By Gordon Hull
Yesterday, a group of very rich and influential corporations – Amazon, Berkshire Hathaway and JPMorgan Chase – announced that they would be teaming up to form an independent healthcare company for their employees. From the NYT:
“The alliance was a sign of just how frustrated American businesses are with the state of the nation’s health care system and the rapidly spiraling cost of medical treatment. It also caused further turmoil in an industry reeling from attempts by new players to attack a notoriously inefficient, intractable web of doctors, hospitals, insurers and pharmaceutical companies. It was unclear how extensively the three partners would overhaul their employees’ existing health coverage — whether they would simply help workers find a local doctor, steer employees to online medical advice or use their muscle to negotiate lower prices for drugs and procedures. While the alliance will apply only to their employees, these corporations are so closely watched that whatever successes they have could become models for other businesses.”
The CEOs were very clear that they weren’t sure what they were going to do, but that they intended to improve the healthcare cost problem for their employees and corporations. This announcement falls only a couple of weeks after a consortium of hospitals announced that they’d be forming an independent drug company to supply them with cheap generic drugs. That announcement was spurred in part by the recent behaviors of investors who scoop up old drugs for rare diseases, and then raise the price enormously, knowing that the drug is uncommon enough that there won’t be market competition. But the behavior of those who exponentially raise the prices of EpiPens and Daraprim is really only an exemplar of the more general pricing strategy of Pharma, as the Times reported with regard to the doubling of the price of rheumatoid arthritis drug Humira since 2012.
What the Amazon/JPMorgan/Berkshire Hathaway consortium and the hospital consortium have in common, then, is that they are committing to find new ways to make health care cheaper. And they are doing so by attempting to internalize costs that they would otherwise have to pay for on the market. Two thoughts:
First, the economics of the situation make moves like this almost inevitable. As Ronald Coase long ago argued, firms will be guided by efficiency. If it’s cheaper to outsource something (say, make T-shirts), they’ll do that. If it’s cheaper to do it in-house, they’ll do that. We’ve recently seen a trend toward the market in cloud computing. This represents movement the other direction. Healthcare has become so expensive for employers and providers that they are seriously looking at efficiency gains by doing it in-house. The inflated market price makes sense, as healthcare can only barely be considered a market. It is a credence good with a relatively inelastic demand, so there’s no plausible way for individuals to drive down prices with market choices. A decision to forego heart surgery is one made only in extremis, not like a decision to wait for the price of a new cellphone to come down. In that environment, providers - often monopoly providers to boot - have no incentive to lower prices, and neither, really, do insurers.
The intuitive appeal is certainly there: getting generics out of the hands of predatory Wall-Street financiers will likely improve patient outcomes and everyone’s bottom line. So too, Amazon could save a lot of money not having to hire bureaucrats to argue with insurance company bureaucrats over whether a claim needs to be paid. There’s also a tremendous amount of waste in specialist referral processes mandated by insurance companies. Amazon could probably also buy a few MRI machines, and then use them at cost. More generally, Amazon has strong incentives to negotiate aggressively with providers, incentives that insurance companies do not. This could lower prices, and it would make an end run around hospital system mergers like the one currently proposed between Carolinas Health System and the UNC Medical system, which are apparently designed to squeeze insurers.
Second, then, what’s not to like? Proposals like Amazon et al. move employers even closer to their employees’ healthcare. This is, in many ways, a terrifying proposition. Employers already use employee wellness programs as mechanisms to control the behavior of their employees when they’re not at work. If you’re not worried about JPMorgan Chase providing your healthcare, consider what would happen if Hobby Lobby and a bunch of other far right, religiously dominated corporations were to form some sort of healthcare consortium. Employees could only go to certain providers (possibly in-house), and those providers would then be required to deny access to abortion, birth control, or other reproductive services. There would be legal challenges to this, but if it’s in-house, then it’s arguably not insurance (so the ACA regulations go away), and the unfortunate fact that the Hobby Lobby decision countenanced the idea that large corporations could have religious beliefs allows them to play all sorts of games with so-called “Religious Freedom Restoration” laws. In the meantime, of course, Hobby Lobby will still draw from the public purse to educate its employees, use fire and police services, and drive on public roads. But they are also manically driven toward trying to control their employees’ medical decisions: they only object to remembering the their employees are autonomous individuals when it conflicts with their desire to impose religious orthodoxies on them.
In other words, there’s going to need to be careful regulation here, and if the model catches on, the Hobby Lobbies of the world are going to fight that regulation tooth and nail. In today’s Courts, the outcome of that fight is not a given. The presence of a concurrent, subsidized “public option” for health care, extended not just to those who can’t get health care from their employees, but to those who morally object to the healthcare decisions of their employers, is a minimum requirement (indeed, I think there’s good reasons to say that RFRA’s themselves require this. Otherwise, the laws only restore the freedom of some religions, or of religion as opposed to non-religion, which would, in a sane legal system, violate the Establishment Clause. I am not of course referring to any judicial system we have, especially not one populated by Trump judges).
The theoretical problem, then, remains the same: people are still beholden to corporate, private interests when they try to access health care. Healthcare is still not treated as a public good, which can be accessed by individuals as rights-bearing citizens. It has to be accessed by individuals as consumers or employees. The Amazon/JPMorgan Chase/Berkshire Hathaway announcement has the potential to result in tremendous good. That said, shifting to a more efficient provision of healthcare doesn’t change any of the difficulties involved in that system,
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