Whole Foods Health Care

John Mackey, co-founder and CEO of Whole Foods, has suggested 8 reforms to health care.

  • Equalize the tax laws so that employer-provided health insurance and individually owned health insurance have the same tax benefits. Now employer health insurance benefits are fully tax deductible, but individual health insurance is not. This is unfair.
  • Repeal all state laws which prevent insurance companies from competing across state lines. We should all have the legal right to purchase health insurance from any insurance company in any state and we should be able use that insurance wherever we live. Health insurance should be portable.
  • Repeal government mandates regarding what insurance companies must cover. These mandates have increased the cost of health insurance by billions of dollars. What is insured and what is not insured should be determined by individual customer preferences and not through special-interest lobbying.
  • Enact tort reform to end the ruinous lawsuits that force doctors to pay insurance costs of hundreds of thousands of dollars per year. These costs are passed back to us through much higher prices for health care.
  • Make costs transparent so that consumers understand what health-care treatments cost. How many people know the total cost of their last doctor’s visit and how that total breaks down? What other goods or services do we buy without knowing how much they will cost us?
  • Enact Medicare reform. We need to face up to the actuarial fact that Medicare is heading towards bankruptcy and enact reforms that create greater patient empowerment, choice and responsibility.
  • Finally, revise tax forms to make it easier for individuals to make a voluntary, tax-deductible donation to help the millions of people who have no insurance and aren’t covered by Medicare, Medicaid or the State Children’s Health Insurance Program.

Like Dave Schuler, I don’t think this will solve all of our problems (for example, it wouldn’t address the problem of the uninsured). But a number of these reforms would promote competition. Competition in the allocation of resources is good. Consider the other end of the spectrum: monopoly. Monopolies have no redeeming features (from a social perspective). They raise prices, reduce output, limit innovation, and impose an economic inefficiency (the deadweight loss). As such, moving away from the less competitive end of the spectrum to the other end is usually a good thing.[1]

All countries with socialized medicine ration health care by forcing their citizens to wait in lines to receive scarce treatments.

This is a bit annoying. I’ve heard it on some of the radio talk shows, and the problem is that its just not reasonable to point to a European system and say, “Ewww, they ration.” We ration all scarce resources. All of them. Most are rationed via the market mechanism. Yes, the market mechanism is a rationing mechanism. A decentralized mechanism that does an amazing job (although it isn’t perfect, see the footnote below). So when somebody takes on a sneering tone with rationing being socialism they are just flat out wrong.

Now, that being said, we would like a mechanism that does the best job possible at rationing resources. Some think the government can do it. Others disagree and think where ever possible the market should do it. Given that a pure market solution would likely leave many without access to care and that most people don’t see this as a desirable outcome, a hybrid system is probably the best solution. One that utilizes market based allocation of resources when possible, but with government intervention to make sure that people have access to care.

And having said that, it should also be pointed out that several European systems do just this. For example, France, Switzerland and the Netherlands have systems that include market based mechanisms. In fact, it appears that the Netherlands may be close to having a sustainable system when looking at costs.

Price competition under the new system has increased significantly and at least 20 percent of Dutch consumers have switched insurers.222 When the system was initiated, the Dutch government predicted premiums would cost €1,106 on average. However, competition has forced the average premium down to €1,028,…

Hospitals are beginning to compete by expanding services such as neurosurgery and radiation therapy.229 Although some experts have expressed concern that smaller hospitals offering these services may not have sufficient utilization rates to ensure quality and efficacy, the expanded availability of services will likely increase access to care and reduce queues.230

[…]

The new system may even be having a positive impact on health care costs. Since the new system took effect, health care costs have been growing at an annual rate of just 3 percent, compared to more than 4.5 percent in the year before the reforms.231

Given that France, Switzerland, and the Netherlands are all doing better than the U.S. when it comes to cost of health care it would be a good idea to look closely at these systems in these countries and see if we can implement such systems here, or some of their ideas.
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[1]What can throw a wrench into the works is that we rarely have all the conditions for “prefect” competition. Asymmetries in information, externalities (which we have in health care), and public goods, are problems where the first best solutions are often not attainable. This would create a necessary condition for some sort of intervention into the market, speaking from a purely theoretical perspective.

FILED UNDER: General
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. M1EK says:

    Mackey is a Randroid – and ought not be allowed to push HSAs as a panacea without challenge, given that HSAs are absolutely useless to people without insurance; without jobs; or who pay relatively low marginal tax rates.

    They’re really useful for rich guys, of course. Another tax-sheltered savings plan. Yay!

