicated, and insurance policies are dense documents. And because we habitually minimize risks that we cannot, or would rather not, contemplate, 8 in a moment of need and [*705] vulnerability, the last thing one wants to do is negotiate prices pursuant to those dense and complicated documents. Of course, this is not to imply that the current health care market is working - at best, the market is characterized as a strange mixture of competition and "command and control" that is lacking in transparency. 9 Prices continue to rise; 10 consumers still find the individual insurance market challenging to navigate; 11 many individuals still lack high-quality, accessible health care services; 12 and many common measures of public health in the United States rival those of third world countries. 13 Still, there is a worry that the current movement toward more fully embracing competition as the means to allocate health care services is fraught with peril. Wrong choices made by patients acting as consumers [*706] lead to delays in accessing services. Even further, some companies may capitalize on the fact that these patients-consumers make wrong choices and might not thoroughly consider all options by incentivizing avenues of care that may be suboptimal with enormous consequences. This Essay advocates that health care should not be treated like any other good and that the vagaries of a competitive free market should not be the approach to achieve health care's so-called "Triple Aim": high-quality, low-cost, accessible health care. 14 This Essay's concerns about the role of competition are further heightened given the current movement toward "consumer directed" 15 or "defined contribution" 16 health care - the idea being that consumers should be empowered to make cost/benefit choices on their desired (if any) type of insurance coverage and then fully bear the implications of those choices. This is very much a competitive market approach, as it assumes that the industry must empower consumers to make self-interested choices to improve quality and reduce the cost of health care. In this defined contribution world, employers will no longer provide health care insurance to workers, 17 but rather will provide a fixed amount [*707] of money that an employee can deposit into a health savings account - along with the employee's own money - to pay health care expenses. 18 Coupled with a high-deductible health plan, whereby the employee is required to pay a minimum deductible of $ 1,300 (individual) and $ 2,600 (family) for catastrophic health care coverage, 19 this "skin in the game" is designed to interject a degree of value consciousness into health care purchasing to parallel any other consumer good. 20 In considering the impact of this expansion of consumer-directed health care and its increased cost-sharing obligations, one must realize that insurance is not just a payment mechanism, but rather the key to entering the health care marketplace. Health care services are expensive, and few can afford a long course of treatment without insurance coverage. 21 While private hospitals have a legal obligation to provide care, this only arises in the context of an emergency or a possible urgent [*708] condition. 22 Private physicians, pharmaceutical companies, and many other health care providers have no legal obligation to provide services or products for free or reduced costs. Therefore, one must present an insurance card within five minutes of visiting a physician. By design, pulling back the scope and level of coverage will cause patients-consumers to consider their need for care. While to some extent, benefit levels and cost sharing have always impacted health care access, the higher level of cost sharing brings affordability of health care to a point where patients-consumers cannot access essential services because patients-consumers are considering the costs of their health care before the service is rendered. Not only has defined contribution thinking taken sway amongst private employers, 23 but it appears to be gaining headway in possible Medicare and Medicaid program reforms. While the views of President Trump's administration continue to be unclear, 24 House Speaker Paul Ryan calls for the implementation of Medicare vouchers, which would enable beneficiaries to shop the private insurance market for the type of coverage they would prefer. 25 And some state Medicaid programs, such as [*709] Arkansas, 26 implemented a version of Medicaid vouchers in addition to the Centers for Medicare and Medicaid Services ("CMS") approving similar programs in Iowa, Indiana, Michigan, and Pennsylvania. 27 Given the significant cost savings associated with a defined contribution approach, the idea is likely to gain even further sway. 28 This Essay argues that overall reliance on competition and free market thinking (particularly value-incentivized consumers) to achieve an appropriate, fair allocation of health care services will cause significant harm to many people. In arguing this proposition, this Essay focuses specifically on the lack of transparency in health care; this lack of transparency means that the sine qua non of a free market - educated, self-interested consumers - is lacking. This Essay also contends that the free market approach will not work because it ignores the reality that invariably society will intercede to "rescue" individuals who made poor choices regarding their scope of insurance coverage, ultimately increasing the cost of every other patient-consumer's health care services. 29 Finally, reliance on this approach [*710] serves to further erode the social compact where everyone should be entitled to the basic building blocks of life to make their way in the world. 30 I. Health Care Lacks Transparency The health care industry is not transparent with respect to price or quality, 31 and its primary beneficiary - the patient - often lacks the capability and capacity to make informed choices. 