Is Health Care A Commodity?

Things might be better if we treated it more like one.

The drumbeat for nationalized health care is growing louder again. Marcia Angell, a former New England Journal of Medicine editor and now lecturer in social medicine at Harvard, declared in The New York Times last October that our health system is near collapse. To prevent this calamity, she claims, "What we need is a national single-payer system." She would model a national single-payer system on Medicare and finance it "through a new tax on income earmarked for health care."

We should do this, Angell argues, because medical care is an essential service "like education, clean water and air and protection from crime, all of which we already acknowledge are public responsibilities." Never mind that many Americans do not believe that public agencies are in fact providing adequate schooling, pollution control, and crime prevention. Angell nevertheless insists, "The fatal flaw in the system is that we treat health care as a commodity."

The fatal flaw is really that we don't treat it enough like a commodity. Necessities like food, clothing, and housing are generally provided here through private for-profit markets—markets in which we can choose for ourselves, with an enormous range of options, exactly how much of any given thing we want to purchase, and are using our own dollars to purchase it. It is true in a sense that health insurance in the United States is still provided mostly through private markets. It's a product that is purchased, though in most cases Americans get their health insurance through their jobs as a form of compensation and have to take what's offered that way. This limits the ability to shop around for exactly what you want to pay for.

Another big difference between health insurance and things like food is that state insurance authorities mandate the minimum level of benefits that insurance companies are allowed to offer. This means that Americans who are insured generally get fairly extensive coverage, but at a high price—and with severely limited choices.

In other areas, we accept that the distribution of wealth is unequal: that some people live in small condominiums while others dwell in McMansions. Some eat at Jean-Georges, while others are lucky to dine at Carl's Jr. And some shop Ross Dress For Less while others browse through Saks. And these decisions seem to work out pretty well, with people for the most part getting what they need, if not always what they want.

But imagine if state regulators insisted that only haute cuisine and high fashion could be offered? Costs would obviously get prohibitive for many. Why do state regulations stymie this process of choice and differentiation leading to cheaper, more available options in health care? Is there a better way?

There is, and South Africa, of all places, hints at how it works in practice. It's true, of course, that South Africa is still quite poor compared to the U.S., and thus, according to Eustace Davie, a director of the Free Market Foundation of South Africa, only 7 million of South Africa's 44 million citizens purchase private health insurance. But the country's health insurance industry at least is able to begin pursuing a solution to the problem of money and coverage: It offers different levels of coverage to fit different levels of income.

Since 1992, a private health care provider called Discovery has enrolled over 1 million members and is growing rapidly. Discovery offers "American style" fee-for-service health insurance combined with medical savings accounts, called personal medical funds. In fact, Discovery has launched an American subsidiary called Destiny Healthcare, offering the same sort of package.

Discovery offers a number of incentives for healthy living. For example, your fees go down if you join a gym and exercise there a certain number of times per year. Also, the plan includes an annual physical checkup. In addition, as incentives, Discovery offers low-cost airline flights and even cheap movie tickets.

Typically, health insurance from a company like Discovery costs 2,400 rand (around $240 U.S.) per month for a family. Comprehensive policies, without the medical savings account and high deductibles, cost about 3,000 rand ($300 U.S.) for a family of four. This puts Discovery out of range for many South African blue-collar workers. The average maid is paid between 600 and 800 rand ($60-80 U.S.) per month and the average miner makes 2,400 rand ($240 U.S.) per month.

Blue-collar workers in South Africa can also choose the Protector Group. It offers an HMO option with unlimited benefits within its system (no choice of service provider) for about 1,000 rand ($100 U.S.) monthly and a Clinicare option which caps benefits at 100,000 rand ($10,000 U.S.) for as low as 280 rand ($28 U.S.) per month, rising in tandem with the insured's income.

An even cheaper option, particularly popular with South African miners, is offered by the Ingwe Health Plan, which features a variety of low-cost options. Ingwe has a network of its own hospitals and contracts out with a number of service providers. The cheapest health coverage plan offered by Ingwe costs about 300 to 500 rand ($30-50 U.S.) monthly. The Ingwe plan typically appeals to black South Africans moving up in the job market.

In contrast to the robust commercial health care sector, South Africa's public/government health care system is falling apart, according to Davie. The post-apartheid South African government declared in 1994 that it would offer universal health care by 2008, but the government is beginning to back down from that goal. Corruption and outright theft are growing problems in the public hospitals, Davie says.

Nevertheless, excellent health care can be obtained in the private sector. With the fall in the rand's value, medical tourism is catching on. The South African government even touts this trend toward "Sun, Surf and Surgery" package tours. A coronary bypass operation that would typically cost $30,000 in the U.S. costs the equivalent of $7,000 in South Africa. Medical tourism is particularly popular among Britons who are seeking faster and better care than they can get under their own socialized medical system.

Clearly, as the example of South Africa shows, markets can provide health insurance for people earning very different levels of income. And in a country much richer than South Africa, like the United States, the effect of that more diverse market on the percentage of citizens covered is apt to be far more dramatic.

By allowing more differentiation in health insurance markets, many, if not most, of those Americans who are currently uninsured could purchase a basic level of health coverage. Furthermore, even insured Americans could opt out of the third party payment system and purchase the insurance they want rather than be locked into whatever plans their companies impose on them. Finally, Americans offered a choice of health insurance plans would be empowered to decide what level of coverage they are comfortable with and able to afford. In other words, freely functioning, less regulated markets in health insurance would go a long way toward alleviating the "health care crisis."