  2. I have two more questions when comparing our apples to Germany’s, Switzerland’s, or the Netherlands’ oranges.

    1. How do we attach costs to the fact that our country is much, much larger — not just in population but in size, which makes the centralization of some health care delivery systems noticeably more diffiult. Part of that problem means we have large areas of the country where the density of population makes it harder or more expensive to provide the same level of service to everyone. Compare and contrast to the post office delivering letters or the electric companies delivering electricity for instance. I fear that the progressive desires to force people into more urban enclaves would only be accelerated by theier proposed solutions.

    2. I believe our states are substantially more autonomous than Germany’s states, Switzerland’s cantons, or whatever the Netherlands’ smaller political subunits are called. Must federalism be further diminished or dismantled to implement any of the various proposals offered by President Obama? Some of John Mackey’s proposals certinaly do nothing to harm federalism, but I’m not as sure when it comes to Obamacare.

  3. LaurenceB says:

    Was this really written by Steve Verdon? I suspect not. Just wondering.

  4. This Guy says:

    M1EK, Mackey is actually not a Randian Capitalist, He’s a Conscious Capitalist.

  5. PD Shaw says:

    We ration all scarce resources. All of them. Most are rationed via the market mechanism. Yes, the market mechanism is a rationing mechanism.

    I understand where you’re coming from as a matter of pure economics and particularly the role price plays in distributing scare resrouces, but I think the notion that “We” ration via the market isn’t particularly helpful either. Do we ration cars, houses, food, lottery tickets, BeeGee CDs? Frankly, somebody that starts talking about goods and services this way (present company excepted) is most likely to start talking about supply and demand as articifial constructs that can be overruled.

    However, I agree Mackey is wrong on rationing because last I checked the government was responsible for 45% of healthcare expenditures in the United States.

  6. Dave Schuler says:

    charles austin:

    I think that European critics of our system are making an unwarranted assumption: that the plans being used in their countries can be scaled linearly or near-linearly. I don’t believe that’s the case for any number of reasons.

    Additionally, they don’t really understand how different our circumstances are from theirs. We have problems completely different from theirs, political, social, and economic.

  7. Stan says:

    Dave Schuler, the public plan liberals want has zero chance of making it through the Senate, and the rest of the health bill doesn’t seem to pose that many complicated administrative problems. What is the source of the nonlinearity you mention? And what are the special circumstances, political, social, and economic, that you think are so different from Europe’s?

  8. Crust says:

    All countries with socialized medicine ration health care by forcing their citizens to wait in lines to receive scarce treatments.

    Is that true? I mean every medical system — including the United States — has waiting lines to some extent. But I thought waiting lines were only a material problem for some systems, notably the UK and Canada, but not for many others, e.g. France.

  9. Stan says:

    Sorry to post again, but the post by Crust caught my eye. I don’t think people living in advanced democracies will put up with sub-standard medical care for long, and I see NO evidence that any western European country has the slightest wish to adopt our health system. So I think the quote “all systems with socialized medicine ration health care by forcing their citizens to wait in line to receive scarce treatments” is unadulterated hogwash. And I wonder if the person who made this statement will let us know what “socialized medicine” means.

  10. Brett says:

    I think the notion that “We” ration via the market isn’t particularly helpful either. Do we ration cars, houses, food, lottery tickets, BeeGee CDs?

    Well, yes. That’s what Steve means when he talks about the rationing by the market.

    Hell, that’s the very foundation of economics: scarcity. That wants are unlimited, but resources are not, and the market mechanism rations resources (usually by price).

    Given that France, Switzerland, and the Netherlands are all doing better than the U.S. when it comes to cost of health care it would be a good idea to look closely at these systems in these countries and see if we can implement such systems here, or some of their ideas.

    France is basically partial-single-payer; the government covers 80% of all medical costs (including all the expensive treatments), with insurance (usually from your employer, but sometimes personally bought) covers the 20% remaining (with some subsidies for those who can’t pay the 20%).

    The Netherlands is more “market-oriented”, but it involves some heavy-duty regulation of what are in the private insurance plans offered and bought, and in the past couple years the Netherlands government has moved to cover virtually the entire cost of all long-term treatments.

    I’d be very wary of calling these “market-ish” systems.

    As for the OP’s ideas:

    Equalize the tax laws so that employer-provided health insurance and individually owned health insurance have the same tax benefits. Now employer health insurance benefits are fully tax deductible, but individual health insurance is not. This is unfair.

    It is, but even with them equalized, the employer plans usually have one greater advantage – they can drive the per-person costs down because they’re covering a large group (when negotiating with an insurer for a plan). Individuals don’t have that bargaining power, which is why individual plans with the same coverage as a company plan are almost always more expensive.