32 Because an informed consumer able to make value judgments is lacking, the very foundation necessary for a competitive market to work is absent, causing the market to fail. The lack of transparency regarding the quality and price of health care [*711] services has been long known and lamented. 33 And there is a legitimate concern that this lack of transparency will create severely detrimental consequences in the new world of limited health insurance. 34 The nature of health insurance is changing: health plans are minimizing coverage and consumers can expect to bear more of the cost of care and to comparison shop cost and quality to a degree never expected. Invariably, these burdens will result in choices to delay care or seek less competitive, lower-quality options, causing harm. 35 The lack of transparency in large part results from health insurance historically shielding beneficiaries from the full cost of care. 36 Thus, unlike other types of common insurance where coverage is purchased for catastrophic events and rarely used, health insurance has traditionally been designed for the patient-consumer to pay for low-risk, often-encountered occurrences. While society may not agree that everyone has a right to health care, 37 insured individuals seem to agree that this right [*712] exists, because once coverage is secured, they often immediately seek health care services. 38 Indeed, while an important part of the difficulty in pricing insurance products on the exchanges is the lack of younger, healthier individuals opting into the market, 39 another significant factor is the higher-than-expected utilization of services as newly covered individuals seek (presumably delayed) medical care. 40 Government and private insurers have largely focused their efforts on cost containment, giving much shorter shrift to quality. 41 The Institute [*713] of Medicine's 2000 report, To Err Is Human, 42 sounded a clarion call on the poor quality of health care services - likening the number of deaths caused by provider error to a daily crashing of a Boeing 747. 43 Sixteen years later, however, it is fair to say that quality initiatives are still at a fairly basic level of development and implementation. 44 Consumers are traditionally shielded from cost and have focused little on quality. Because of this shielding, there is little consumer demand for tools to assist consumers' assessment of quality providers. 45 [*714] Widespread disparities relating to price and quality, seemingly unhinged from outcomes, are rampant. 46 For many years, the Dartmouth Atlas highlighted significant treatment differences in a wide variety of health care procedures, including tonsillectomies, coronary, stents, and hip fractures - all with no discernable link to quality. 47 Researchers long ago concluded that physician training and practice patterns were responsible for care variation, and that if the nation adopted best practices, then savings associated with standardized approaches would be [*715] immense. 48 Serious efforts at the federal, state, and private levels are underway to provide consumers with quality and price information to enable intelligent choices. For example, on a federal level, CMS' Quality Initiative provides consumers with quality-of-care information and provides the Hospital Compare 49 online platform for consumers to research hospital quality, patient satisfaction, and pricing. 50 In addition, the Patient Protection and Affordable Care Act ("ACA") allotted $ 250 million in state funds for the improvement of price transparency and requires CMS to make standardized extracts of Medicare claims available for provider evaluation. 51 States (e.g., Massachusetts and New Hampshire) 52 have also led the charge to provide information to consumers. 53 Massachusetts pioneered with its October 2013 legislation, which required insurers, physicians, and hospitals to provide health care consumers with the costs of health care procedures ranging from office visits at a primary care provider's office to surgical procedures. 54 In [*716] 2005, New Hampshire passed legislation that created the New Hampshire Comprehensive Health Care Information System, and mandated the creation of an all-payor claims data base ("APCD") and a consumer-friendly public website. 55 This information system collects provider data from a broad array of providers and services, and the New Hampshire APCD lists total and out-of-pocket costs for consumers. 56 Private insurers have also moved to empower consumers. For example, Blue Cross Blue Shield of Illinois provides detailed information on comparisons of in-network versus out-of-network provider services, ranging from CT scans to preferred brand drugs for certain medical conditions. 57 All of these initiatives are supported by incentivizing consumers to focus more deeply on the quality and cost of their care through increases in their out-of-pocket health care expenditures. Even if a consumer wishes to secure price and quality information, however, their ability to appropriately interpret this data may be rudimentary at best. 58 And, in many cases involving elderly, vulnerable, or frail individuals, the expectation of seeking and interpreting data may be completely unreasonable. [*717] To date, for example, leading quality indicators used by the federal government to determine value-based Medicare payments include percutaneous coronary intervention ("PCI") received within 120 minutes of hospital arrival, thrombolytic agent received within thirty minutes of hospital arrival, and ACE Inhibitor or Angiotensin Receptor Blocker for Left Ventricular Systolic Dysfunction and Beta Blocker prescribed at discharge for a heart attack. 59 These particular measurements, however, have very little resonance with consumers desiring to learn the quality reputation of potential providers whose care they may solicit. 