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The Limits of Consumer Choice

Some things aren’t worth shopping for.

Mar 10, 2014, Vol. 19, No. 25 • By ELI LEHRER
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The direction of capital investment may play another role. While the American Gas Association says its members spend $19 billion a year on infrastructure, the glamour and venture capital go towards efforts that unlock new deposits via hydraulic fracturing, as well as efforts to expand the use of natural gas to replace coal for generating electric power.

Since more and more gas is being used to generate power, the cost and environmental benefits of using gas and electricity are fast converging. For good reasons, much more technology, money, and brainpower go into better ways to get gas out of the earth and use it cleanly for electricity than into finding new ways to pump it into homes for heat and cooking.

A lot of these factors have analogues in the health care market. Just as gas companies generally don’t post their prices prominently, neither do doctors. For all of the political fighting that surrounds health insurance, likewise, most people are happy with what they have. According to a Gallup poll taken last year, among people earning over $75,000, a group that overwhelmingly uses private providers, 92 percent were satisfied with their own coverage. Overall satisfaction was a still quite respectable 69 percent.

Likewise, capital investment in medicine emphasizes advanced technology, research, and the discovery of “miracle pills”​—all ​areas in which the United States undoubtedly leads the world​—​rather than the low-margin, low-glamour business of improving day-to-day care. Although benefit packages once differed a great deal​—​from “mini-med” plans that provided little real coverage to so-called “Cadillac” plans that erased all bills​—​the strict benefit mandates under Obamacare have tended to make health insurance into much more of a commodity.

This offers lessons for both liberals and conservatives intent on health care reform. For all its abundant flaws, Obamacare does offer more choices to small businesses and sicker individuals, who now can buy their coverage through the exchanges and choose between plans (at least when the websites are up). Employees of small businesses, who previously were stuck with whatever plan their employer chose, now have a menu of options in many cases. This hasn’t produced much in the way of lower premiums, at least in part because the health market now looks a lot like the natural gas market.

But this also provides reason to think that conservative health reform plans that emphasize choice and consumer empowerment won’t produce vastly better results, either. The old system with fewer benefit mandates wasn’t a great deal better than the new system with more mandates. Likewise, unless pricing becomes more transparent, there’s little reason to think that simply offering consumers more choices—absent some way for them to parse the differences and weigh the costs—will make a big difference.

The natural gas market and the health care market, of course, aren’t mirror images. Gas is truly a commodity, while health care quality can differ a great deal between providers, insurers, and regions of the country. But choice alone is not a panacea.

Eli Lehrer is president of the R Street Institute.

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