Curing the Healthcare Crisis

Empowering patients and caregivers

Healthcare as a Complex System

The absence of market prices make it hard to predict the consequences of reform.

Complex systems, by definition, are systems that are too complex for any single individual (or group of individuals) to grasp and understand. What difference does that make? It makes a huge difference.

Most of us wouldn’t walk into a chemistry lab and start pouring solutions from one beaker into another—at least if we don’t know anything about chemistry. Similarly, we wouldn’t walk into a biology lab and start moving substances from one petri dish to another if we’re not trained biologists. And if we don’t know anything about nuclear power plants, most of us wouldn’t walk into one and start pushing buttons.

We wouldn’t do any of these things because most of us have common sense. We know intuitively that if we don’t know what we are doing in a complex environment, odds are great that anything we do will mess things up.

Not everyone has this common sense-based humility, however. The late Nobel laureate economist, Friedrich Hayek, called the hubris of people who want to tinker with systems they do not understand the “fatal conceit.” The term is apt. Just about everything that has gone wrong in health policy can be directly attributed to this very error.

For more than 200 years, economists have been studying the complex system we call the economy. How do they do it? They don’t try to understand the economy in all its complex detail. Instead, economists use highly simplified models to predict some general effects of parameter changes in ordinary markets. For example, we can say with some certainty that rent controls will cause housing shortages and price supports in agriculture will cause crop surpluses.

Unfortunately, there is no model of the healthcare system that allows us to make anything like these kinds of predictions. The Affordable Care Act will insure 32 million more people. In addition, most of the rest of us will have to convert to health plans that have more generous coverage than we now have. We know that when people have more insurance coverage they try to consume more care. But what happens when there is a system-wide increase in demand and no change in supply?

Will the excess demand drive thousands of people to hospital emergency rooms? Will clinics run by nurses start springing up to meet the demand that doctors cannot meet? If service is rationed by increasing the waiting time, will everyone who can afford it turn to concierge doctors, who will be paid extra fees for prompt service? As more doctors become concierge doctors, how will the system manage the even greater rationing problem faced by all those left behind? Will patients start going out of the country—seeking care in the international medical marketplace?

Unfortunately, there is no model that allows us to answer these questions with any confidence.

Why can’t we apply ordinary economic models to healthcare markets? As I explain in my book Priceless: Curing the Healthcare Crisis, one reason is that price doesn’t play the same role in healthcare as it does elsewhere in the economy. Although many would like to think that our system is very different from the national health insurance schemes of other countries, the truth is that Americans mainly pay for care the same way people all over the developed world pay for care at the time they receive it—with time, not money.

On the average, every time we spend a dollar at a physician’s office, only 10 cents comes out of our own pockets. As a result, for most people, the price of care in terms of the time (getting to and from the doctor’s office, waiting in the reception area, waiting in the exam room, etc.) tends to be greater—and probably much greater—than the money price of care.

In general, we have no reliable model to tell us who gets care and who doesn’t when the time price of care rises for everyone, as we expect to happen once the Affordable Care Act gets fully implemented.

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John C. Goodman, Ph.D. is Research Fellow at The Independent Institute; President in National Center for Policy Analysis, & author of Priceless: Curing the Healthcare Crisis.

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