    Repeal all state laws which prevent insurance companies from competing across state lines. We should all have the legal right to purchase health insurance from any insurance company in any state and we should be able use that insurance wherever we live. Health insurance should be portable.

    This is a round-about way of calling for the gutting of all state laws concerning health insurance. I don’t approve of it unless we get corresponding federal laws to replace them.

    Repeal government mandates regarding what insurance companies must cover. These mandates have increased the cost of health insurance by billions of dollars. What is insured and what is not insured should be determined by individual customer preferences and not through special-interest lobbying.

    Yes, but what if individuals buy el-cheapo, effectively worthless health insurance plans (or that’s all they can get, because of pre-condition screening) that fail to prevent bankruptcy or financial collapse when they get hit with major medical costs? The costs still end up falling back on us (either indirectly by hitting the hospitals and doctors where they get treated, or directly by shunting them over to a federal or state health coverage program once they’re sufficiently impoverished). *

    *Don’t dismiss this, either. My friend’s mother has cancer, but she’s in the process of losing her Medicaid because she earns too much.

    It also doesn’t prevent “patchy” plans – basically, plans that say they cover stuff without actually covering it (like, they say “We cover pregnancies, but don’t cover the delivery, etc”).

    Enact tort reform to end the ruinous lawsuits that force doctors to pay insurance costs of hundreds of thousands of dollars per year. These costs are passed back to us through much higher prices for health care.

    The actual costs of malpractice suits as a percentage of health care costs are pretty small – in the single digits of percentage. Usually, the claim is that this leads to a lot of “preventitive medicine” that costs much more. I’d like to see some proof of that before I take it as a whole.

    Make costs transparent so that consumers understand what health-care treatments cost. How many people know the total cost of their last doctor’s visit and how that total breaks down? What other goods or services do we buy without knowing how much they will cost us?

    Sounds good, although it sounds like quibbling in some cases. What, are you going to say, “I’m not paying $1.50 for toothpaste!”?

    Finally, revise tax forms to make it easier for individuals to make a voluntary, tax-deductible donation to help the millions of people who have no insurance and aren’t covered by Medicare, Medicaid or the State Children’s Health Insurance Program.

    To what would they be donating? There’s already a plethora of charitable deductions and choices out there.

  11. Dave Schuler says:

    What is the source of the nonlinearity you mention? And what are the special circumstances, political, social, and economic, that you think are so different from Europe’s?

    Population, area, the comparative decentralization of our government (states and local governments aren’t departments of the central government as it is in many European countries).

    Not only are we more diverse than any European country, we’re more diverse than all of them put together. We share a long land border with a country whose per capita GDP is 1/4 of ours.

    Just as an example the city in which I live has a larger population than 25% of the countries in the EU. The state in which I live is larger in population than all but 7 EU countries and it’s larger in size than all but 6.

  12. James H says:

    Equalize the tax laws so that employer-provided health insurance and individually owned health insurance have the same tax benefits. Now employer health insurance benefits are fully tax deductible, but individual health insurance is not. This is unfair.

    I agree with this. Those of us who work on a contract basis have to shop for our own insurance, and the fact that we can’t deduct for it? Awful.

    Repeal all state laws which prevent insurance companies from competing across state lines. We should all have the legal right to purchase health insurance from any insurance company in any state and we should be able use that insurance wherever we live. Health insurance should be portable.

    IIRC, Joe Biden actually rebutted this. Different states require that insurance policies written there cover different conditions. It sometimes increases the cost of care, but it also sets minimum standards for insurance and the handling of claims. Enact this, and all insurers would relocate to the least restrictive state and add unfavorable choice-of-law provisions to their policies.

    Repeal government mandates regarding what insurance companies must cover. These mandates have increased the cost of health insurance by billions of dollars. What is insured and what is not insured should be determined by individual customer preferences and not through special-interest lobbying.

    The big problem here is that people don’t always know ahead of time what services they might need in the future. On top of that, an insurer’s barganing power dwarfs an individual’s bargaining power. On top of THAT, I should point out that an insurer knows very well all the treatments that might be required for a particular condition — like, say, pregnancy, but an insurer might write its policies to specifically exclude the more expensive services.

    Enact tort reform to end the ruinous lawsuits that force doctors to pay insurance costs of hundreds of thousands of dollars per year. These costs are passed back to us through much higher prices for health care.

    A few years ago, the Wall Street Journal analyzed this issue and found that it had a pernicious effect on malpractice litigation. Does this sound like a good thing? Not quite. Here’s how it breaks down:

    In a malpractice suit, you have economic damages and noneconomic damages. The economic damages (IIRC) consist of the cost of remedying the doctor’s errors, plus whatever costs (lost pay and similar) the patient suffered because of the doctor’s malpractice.