60 "Star" ratings, on a one-to-five scale, are more meaningful as they distill a multiplicity of factors in a consumer-friendly manner. 61 But even these ratings may capture areas of little or no concern to a particular consumer, or oversimplify issues causing the rating to be misleading. And, ratings may fail to equalize across patient characteristics, thus incorrectly identifying providers as substandard, for example, because [*718] their patient population is sicker and consequently more prone to poorer outcomes. In sum, meaningful measures of value are lacking in the health care arena. Serious questions also arise regarding consumers' abilities to correctly interpret the available data so as to make reasonable choices impacting their access to quality care. II. There is no Available Proxy having an Interest Unified with Consumers to Evaluate Quality and Cost Data If we grant the notion that consumers may not be able to possess the knowledge necessary for a free market in health care to function, we might next look to see if there is an available agent, or proxy, able to fill this role on consumers' behalves. Logical agents include the government (in the case of Medicare and Medicaid beneficiaries), private insurers, or employers. And yet, the same tangle of relationships responsible for the regulatory burden and confusing incentives rife within health care come to the fore here. 62 The government certainly has mixed incentives that may not give patient interest its deserved primacy. While there are many regulations focused on care quality, at their root, Medicare and Medicaid are insurance programs that have a goal of cost containment. 63 While higher [*719] expenses, of course, do not necessarily equate with higher quality, neither are the two concepts divorced. Thus, the potential competing motivators of cost control and quality enhancement may cause these programs to not always align with patient interests. 64 Private insurers have the exact same issue. The tension between cost and quality in insurer goals is readily apparent in numerous lawsuits over many years. These lawsuits challenged the propriety of payment incentives on physician behavior, where insurers were accused of corrupting physician judgment by compensation formulas incentivizing less, and lower-quality, medical care. 65 The ACA further highlighted this tension by limiting the "medical loss ratio" - the portion of the insurance premium spent on insurer administrative expenses - to 20 percent. 66 In addition, given the high degree of turnover within an insured population, [*720] insurance companies take a decidedly short-term perspective on patient outcomes, often in conflict with a patient's long-term perspective on their health. 67 And, of course, insurance companies function by carefully defining, and thereby limiting, the financial risk they assume, so transferring risk to consumers by definition benefits the insurer. Finally, for many of the reasons articulated above regarding the government and insurers, employers too seem conflicted in their allegiance to access and health care quality. 68 Thus, the industry lacks a proxy with a unified interest with consumers. There is no unbiased, credible party able to make value judgments on behalf of patients-consumers. III. Relying on the Market to Allocate Health Care Is Wrong As the industry continues to move toward a defined contribution era where each patient-consumer is expected to conduct one's own research, balance cost and quality, and shop around, one must remember that not all consumers are equipped to manage these new responsibilities. The ability to access this type of information, process, and make an intelligent decision requires a level of sophistication that many people simply do not possess. 69 Further, unique aspects of an individual's medical condition may render it difficult for patients to properly evaluate competing criteria in a manner that facilitates free market choice. 70 [*721] Because of the highly personalized nature of health care services, the influence of procompetitive forces may actually cause harm to a patient. A patient may gravitate toward an option based on inappropriately weighing the cost of the service, without sufficiently considering the likely outcomes from a quality of life perspective. 71 Finally, even if one wants to assume that an educated consumer can make informed choices in a competitive market, the attendant costs associated with this assumption may be hard to swallow. Externalities abound in health care, as one's health status can have a significant impact on others. Individuals unable to pay for their care may be able to hold off on certain types of medical care for some time, but this often leads to very serious, more expensive consequences. 72 From both an ethical and legal perspective, the industry is not going to deny care to individuals presenting in an emergent situation, even if there is no payor and the cost is high. 73 In the end, however, the nation does not want individuals inflicting the social cost of their care - public health issues, accidents, and the like - on society merely because they were unable to make informed health care choices. 74 Even if we adopt a view of "buyer beware" - leading to high incidences of medical debt - this, too, has significant costs on society. In the end, delayed care is likely to be provided, but at a cost to society higher than might have been borne if it had been provided when first [*722] needed. It is simply unimaginable that there will be an ethos amongst our caregivers, health care institutions, and the public that will accept otherwise. There certainly is a place in health care for a consumer focus on cost and quality. An educated consumer is a good thing. We need to be mindful, however, that we do not attribute to the market a sophistication that it lacks when it comes to allocating as essential a service as health care.