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padren
Post  Post subject: Service vectors in a hybrid free market system  |  Posted: Fri Sep 02, 2011 2:13 am

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We all need (or at least benefit from) a wide array of services that include everything from privately funded free market solutions to publicly funded state or federal solutions. We've debated a lot about which individual services get screwed up the most by either approach, but I think it may be worthwhile to attempt to breakdown exactly what makes a service more suitable to one method or the other.

For instance:
Predictable costs => predictable benefits within an entity-to-entity relationship are the bread and butter of the free market. Everything from coffee to digital subscriptions can fall into this category. The only mitigating factors that I am aware of are risk and competition.
I'd define risk as the hazard to the individual should the service either fail or be discontinued, and competition with regard to the stagnation that occurs when a company or industry decides it's cheaper not to innovate or improve to meet consumer demands.

Predictable costs => generalized benefits are a lot harder: but the efforts of organizations like the CDC would fall into this category where the benefits to everyone are very obvious... but there is no way to directly connect the benefits gained by any given entity to the costs required to generate those benefits.
I'd also put police, fire departments, military, the forest service, the EPA etc largely into this category but many of those organizations don't only deal with "Predictable costs => generalized benefits" vectors.
To a degree getting "fire insurance" could be a private service vector, (since the cost of insurance and the benefits are reasonably predictable) but if whole sections of cities were to burn due to a lack of private coverage it would hurt a lot more than just the people who didn't pay their bill or signed up with an Enron.

I'm not saying my breakdown is especially accurate or detailed - but I am interested in a discussion on what characteristics may lend a service to be better suited to one model or another, or even broken down into complementary components in a hybrid model.
A great hybrid model imo, would be the publicly funded fire department, that uses all private free-market hardware that have to live up to standards set by publicly funded and enforced quality standards.


What are people's thoughts on what makes a service better suited to one model or another?


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iNow
Post  Post subject: Re: Service vectors in a hybrid free market system  |  Posted: Fri Sep 02, 2011 1:06 pm
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I have a potentially controversial example whereby I think the private sector is very poorly suited to good performance. Much like you reference bridges, and how the lowest possible bidder should not be the final choice (since it would mean we're prioritized low monetary cost over human safety... and how those same humans generally can't choose which bridges to use or not to use, etc...), I think healthcare coverage is something the government should handle.

In business, the core concept is to maximize profit and minimize cost. This means, by definition, that private insurers are going to seek methods to raise premiums to the highest possible point on patients while lowering the number of payments they make on claims as close to zero as absolutely possible. This cascades into a system where people avoid simple preventative healthcare because they so often lack coverage, and those same people only seek treatment when the illness has become so severe they can no longer ignore it. Those severe treatments are generally much more expensive than the milder preventative ones, and this approach results in needless pain and suffering and a world where only the financially wealthy can afford consistent quality healthcare.

Also, when you do get ill, you don't generally have the option to shop around for better care. When you've been hit by a car or suffer from a heart attack, there really isn't a chance to see which hospitals offer the best care for the lowest price, or which paramedic team shares your love of the environment, or to examine and parse whatever other criteria you (as a customer) use when making your choices in the market. You get what comes, the costs are beyond the financial abilities of most citizens (even very hard working people with a tremendous ethic and responsibility) and it financially ruins tons of families (roughly 50% of all bankruptcies in the US are the result of medical expenses, and of those 50% of bankruptcies resulting from medical expenses about 70-80% of them had existing healthcare coverage and still had to file for bankruptcy when medical issues arose and they had to pay out of pocket for them).

If I properly understood your question, that would be my choice. Healthcare has no place being covered by a private sector when profits and cost minimization are inversely correlated with quality health outcome for the patient.

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padren
Post  Post subject: Re: Service vectors in a hybrid free market system  |  Posted: Fri Sep 02, 2011 9:59 pm

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Healthcare is certainly a complex issue, but what would you say are the "root factors" in the free market's failure to provide effective healthcare?

The "inverse relationship between profit and quality" seems to be a big factor, but I am not sure it can be considered as an intrinsic characteristic because there are other insurance industries that have much better track records providing quality service though private solutions.
I do suspect that anytime there is that sort of inverse relationship regarding profit, that there is "inherent drag" on the system since it is the same "invisible hand" that pushes all free markets towards better profits. In that sense I think the condition is intrinsic to inverse-profit models, and it may be the core cause behind a lot of the issues we currently face. Still, it's worth noting that the "market force" in question has had a lot of time to apply it's "little acceleration force" to create what we could call the "horribly destructive velocity" we have today.
The reason for that observation is to point out the costs of properly managing the inverse relationship itself are not as high as managing the damage done to date by that inverse relationship.

