Healthcare and the Value of Facing Reality

Among today's news headlines, Aetna has scaled back on Obamacare exchanges. According to CNN Money:

The insurer will stop offering policies on the exchanges in 11 of the 15 states where it currently operates...

The company noted Monday that it has lost $430 million in its individual policies since the exchanges opened in January 2014. 

Aetna said its policyholders are turning out to be sicker and costlier than expected. 

Of course, even though Aetna is a major insurer, as Jim Pethoukis noted, "All five insurers are now shrinking their footprint." That being the case, what might be expected of U.S. healthcare provisions in the near future?

Facing the reality of what has played out in recent years, is not easy. Even though healthcare has not operated as a free market: as healthcare is currently structured, a truly competitive marketplace would hardly be a straightforward process. Indeed, healthy competition at this point could pose a threat for investments at multiple levels, in general equilibrium conditions. Not only because of the degree to which healthcare markets have reduced competition among their own ranks, but also because of the hurdles that providers have to overcome, just to participate.

Regular readers know this is why I have suggested creating a free market for healthcare, but on terms which don't pose direct threats to mainstream structures. After all: when competition is possible, institutions gain the chance to further evolve, when the need to do so becomes particularly obvious. More competition means more choices, and more product output as well. Consider a positive example in this regard from Shawn Parrish, who highlights what proved to be a win-win scenario via Andy Grove, former CEO of Intel:

As late as 1981, Intel Corp. had massive dominance of the worldwide semiconductor business...They got designed into the IBM PC, one of the first popular computers, in 1981. Life was good.

The problem was that everyone else wanted into the same business...by 1988 Japanese manufacturers had over 50% of the global market. 

Think about it. Healthcare in the U.S. has been able to prevent everyone from getting "into the same business", many times over! But to what end? Parrish continues:

At first, as most all of us do, they tried to cope with the old reality. They tried running faster on a treadmill to nowhere. This is the first true difficulty of facing a new reality. Seeing the world as it truly is. The temptation is always to stick to the old paradigm. 

Even as Andy Grove slowly woke to the new reality, he faced tremendous resistance from those who weren't there yet. Eventually, he was able to convince others to move on, from the memory business into microprocessors, where Intel could once again differentiate itself and effectively compete.

Ultimately, the result for all concerned in the above example, was more product and more choice in the marketplace, especially since protectionism was not a limiting factor. In other words, no one was stopping Japanese manufacturers from contributing to the marketplace. The fact no one stopped them, also encouraged Intel to further evolve.

Unfortunately, this is not the case with U.S. healthcare, which in terms of costs and reduced output has become a victim of its own seemingly fortuitous monopoly. One could say that Obamacare is the latest rendition of an old paradigm of purposely reduced supply, the treadmill to nowhere. Today's healthcare providers are the last ones "standing" - the last ones to preserve and utilize a vast array of valuable knowledge - much of which is scarcely even tapped, given present circumstance. Why go through the pain of adapting or further evolution, if there's no competition that makes it necessary to do so? Given this set of affairs, more individuals are likely in the near future to opt out of professional healthcare, unless they find it to be absolutely necessary.

At stake are millions of lives that could be cut short, if means are not found to bring this vast wealth potential out of the forgotten vault in which it is now stored. Facing reality is not something that can happen overnight. But the sooner that healthcare is given a chance to evolve, the greater the hope for a better future.