“I believe that health care should be regarded as a public good, not a marketplace commodity. Tell me why I’m wrong.”

This is how I began my conversation with Craig Garthwaite, who studies the economics of health care at Northwestern University’s Kellogg School of Business. Garthwaite is a critic of the GOP’s current health care bills, but he’s also a registered Republican who believes in market-based solutions to health care.

I wanted to talk to him because I’m genuinely interested in hearing a moral and economic defense of treating health as a commodity. I’m not an economist but this approach seems not to work, produces highly inequitable outcomes, and causes needless human suffering.

But the Republican Party, and conservatives more generally, insist the free market is the answer, for health care and virtually everything else. For Garthwaite, Republicans are fumbling their current efforts to repeal Obamacare, but he still maintains that “we get better and more innovative treatments when we allow marketplace incentives to work.”

I disagree, but I wanted to hear the argument on the other side, and so I reached out to Garthwaite.

The big takeaway from our conversation is that the debate about health care, like nearly all political debates, reduces to a value judgment. Either we value providing adequate care to the most people possible or we value providing ideal care to fewer people in a system that produces more innovation. That’s the fundamental trade-off, and where you come down turns on what you value.

My choice is for a universal or socialized system. Garthwaite prefers the market. Below is our lightly edited conversation.

Sean Illing

I believe that health care should be regarded as a public good, not a marketplace commodity. Tell me why I’m wrong.

Craig Garthwaite

Well, first of all, it's not a public good. It's both rival and excludable, so it doesn't have the characteristics of a public good, right?

Sean Illing

Explain what you mean there.

Craig Garthwaite

If I consume health care services, someone else can't. So it's not a public good in the sense of, like, a park or something like that. Or clean air. Those are things that we think of as public goods.

Sean Illing

I guess what I mean is that’s a social good or resource. Health is vital to our social capital, our human capital.

Craig Garthwaite

We don't need to abandon the market to get to that, though. We have a market system now in which people get access to health insurance. There are clearly private benefits from that, so it's not clear the government should be funding all of that. If the government does become the sole purchaser of health care, they’re monopsonist, meaning we have a market with one buyer and many sellers, and the prices therefore become inefficiently low.

Sean Illing

But I guess that’s my point: I don’t think people should be buying and selling health care in this way, because, again, I don’t think health care should be treated as a product in the conventional sense. Maybe you can respond to that by telling me why you think the free market is the answer here.

Craig Garthwaite

Fundamentally, you have to understand that getting access to healthcare services, getting people to be willing to provide high-quality services and innovative treatments, is the result of a market decision for those providers as well, and so if you don't treat it like a marketplace to some degree, you'll get less innovation and fewer new treatments than you will if you do. If you're happy with the degree of innovation and treatments and quality we have now, then that's fine, but I think we all would like more cures for more diseases than we currently have.

Sean Illing

Surely you allow for some role of the government, right? The problem isn’t that our system doesn’t produce innovation and high-quality treatment; it’s that not enough people have access to it.

Craig Garthwaite

I think where people who don't have access to the ability to pay for these things, there's a role for the government to write social insurance for those people. We do that through Medicaid and a little bit through Medicare and other programs, but I fundamentally believe that we get better and more innovative treatments when we allow marketplace incentives to work.

Sean Illing

As you know, most of the industrialized world doesn’t treat health care like this. Most countries have some form of universal care. So what is it we’ve figured out that the rest of the world is confused about?

Craig Garthwaite

Well, the rest of the world drafts off of the innovation generated by the profits of the United States. If I’m running the health care system in another country, and if I have the United States here to generate huge profits to provide incentives to develop new drugs, I can choose to provide lower prices that take innovation less into account. I mean, the world of the Western European systems might be a little bit different if they had to think more carefully about that point.

Sean Illing

That’s an interesting point. Do you think these other countries are producing better overall health outcomes for their citizens?

Craig Garthwaite

I think it becomes a question of what that means, right? If the choice is between access to the best parts of the American health care system versus the best parts of any other system, I’d rather be in the United States. Now if we take a more Rawlsian view and you ask me which system I’d prefer if I didn’t know where I’d end up in society or how much income I’d earn, I’d probably want to be in another country.

Sean Illing

You see, that’s the core of the problem here. This whole debate reduces ultimately to a question of values, not facts. A system that tilts so heavily toward the rich is unjust in my mind. People should be not be denied health care because they don’t make enough money, and I’m willing to sacrifice that dynamism at the top if it means less human suffering.

Craig Garthwaite

That's where social insurance comes into play. That's why we have Medicaid. That's why we have things like an expanded ACA, to provide a subsidy to help people to get to that level.

Sean Illing

Right, but those are half-measures, and in any case they’re not working — or not working for enough people. And if you’re one of those people shut out of this system for financial reasons, you don’t give a damn about all that innovation and high-quality treatment that others are enjoying.

Craig Garthwaite

Listen, I'd certainly rather have the Western European world contributing their fair share of innovation. I'm happy to talk about a willingness to accept less innovation for more access, but you've got to be willing to accept that there’s a trade-off here and then to account for that in our analysis. It might be that the innovation we’re getting isn’t worth the human costs, and that’s a conversation we can have, but there’s absolutely a trade-off, and I’m not sure everyone understands that.

Sean Illing

I think you’re right about that, to be honest.

Craig Garthwaite

Look, both sides are not being fair in this conversation. People who support single-payer health care in the United States don't consider the innovation effects at all, and people who believe in a free market system don't consider the equity of people not having access.

