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Jan 21, 2004
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I know there was the other thread about free markets, but I figured I'd start a new one that deals more with how to make healthcare more into a free market

I haven't posted much in this forum even though I'm getting my MBA in Healthcare Management right now before I start med school next fall

Not saying this for anything that deals with me, but I think I could bring some good info to these kind of discussions since my father is an economics professor with specializing his research/teaching in Health Economics
(fascinating field by the way, just took it for my MBA program)
we've had numerous discussions about markets and healthcare

I too (I guess you could say it's in my genes being the son of an economist) am a free market kind of guy

However, the title of the other thread is an oxymoron b/c healthcare is about as far away from a free market as one can get
it has market failures up the wazoo (that's technical economics speak by the way :D)

due to insurance, healthcare is not a free market at all
consumers don't feel the economic reality of the decision they make
consumers reacting to price is the corner stone of free markets

in every other market, P and Q (price and quanity) are inversely related (causing the typical downward sloping demand)
this makes sense, the higher the price of the good, then less quanity of the good is demanded
however, in health care P and Q are directly related!!
over time, as the price of healthcare has gotten more expensive, the quanity demanded has risen :confused:
this violates economics

however, there is an explanation, in which this does not violate economics, and that's where the insurance comes into play

consider this...
here's interesting fact from my health econ class, and this may come as a shocker...

health care is actually cheaper now than it's been for decades!!!

yes, I did say this right

before everybody says I'm crazy, I must specify here, the NET price of healthcare is cheaper (the net price is defined as the price the consumer pays for healthcare), the overall price has definitely risen

controlling for inflation, consumers are actually paying LESS for their healthcare now than 50 years ago...

now, let's revisit our P's and Q's
the P and Q relationship being inverse is a function of the consumers
so since the consumers don't feel the overall price and only the net price, the net price should be used as P
when this is done, P and Q now make sense, as healthcare has gotten cheaper for consumers, more of it has been demanded

bascially this price mechanism as economists like to call it has been dismally absent from healthcare as compared to all other sectors of the economy
this is why health economists are for putting the price mechanism into healthcare

this would mean something being done about insurance, in order to make consumers feel more of the costs of care

the problem in turn from this is consumers feel entitled to wanting all the healthcare they can get, but now wanting to pay a dime for it...
Managed care, which worked for a while do stabilize costs, is now lessening its influence b/c the public didn't accept it.

how is this anti me paying anything thought of the public supposed to be overcome???

Healthcare has other market failures such as:

Monopoly and monopsony power (few hospitals, and HMO's, group practices in many areas

Barriers to entry

Supplier induced demand - this is very interesting and is a whole other discussion for another day
in normal markets, supply and demand should be independent of each other, but there's some research that shows that in healthcare, the supplier (ie physicians) influence and can induce demand for healthcare services
for example, research shows that after Medicare reduced the reimbursement for cataracts procedures, the number of procedures fell (unlike what would be the case if need and need only was the sole determinent of utilization; could it be doctors influenced by money :eek: :D )
very interesting and very controversial, discussion for another thread...

As for now, I wanted to get a discussion going for people to put their input in on how to put market forces back into healthcare and possibly override the problems listed above...


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Dec 14, 2004
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good to see a new and knowledgeable poster around here. i too am big on free markets

hmm a few proposals ive discussed in other threads:
1) remove medical boards' central planning and licensing of physician supply. too many politics, special interests, and lobbying are interfering with free markets and the welfare of consumers/patients. im starting to see this more and more and not just in healthcare; politics and sound economics dont mix

2) separate the burden of health insurance from employers and move it back into the private arena. provide tax breaks if needed. i read somewhere that health insurance and employers became intertwined as an unintended consquence of some backwards govt policies post WW2. i think employers maybe had wage ceilings, so they had to woo labor by using other means, such as health insurance? wage and price controls never work

3) introduce more competition between doctors and other healthcare professionals, such as optometrists, nurse anesthetists, maybe PAs too. competition is good. i think in a nutshell some of the problems facing health economics seem to be lack of competition, centrally planned supply, and poor insurance system. one problem with insurance is how do you charge different rates (as in all other forms of insurance) without discriminating, namely on the basis of genetics?

one problem lies in the perception of healthcare--ppl seem to think that everyone can/should receive high quality healthcare, regardless of their ability to pay. this has to do with social justice or humanity or something like that, with few practical considerations. i think this perception is somewhat ingrained in ppl's minds. but not all docs are equal, and there will be a distribution of healthcare quality, just like there is in cars, shoes, food etc. some ppl will get the short end of the stick if they cannot afford better. right now their financial burden seems to rest on the public sector in the form of medicare/medicaid--i think these 2 enormous govt programs should be abolished, and that burden should be given to private charity


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May 11, 2005
A few elements I've been thinking of include:
1. Complete lack of accessibility to each practitioner's rate cards. How can you have a free market when comparing prices is difficult?
2. Healthcare is unique in that it has a near-zero elasticity of demand. It is a good where people are nearly completely insensitive to price. If something is life-saving and costs $1 to produce, its worth it for someone to pay $10000 for it. The only things I can think of that might have a lower elasticity of demand are cocaine and heroin. Thanks to bankruptcy laws, we don't see people breaking into other people's cars to pay for medical bills yet :)

one problem with insurance is how do you charge different rates (as in all other forms of insurance) without discriminating, namely on the basis of genetics?
That's a very interesting point that I've thought about in the past. Insurance companies just pool the unknown element of risk. Insurance companies are getting better and better at charging the person that will end up costing them, but theoretically, when they get perfect at this, you'll just end up paying them your annual healthcare cost per year plus their premium.

3) introduce more competition between doctors and other healthcare professionals, such as optometrists, nurse anesthetists, maybe PAs too. competition is good.
Actually, I think this part is going rather well. Unlike individuals, who have a difficult time assessing who's charging what, hospitals and other health care providers are large enough to have specialized teams that are able to judge who can provide what efficiently. The barrier for this is legislation really.
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