Joe Flower has a good post explaining why free market competition fails in health care. Go read the whole thing, but the short version:
Medical demand is wildly random but tends to be absolute. There is little way to predict who, specifically, will need most kinds of medical care. But, when you do need it, you have to have it or you’ll die.
Medicine is usually beyond the layman’s understanding. Consequently, the buyer has to rely on the doctor’s (who is also the seller) representation of what the buyer needs. “So the seller is agent for the buyer, the seller is rewarded for doing more and punished for doing less, and neither the buyer nor the seller can easily tell the difference between what is really necessary and what is optional.”
Oh, the market works just fine.
A given individual, on the other hand…maybe not so much!
“Medical demand is wildly random but tends to be absolute.”
He’s referring to a limited type of “medical demand”– precisely the sort of thing that would be covered by standard insurance (as opposed to the heavily subsidized and regulated insurance we have now). This is no issue at all.
“Medicine is usually beyond the layman’s understanding.” This is overstated– both directly and indirectly. First, many customers are knowledgeable about aspects of medical care– and would become moreso if individual choices/incentives were not so distorted. Second, many markets feature such limits: what do you know about cars, PC’s, and so on? Knowledgeable people drive the margins of a market– and do a favor for the less-knowledgeable.
Why, in fact, do we need physicians at all? We can just diagnose ourselves and save the cost of the middleman.
Thank God for the Market.
Here is a quote from above article what struck me as the key to the supply and demand disconnect with Healthcare.
“So the seller is agent for the buyer, the seller is rewarded for doing more and punished for doing less, and neither the buyer nor the seller can easily tell the difference between what is really necessary and what is optional.
This is especially true because the consequences of the decision are so often separated from the decision”
I’ve wondered sometimes when my doctor changes my perscription to something ‘new and better’ if he is getting a kickback from the pharamaceuticals. And beyond that,if he is, is that necessarily bad? In free market , we’d assume kickbacks to sellers for finding buyers.The greater problem,as I see it it, is that there is only so much money in the pot for service and profit combined, and who should decide how the profit is divided off from the medical service to patients? Is the decision arbitrary? I get this sense that ‘free market’ is determined somewhere beforehand by a CEO or 2, so I always feel better if there is government (the people) involved in setting regulations since government is ‘non-profit’,and is there to protect consumers/patients. ‘Free market’ seems to me to be wholly defined by those who are there for profit and so the ‘free’ part is a misnomer..And is healthcare a ‘product’ like selling shoes?
And as the quote above seems to indicate above,marketing , buying and selling and profit is one decision made by one group of people..
“We’re all free to choose what we can afford”
I used to be so conservative and trusting…
For a free market to exist, I need to be able to compare costs of treatment and choose the least expensive If I wish to do so. Under our current system, I have limited choice in health plans, (one of two plans the only real difference is deductable and coverage), the plan dictates which set of doctors and health care providers I must choose from, I have no idea what anything costs until after I am treated, and then it is not itemized in any way that is open to comparison, because there is nothing to compare it to. We had recently started using an online prescription service that saved us money, provided exactly the same drugs as the local pharmacy, was more convenient for us and more user friendly. Clarion health network is now requiring that we use only their pharmacy services, which cost more, or pay a large premium to use another service. The free market was working here, but monopolistic health care providers have shut it down, just like Lilly and other pharma control our drug markets in the US.
Health care is not a free market. That is why they are so afraid of a public option that would provide coverage to those they turn away or wish to charge exorbitant costs. They do not want the competition because then people could choose something else instead of taking a proctological exam :)
Try to compare the cost of your employer plan (your cost and deductable and coverage) to another employers plan. Why are they so different? Because the health care and insurance providers work together to control the market and they have no competition.
Exactly.
And the only ways out are:
a.) to provide a subsidized “public option” that will be quite expensive and will likely supplant some/many/all private options (to the extent that it supplants, how will the provision of health insurance become more competitive?);
OR
b.) reduce/eliminate the employer subsidies for and restrictions for and against health insurance– turning the market for health insurance into a far more competitive market (much like fire, life and auto insurance).
I haven’t heard people complaining about their other forms of insurance. Maybe competition and markets is the way to go?
Just one more point?
