Neither the media nor his rivals may be in the mood to do so, but we should give Mitt Romney a break over his inartful Monday quote: "I like to being able to fire people who provide services to me." Or at least half a break.
Sure, the line plays into the narrative that Romney, who made his fortune in private equity, takes a Mr. Burns-ish glee in putting people out of work while living high on the hog. But when you take the larger context into consideration, it's clear Romney was talking about something different and far less sinister. Still, the line is somewhat problematic — largely because it reveals that Romney's sense of the working of a very important market bears little resemblance to reality. And it's a market that he knows an awful lot about.
Go back and read (or watch) the whole quote. Romney was talking about health insurance, and why he favored a situation under which individuals — not companies and the government — would be responsible for purchasing and owning health insurance policies. Doing so, he argued, would empower consumers and force insurers to be responsive to them. "I want individuals to have their own insurance," he said. "That means the insurance company will have an incentive to keep you healthy. It also means if you don't like what they do, you can fire them. I like being able to fire people who provide services to me. . . You know, if someone doesn't give me a good service that I need, I want to say I'm going to go get someone else to provide that service to me."
Romney may not have used the mot plus juste. But he accurately described how American consumer markets work, and was reiterating a point frequently made by center-right policy analysts. When consumers don't pay or bear the full cost of something, they tend to be much less activist and demanding consumers. When they actually pay the bill, and realize how much they're paying, they'll hold companies to a higher standard and demand more competition. If a health insurer doesn't provide the kind of service or product you like — if it charges too much or takes too long to pay claims — then you might "fire" the insurer, in much the same way you might fire the landscaper who leaves portions of your lawn unmowed. Or in the same way you might "fire" a restaurant run by a famous chef that serves up canned artichokes on its pizza even though there a decorative bowl of fresh artichokes sat next to your table. (I'm talking to you, Mario Batali!)
But — and it's a big but — there's not much evidence that the market for health insurance resembles the market for landscapers or restaurants. Anybody who has gone out and bought insurance for themselves as individuals knows that health insurance is a market in which consumers have little choice and almost no power. It's not like buying cars, or shopping around for landscapers, where it's easy to find lots of people who want to come provide the service and are willing to compete on price. In the majority of states, there are at most a few expensive choices for individual policies.
In fact, many customers are afraid their insurance company will fire them. For eleven years, I owned my own insurance in two different states. There were very few choices available, prices rose every year, and customers walked around with a constant sense of anxiety. It was tough (before Obamacare, at least) to fire your insurer if your spouse was three months pregnant, or if your child had a chronic disease, or if you had a pre-existing condition — because other companies weren't waiting in the wings to offer coverage. And if an insurer doesn't perform to your expectations — if it refuses to cover a procedure, or uses fine print to get out of a commitment, or simply changes its policies — consumers don't have any obvious remedies. Once you're locked in, and have established a primary care physician, a pediatrician, and whatever network of specialists you rely on, it is often a challenge to switch. There's no guarantee your doctors will accept a different insurer.
In fact, the "market" for health care is so screwed up that the dynamic goes the other way. Insurance companies and health care providers routinely fire their customers, by rejecting applications and refusing to cover particular items. In many industries, intense competition helps push down prices and forces companies to accept lower margins. But in some areas, including the individual insurance market, insurers react to low margins by trying to fire their customers — i.e. they jack up premium prices so high as to make them unaffordable. And last year, my longtime physician essentially fired me and many of his patients. He converted his large practice into a concierge service in which a limited number of patients could continue to stay on — provided they were willing to pay the $1,500 annual fee.
Finally, consider that in certain states, like Massachusetts, individuals may be required by state law to buy insurance. That further alters the dynamic of a traditional consumer market.
So, yes, Romney's comments on Monday show that he's a little out of touch with the concerns of Americans who are struggling with stagnant wages and high health insurance costs. But it's not because he takes any glee in putting people out of work. It's because he doesn't seem to grasp the fundamental dynamic in an area in which he has lots of experience.
Daniel Gross is economics editor at Yahoo! Finance.
Follow him on Twitter@grossdm; email him at email@example.com.