[gdpawel]

A significant number of Americans believe that the answer to our health care problems is to rely on the free market. Health care can’t be marketed like bread or TVs. An explanation was eloquently brought out by Princeton economist Paul Krugman.

There are two strongly distinctive aspects of health care. One is that you don’t know when or whether you’ll need care, but if you do, the care can be extremely expensive.

It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy. Consumer choice is nonsense when it comes to health care. And you can’t just trust insurance companies either, they’re not in business for their health, or yours.

This problem is made worse by the fact that actually paying for your health care is a loss from an insurers’ point of view, they actually refer to it as “medical costs.” This means both that insurers try to deny as many claims as possible, and that they try to avoid covering people who are actually likely to need care.

Both of these strategies use a lot of resources, which is why private insurance has much higher administrative costs than single-payer systems.

The second thing about health care is that it’s complicated, and you can’t rely on experience or comparison shopping. That’s why doctors are supposed to follow an ethical code, why we expect more from them than from bakers or grocery store owners.

You could rely on a health maintenance organization to make the hard choices and do the cost management, and to some extent we do. But HMOs have been highly limited in their ability to achieve cost-effectiveness because people don’t trust them, they’re profit-making institutions, and your treatment is their cost.

Between those two factors, health care just doesn’t work as a standard market story.

There are a number of successful health-care systems, at least as measured by pretty good care much cheaper than here, and they are quite different from each other. There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn’t work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.

And what Krugman says about "medical costs" is explained by former Cigna Insurance Company executive Wendell Potter. The industry is driven by two key figures: earnings per share and the medical-loss ratio, or medical-benefit ratio. That is the ratio between what the company actually pays out in claims and what it has left over to cover sales, marketing, underwriting and other administrative expenses and, of course, profits.

Think about that term for a moment: The industry literally has a term for how much money it "loses" paying for health care.

The best way to drive down "medical-loss," is to stop insuring unhealthy people. You won't, after all, have to spend very much of a healthy person's dollar on medical care because he or she won't need much medical care. And the insurance industry accomplishes this through two main policies. One is policy "rescission." They look carefully to see if a sick policyholder may have omitted a minor illness, a pre-existing condition, when applying for coverage, and then they use that as justification to cancel the policy, even if the enrollee has never missed a premium payment.

Rescission is important to the business model. At a recent House Subcommittee on Oversight and Investigation meeting, Rep. Bart Stupak, the committee chairman, asked three insurance industry executives if they would commit to ending rescission except in cases of intentional fraud. "No," they each said.

Potter also emphasized the practice known as "purging." This is where insurers rid themselves of unprofitable accounts by slapping them with "intentionally unrealistic rate increases."

The issue isn't that insurance companies are evil. It's that they need to be profitable. They have a fiduciary responsibility to maximize profit for shareholders. Potter explained, he's watched an insurer's stock price fall by more than 20 percent in a single day because the first-quarter medical-loss ratio had increased from 77.9 percent to 79.4 percent.

The reason we generally like markets is that the profit incentive spurs useful innovations. But in some markets, that's not the case. We don't allow a bustling market in heroin, for instance, because we don't want a lot of innovation in heroin creation, packaging and advertising. Are we really sure we want a bustling market in how to cleverly revoke the insurance of people who prove to be sickly?