Competition is problematic for patients when the definition of any health plan varies so that profit can remain stable. Give us a set plan with defined benefits,and then lets see which private company can compete to provide that plan with fixed benefits.Im 67 and my mother is 90 and I sat down with her last summer to try to figure out what other supplementary health care plan would be best for her. We just gave up and she stayed where she was .Every plan gives and takes away and it’s all based on profit for company, not on service provided, I think private healthcare must rake in billions just by wearing people down who can’t figure out plans or billing. People just take whatever and pay whatever bill they get.. Otherwise,it’s too much hassle for people who are already diminished physically and mentally.
The older we get the fewer balls we can juggle at once in our heads. Maybe one ball drops out each year or so,but the rate is probably going to accelerate..
And to Lou’s point, since there is lack of competition in insurance (thanks to regulation and subsidy) and because so much is covered by insurance (vs. typical insurance which covers rare, catastrophic events– again, thank you regulation and esp. the subsidy), all of this is unnecessarily complex and market participants have little incentive to improve.
Oh we can only hope the Public Option will destroy private health insurance. What a wonderful thing that would be. But, it’s not going to be big enough or strong enough to put those bloated rich assholes out of business. The best we can hope for is the public option scaring them enough to control them just a little bit.
Let’s subsidize and over-regulate auto, fire, and life insurance– make them really big and weird– and then we can scare or sack those industries too!
Chris posts:
” Oh we can only hope the Public Option will destroy private health insurance.”
Hopefully private enterprise will not be destroyed,but impoved.We should have learned once and for all that private enterprise must be regulated for their benefit and for the country’s.But government isn’t going to produce much on its own. Government is expected to be there for us when corporate America fails,so it best step in and regulate from the get-go.What government is providing now is stop-gap,and private enterprise will be back,but there must be appropriate control along the way from now on.
This country will always be capitalist,but that doesn’t mean we can’t earn a liveable wage and have affordable comprehensive health insurance..But it sure is not going to happen without ‘government control/regulation’, what kind to be determined …. No way these guys at gym, mentioned earlier,should think flipping houses and retirement at 30 is a game plan for success and is ‘the American way of life’.I wonder what happened to their plans when the economy collapased? Unemployment comp?
Dr Schansberg that sounds like a plan!
The first thing that should have been said about this posting: it needed a tweak for both the title and the opening sentence:
The Free Market *Would* Not Work for Health Care
Joe Flower has a good post (trying to) explain why free market competition *would* fail in health care…
Anyway…we’ve tried heavy and increasing govt in health care over the last 40 years. How’s that working for ya?
Is there any place in the world where the free market is presently doing a good job delivering health care? If not, why should we think it’s going to work here?
Is there any place in the world that can be used as an exemplar for delivering health care?
If so, is their approach readily transferable to the United States?
There are larger/smaller degrees of “free market” in health care worldwide. Singapore has considerably less intervention, spends 1/4 – 1/5th of what we do, and has better health outcomes (relying on that lame proxy).
Beyond that, there’s a lot of logic, applied to the (obvious) distortions caused by massive subsidies and regulation for/against insurance.
Parker asks a similar and interesting question: The extent of transferability is not clear, given widely varying contexts. For example, it is common for people point to the purported success of country X’s even greater govt involvement in health care. But even if so, the closer analogy would be to embrace those reforms for our states, rather than our country as a whole. Some people seem surprisingly willing to succumb to a fallacy of composition here.
Another example: I just spoke with a colleague whose wife is in Scotland. He remarked that a retired policeman she met had not fired a gun in his 30 years on “the force”– and that she had not seen much obesity there. In the U.S., our health outcomes and health care spending are dramatically impacted by lifestyle choices– which are simplistically used to penalize the supposed quality of our health care system.
Has anyone else listened to that PBS show yet? It’s must-hear radio on this topic!
Doug,
To partially answer your question, I don’t know how completely market oriented it is, but Singapore has a system utilizing HSAs and a government provided catastrophic insurance (though this is from memory, so I may be a bit off). It also requires providers to post the cost of procedures and allows patients to choose a particular level of care, at least w/r/t things like whether you get a private room or share a room with 30 other patients. Singapore’s health care costs are much, much lower than the US’s, particularly as a percentage of GDP. I’m rather a fan of HSAs as a means of providing lower cost insurance generally (I’ve had one for several years and have been quite satisfied with it), though I know many do not like them for one reason or another.