It strikes me that a lot of the issues arise from the anti-competition landscape where all healthcare providers pull the same tricks and give consumers no options that even attempt meet reasonable consumer demands.



Secondarily, healthcare may be big enough to necessitate breaking it down into the sub-services involved. For example, we have publicly funded quality control of privately developed medical equipment and a largely free market based compensation to doctors and other medical practitioners.

The distinction between elective procedures and "procedures that keep you alive and healthy" also has to be made because the elective medical industry (whether cosmetic, chipping, or in the years ahead general augmentation) is only going to get bigger and include more non-life threatening (and non-quality of life threatening) elective procedures that offer genuine consumer benefits.

Public oversight for quality control is a must for that industry, but I can't imagine that being handled by a public vector.


What I am really interested in is whether we can hash out some observations that allow us a rough "service taxology" based on the classification of characteristics that inherently lend itself to one model or another, with a methodology of breaking highly complex services down into components that can be individually classified.

Do you think such a taxology could be viable enough to provide useful information?


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iNow
Post  Post subject: Re: Service vectors in a hybrid free market system  |  Posted: Sat Sep 03, 2011 12:10 am
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padren wrote:
Healthcare is certainly a complex issue, but what would you say are the "root factors" in the free market's failure to provide effective healthcare?

Regular market choice is not present (cannot choose which ambulance to pick you up, which ER to be brought to, which surgeon saves your life, etc).

Consumers cannot choose not to need healthcare.

Visibility into actual costs is not available to the consumer, nor is data on outcomes (you KNOW when you buy a Mercedes you're getting X,Y,Z, but you don't KNOW when you're getting a liver transplant what consequences may be encountered and what a different doctor might do to alter that).

The business model on the coverage side is contrary to the output model on the health side (lowering payments or reducing procedures covered for patients doesn't maximize patient recovery and prevention, but does reduce provider costs).

There are others.


padren wrote:
It strikes me that a lot of the issues arise from the anti-competition landscape where all healthcare providers pull the same tricks and give consumers no options that even attempt meet reasonable consumer demands.

I grasp the point you're making, and tend to agree, but I don't think it's accurate. There has to be some threshold below which people will no longer pay premiums to a company which doesn't offer at least a basic level of coverage... a provider who doesn't meet even reasonable healthcare consumer demands... Doesn't there?



padren wrote:
What I am really interested in is whether we can hash out some observations that allow us a rough "service taxology" based on the classification of characteristics that inherently lend itself to one model or another, with a methodology of breaking highly complex services down into components that can be individually classified.

Sort of like plumbers fit better in a pure free market model, wherein police fit better in a pure government control model?

padren wrote:
Do you think such a taxology could be viable enough to provide useful information?

The devil's in the details.

I am really curious to hear the thoughts of others. A few examples would probably help to put some shape on the abstract borders being discussed right now.

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"[Time] is one of those concepts that is profoundly resistant to a simple definition." ~C. Sagan


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kojax
Post  Post subject: Re: Service vectors in a hybrid free market system  |  Posted: Sun Sep 04, 2011 10:49 am
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I think a lot of it is a question of: when is it better to pool responsibility vs divide it up? When do adversarial relationships work best, instead of cooperative ones?

In the case of health insurance,for example, Kaiser Permanente is among the most competitive for price right now. They're very well known for prevention because they are an insurance company that owns its own hospitals. Ordinarily, a hospital has no market incentive to do anything preventative. They may have ethical or professional motivation to do so anyway, but no market incentive. Indeed, if they expend resources doing so, they will put themselves at a competitive disadvantage to other hospitals that don't bother with it.

Because with Kaiser Permanente the two entities are under the same roof, the financial losses sustained by one of their hospitals choosing to focus effort on prevention is made up for in the end by savings in the insurance department because patients ultimately end up avoiding the need for more expensive procedures later on. It's an example of a situation where pooled responsibility ends up being beneficial.


In other situations, it may be better to divide the responsibility up. I'd hate to have to pay the same for my auto insurance as some nut job that had 3 accidents last year and a DUI. However, I totally agree with laws that require everyone who drives to buy liability insurance. I wouldn't mind if the state simply taxed everyone and provided all drivers with liability insurance, so long as it charged a different tax to the dangerous ones than it did to the safe ones (and left their income out of the calculation - so they couldn't claim exemption due to poverty).

A lot of times a pooled system leaves itself too open to abuse, where a person knows their single contribution to the pool would be very small anyway, and chooses not to contribute, preferring instead to just bilk off of all the others who are contributing. Communist systems tend to be rife with such problems, or they end up having to be very totalitarian to simply scare people into contributing.


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