Jeff Bezos, Warren Buffett, and Jamie Dimon have announced that they’re going to get together to reform healthcare. And if they, whose companies (Amazon, Berkshire Hathaway, and JPMorgan Chase) already pay for the medical care of a million people plus their families, can’t make a dent in the current system then who can? Perhaps not a septuagenarian senator from Vermont, eh?
We should perhaps leave aside how healthcare reform should be done. Some things should be definitively ruled out, like the Department of Veterans Affairs, or Britain’s National Health Service, or generally the idea of government actually being the provider of healthcare itself. Not having any system at all of healthcare insurance or government involvement in providing for the poor might also be a usefully excluded idea. That still leaves a large number of alternatives, most of which would make the American system better.
The truth is that the system has one great advantage — it’s incredibly responsive. Everyone with insurance gets very much faster treatment than those in other countries under those other systems. It’s also got one very large downside to it: American healthcare is vastly more expensive than that in other places. Maybe everyone’s willing to pay for that speed of service but then again, Milton Friedman spent nearly 50 years telling us all how the American Medical Association protects the incomes of doctors by making their services vastly expensive to all of us.
That is, there’s a significant amount of monopoly and cartel power inside American medicine. Breaking that would be a pretty good idea. Which brings us to something I mentioned back in October last year here. The system does very well for those inside it. These high incomes are protected by what Warren Buffett calls a “moat.” There are all sorts of regulations that prevent outsiders from coming in and reforming healthcare. The doctors' monopoly, the Food and Drug Administration, the regulations around pharmacies and their supply — the industry is simply riddled with regulations.
Yes, it’s possible to make arguments that all of these are justified by safety, and many people do so. Yet, the combined expense of those regulations harms lifespans considerably.
Those regulations are the moat, the current industry is protected from disruptive competition. But as I said, the wider the moat, the larger the profits inside being protected — and thus the juicier the target if sufficient resources can be amassed to cross it. After all, if you put enough effort into it you can cross the Rhine, even the English Channel, as World War II showed. Which is really about where we are with this announcement.
There are most certainly skills in this triumvirate. There’s a good deal of economic heft there as well: A large enough current workforce gaining healthcare to be a useful experimental subject population. It’s entirely possible that something useful is going to come out of this.
Of course, we’ve not been told any details of what they’re going to do and imaginations are running riot. I really just want to point to this economic point.
Cartels, monopolies, regulation — they do indeed protect incumbent producers. These are all exactly those sorts of circumstances which produce that moat that Buffett so likes to own (but not, obviously, buy across). But the greater the profits, incomes, and inefficiencies being protected, the greater the victory in managing to cross the moat and plunder those privileges. What’s necessary is a sufficiently large concentration of economic power to do so.
Add Amazon, Berkshire Hathaway, and JPMorgan Chase and we’ve got a fair old concentration of exactly that economic power. This is one of the better chances of us gaining useful reform of healthcare.
Tim Worstall (@worstall) is a contributor to the Washington Examiner's Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute.
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