    In practical terms, this means that if an MBA who earns $700,000 per year is out of work for six months because of a botched heart operation, his economic damages come to $350,000, plus the cost of remedying the consequences of malpractice. If a Wal-Mart employee making $18,000 per year is out for six months, that’s economic damages $9,000 plus the costs of remedying the malpractice.

    Noneconomic damages include such things as pain and suffering, punitive damages, and the like. These are largely uncertain.

    One of the most typical malpractice-law reforms is to limit noneconomic damages to a low figure, such as $250,000.

    Now, consider that a plaintiff’s attorney will likely operate on contingency (say, one-third). If the upper limit of recovery is $250,000 plus economic damages, then the attorney’s fee is much, much lower if he represents the Wal-Mart employee. Moreover, that award also has to pay for expert witnesses. And for the Wal-Mart employee, damages might not even cover the costs of bringing the case!

    The upshot is that a medimal attorney will take on the high-flying MBA, but not represent the Wal-Mart worker. Effective legal representation, then, is available only for the wealthy.

    That’s a great reform, isn’t it?

    Make costs transparent so that consumers understand what health-care treatments cost. How many people know the total cost of their last doctor’s visit and how that total breaks down? What other goods or services do we buy without knowing how much they will cost us?

    They are transparent. It’s called your statement of benefits. You receive when you file a claim with your insurer.

    Enact Medicare reform. We need to face up to the actuarial fact that Medicare is heading towards bankruptcy and enact reforms that create greater patient empowerment, choice and responsibility.

    Outside of his buzzwords about empowerment, choice and responsibility, I agree. My top reforms would be to 1) Raise payroll taxes on the highest wage earners and 2) Increase the eligible age for Medicare.

    Finally, revise tax forms to make it easier for individuals to make a voluntary, tax-deductible donation to help the millions of people who have no insurance and aren’t covered by Medicare, Medicaid or the State Children’s Health Insurance Program.

    No opinion.

  13. M1EK says:

    Exceptionalism is a great myth, isn’t it?

    1. Almost all Americans live in areas of at least moderate density. Relatively few live in rural Montana.

    2. Western Europe, taken as a whole, shares a long land border with similarly impoverished neighbors (Africa and Eastern Europe).

    3. I really liked England, except for having to constantly step over the bodies of the dead and dying on my nightly strolls. Perhaps they should invest more money in snow-plows and less in their NHS?

  14. Stan says:

    On the question of diversity, which Dave Schuler mentions, yes, we have people whose ancestors came from many different places, some quite recently. But I think Schuler underestimates the amazingly syncretic nature of our country. Compared to Europe we’ve had nothing like the amount of disaffection toward western societies shown by Moslem immigrants, and to my eye, at least, other people newly arrived here also adjust rapidly. I’ve seen variants of Schuler’s argument about how our diversity complicates everything, but I simply don’t see why. HOW does our diversity complicate something like reform of our health insurance system? This is what I’d like to know.

  15. Steve Verdon says:

    Charles,

    I’m not saying we can get the exact same results as The Netherlands or Switzerland, but we should consider their systems and see if trying to implement them would indicate cost savings. Something has to be done, the status quo is just not going to last. That is pretty much certain.

    PD,

    Do we ration cars, houses, food, lottery tickets, BeeGee CDs?

    See Brett’s reply.

    Stan,

    So I think the quote “all systems with socialized medicine ration health care by forcing their citizens to wait in line to receive scarce treatments” is unadulterated hogwash.

    But it does happen. There are wait times for the UK, Canada and yes the US. In some instances the wait times are mandatory (think the UK).

    HOW does our diversity complicate something like reform of our health insurance system?

    TangoMan touched on this a bit noting that diseases and racial composition, its in one of the health care posts down strea, the on I posted regarding life expectancy I think. It had to with distributions and non-uniformity and such. That is a country is racial/ethnic groups A, B, and C wouldn’t be the same as another country with racial/ethnic groups B, C, and D even if the distributions are the same and there is overlap between some of the races and ethnic groups.

    Added via edit:

    IIRC, Joe Biden actually rebutted this. Different states require that insurance policies written there cover different conditions. It sometimes increases the cost of care, but it also sets minimum standards for insurance and the handling of claims. Enact this, and all insurers would relocate to the least restrictive state and add unfavorable choice-of-law provisions to their policies.

    So? We are talking about massively reforming health care and this is an actual problem? Define a national set of minimum standars and claims handling and this problem disappears. The only thing I can imagine bothering Biden is that members of Congress might have a harder time whoring themselves out to insurance companies.