Sean Illing

This seems like a good place to pivot to Obamacare, which I think actually tried to get this right by striking a middle ground.

Craig Garthwaite

I think that’s right. The ACA, in many ways, got this right by seeking that middle ground of subsidizing access for low-income people while still preserving the market incentives that exist.

Sean Illing

Most people acknowledge that Obamacare had its flaws, but do you think one of its problems was that it wasn’t sufficiently market-oriented?

Craig Garthwaite

I think we don't have enough competition. I think we've allowed too much consolidation in various parts of the market.

Sean Illing

If that’s the case, I’d like to toss Kenneth Arrow’s influential 1963 paper at you. You know this better than I do, but I’ll briefly summarize for readers. Arrow, a Nobel Prize-winning economist, argued that health care is distinct from other products like chocolate bars or dress shirts and can’t be marketed as such.

For one, there’s enormous uncertainty — you don’t know when you’ll have a heart attack or need major surgery. Thus, there really is no consumer choice because patients can’t decide whether or when they need triple bypass surgery — doctors have to make those calls. Nor can they easily swap physicians or hospitals if they don’t like the care or cost. So all of this means we need protection in the form of insurance. But for-profit insurance companies are in the business of making money, not protecting health. What did Arrow get wrong?

Craig Garthwaite

He's not saying that markets can't work. It's that markets need appropriate support in this area. So I'm not saying we need free and unfettered markets. What I think we need is true competition among providers. You don't need patients to necessarily move across providers, right? Insurers can establish that. Insurers have a lot of price competition driving their actions.

But we have to find a way to have competition, and it's not about necessarily having consumers be forced to choose across providers at the time of service. We could have that conversation happening at the insurer/hospital/negotiator level, which is fundamentally what we see. But that being the case, we need large numbers of insurers and large numbers of hospitals, and that's what we're seeing less of over time.

Sean Illing

And you’re convinced that an appropriately supported insurance market would create an incentive structure that favors what’s best for patients? Because right now there’s a misalignment of incentives between the insurers and the patients. Insurance companies are looking to make money and reduce costs, and that doesn’t seem to be working out well for consumers.

Craig Garthwaite

But that's why we need a competitive insurance market. If an insurance company provides worse service in the face of higher costs, then a consumer can just go to another insurer. The competition is not just about getting the price right; it’s about getting the quality right as well.

Sean Illing

Let me ask you about the current GOP health care bill being floated in the Senate. I know you’re not a fan — why?

Craig Garthwaite

I think it fundamentally misunderstands the fact that low-income people don't have the resources to pay for access to health care. So if I give you a plan that has a $7,000 deductible and you make $10,000 a year, that's not actually providing you with insurance. No magic of the market is going to make money appear that allows you to pay for that deductible. And there are limits to what the market can do, and we need to be respectful of that and supportive of the market by providing the things like the individual mandate that allow for a healthy insurance market. And it just ultimately is about understanding the reality of the situation that we're in.

Sean Illing

And what, in your mind, is the best way to take care of those people in a free market system?

Craig Garthwaite

Medicaid does a pretty good job for low-income people. I think our evidence suggests that it's not a bad way of providing them with services. Most of our Medicaid services now are provided by private, third-party companies anyway through a managed care system. So if you're worried about government inefficiency and bloat, we've outsourced most of that to the private sector, and I don't understand this fascination with getting rid of Medicaid. It's predicated on a belief that Medicaid somehow provides worse outcomes than private insurance for low-income people. This is wrong and based on generally bad science.

Sean Illing

So you basically think Obamacare was on the way to getting it right?

Craig Garthwaite

Yeah, and this is what is so disappointing to me about the efforts on repeal and replace. There's this unwillingness to recognize that the ACA is fundamentally a conservative bill. That it uses private firms in a subsidized way to provide insurance to low-income people. There are things I would clearly like to see changed about the ACA. I would like less reliance on the employer market. I would like more reinsurance for the insurance companies that are there who choose to offer insurance to low-income people. I'd like to change a little bit about the way in which we do the pricing in the exchanges.

But the fundamental starting point, the idea that when people have exceptionally low incomes, we use Medicaid, and then we have a graduated system of subsidies that allow people to use the private market to access health insurance until they increase their income, I think that's fundamentally a conservative belief.

If you'd have asked conservatives 10 years ago to draw their perfect health insurance plan, it would have looked a lot like Obamacare.

Sean Illing

Well, yeah, they did. It was called “Romneycare,” and it was designed by the Heritage Foundation, a conservative think tank.

Craig Garthwaite

Yeah. To be fair, the only differences would be that overall, most of Romneycare was paid for by the federal government, so it's not quite the same thing as rolling it out nationally. I mean, it was easy for Massachusetts to make that claim because federal Medicaid dollars paid for most of that.

Sean Illing

If this Senate GOP bill does pass, where will that leave us?

Craig Garthwaite

It would leave us meaningfully worse off in terms of the ability for low-income people to get access to health insurance. I think you would find low-income people having access to plans that didn't provide very much insurance coverage and would leave them far worse off than they currently are.

Sean Illing

If this bill somehow passes, there are a lot of people who think the impact would be so disastrous and so widespread that it would actually pave the way to a more socialized system. What do you think?

Craig Garthwaite

I agree. I refer to it as the yellow brick road to single-payer health care. It provides the rather superficial but correct talking point that we tried the private market and it didn't work, and therefore the only way to go is single-payer.

Sean Illing

I guess we’ll find out.

Craig Garthwaite

Indeed.