  16. Stan says:

    Steve Verdon, I’ll accept your statement that there are longer wait times for some kinds of care in the UK than here, but I still have difficulty with the all-inclusive nature of the following: “all systems with socialized medicine ration health care by forcing their citizens to wait in line to receive scarce treatments”. Do the Brits get scarce treatments for all ailments, and what does the term scarce treatments mean? Spain is the only other country I know of that has a socialized medical system. Do Spaniards also have long waits? How about patients in our VA and military medical systems? And if there are long waits in the UK and Spain, wouldn’t the problem be cured if they increased their allocation for health spending? At present the UK spends ONE THIRD as much per capita on health care as we do. Maybe if they increased it to one half they’d shorten their waiting times and make their treatments less scarce (whatever that means).

  17. PD Shaw says:

    Brett, I said I understand the economic point. I don’t believe that it is useful for policy discussions to treat rationing by price and by government as equivalents. (See Megan McArdle) They are not legally (see Canadian Court opinion invalidating ban on private insurance) or morally (my view).

  18. PD Shaw says:

    And I wonder if the person who made this statement will let us know what “socialized medicine” means.

    Another term that isn’t very useful in a country with government paid healthcare for the poor and elderly and government mandated emergency care for all.

  19. Brett says:

    Brett, I said I understand the economic point. I don’t believe that it is useful for policy discussions to treat rationing by price and by government as equivalents.

    Why not? It’s not like the market system is some type of magical device – as I mentioned, rationing is the mechanism by which it operates. Yet you’ve got idiots using “rationing” as an epithet, as if the US doesn’t ration health care.

  20. Brett, any scarce resource must be rationed somehow. The market provides the best set of incentives and the least corruption compared to any other method of rationing I am aware of.

  21. odograph says:

    Charles, when the market rations mansions to rich old guys, and none to poor children, we think that’s fair. The kids will get their chance … oops, unless the rich old guys got the medical care too.

    This really comes back to the safety net idea. If we want to provide a health safety net for all, we’re going to have to provide it. The market doesn’t.

  22. just me says:

    They are transparent. It’s called your statement of benefits. You receive when you file a claim with your insurer.

    Medicaid doesn’t send a statement of benefits.

    People on medicaid have no clue how much the cost of care is.

    I don’t know if Medicare sends a statement.

  23. Ponies odograph. You forgot ponies.

  24. odograph says:

    Thanks for the slow pitch! And now the return:

    “What does a 5 year old with possible cancer need, a doctor, or a pony?”

    To suggest that they are equivalent makes you a complete ass.

  25. Steve Verdon says:

    I don’t believe that it is useful for policy discussions to treat rationing by price and by government as equivalents.

    Strawman, yet again. My point isn’t that they are identical, or even similar. My point is that both are forms of rationing. You have this over-arching concept: rationing. Under that concept are sub-concepts: rationing by price, rationing via government fiat. Nor is that list necessarily exhaustive.

    Brett, any scarce resource must be rationed somehow. The market provides the best set of incentives and the least corruption compared to any other method of rationing I am aware of.

    Usually….

    Charles, when the market rations mansions to rich old guys, and none to poor children, we think that’s fair. The kids will get their chance … oops, unless the rich old guys got the medical care too.

    What exactly is “fair” its a word like rationing. Is it fair if everyone has the same size house? Even if one person is a complete slacker who sits around doing nothing while the other works very hard? Note Charles mentioned incentives and corruption, not much discussion of fairness there.

    I submit that issues of fairness will likely never ever be solved. Bringing it up is a distraction (are you thus an utter ass?). As such, I think it would be far more productive to focus on the incentives any system puts in place. Think of it this way: bad incentives will lead to bad outcomes that are almost surely going to also be unfair. Good incentives will lead to at least better outcomes that are less likely to be unfair, at least egregiously so.

  26. […] Alternatives to socialized healthcare In many of the threads regarding the health care bill, inevitably we hear some one babbling about republicans have no alternative, all they want to do is complain,the hae obama bla bla ba yada yada yada……………………….So when some one does have aternatives what does the left say BOYCOTT!! These are a few but very good ways of dealing with the so called health care "crisis", Why does the left not like them? Hmmmmmm………. because it does not involve big brother? Whole Foods Health Care | Outside the Beltway | Online Journal of Politics and Foreign Affairs […]

  27. Wow, can I just say I find myself actually agreeing with Steve Verdon? {slaps head}

    well-reasoned post with some actual nuggets to think about. well done, sir.

  28. Lisa Stone says:

    I think he made a big mistake voicing his opinion.