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I often see the free market touted as the end-all-be-all solution to the problems in healthcare (especially with politics heating up in anticipation of the primaries). I think this conversation would benefit from the discussion of intrinsic aspects of the system that prevent it from efficiently operating in a "free market system."
The first is the idea of a captive market. Many communities have limited access to hospitals and clinics. If you're lucky you might have two hospitals that are within a reasonable distance. You don't have the surfeit of options as you do in many other markets (the automobile market, for example). Providers of healthcare can thus charge basically any price without regard for the economic forces that typically drive prices.
There's also the more micro-level idea of information asymmetry. Cars are also analogous here- specifically mechanics. Most people lack the background knowledge to call into question a mechanics decision that your car needs work to be done. Oftentimes they end up up-charging you and doing unnecessary things. (got the analogy from Atul Gawande's recent New Yorker article)
The same thing can happen in healthcare. Physicians study for four years, and have several more years of training before they can begin to make informed decisions about other people's health. As a consumer if you're told that you need to take X prescription or do Y procedure you do it because you defer to the expert. The demand is thus not controlled by the consumer, but rather by the provider. This works synergistically with a fee-for-service system to promote the practice of "unnecessary care," which has been written about extensively in healthcare reform literature.
Much of healthcare is very inelastic. If you--or someone you love-- need a life-saving procedure you're willing to pay an unreasonable price. One can charge $10,000 for a surgery that realistically costs $1,000 to supply and because you are in a captive market you have little choice. This is compounded by the fact that billing is so opaque in today's system. You oftentimes don't know how much something costs until you're footed with the $5,000 bill. To be fair, however, this isn't an intrinsic part of the healthcare system. There is, however, no motivation on the part of the suppliers to be transparent because otherwise consumers could make informed choices that lead them to not seek out care.
Does that sound like a free market? What do you all think? Am I an idiot?
The first is the idea of a captive market. Many communities have limited access to hospitals and clinics. If you're lucky you might have two hospitals that are within a reasonable distance. You don't have the surfeit of options as you do in many other markets (the automobile market, for example). Providers of healthcare can thus charge basically any price without regard for the economic forces that typically drive prices.
There's also the more micro-level idea of information asymmetry. Cars are also analogous here- specifically mechanics. Most people lack the background knowledge to call into question a mechanics decision that your car needs work to be done. Oftentimes they end up up-charging you and doing unnecessary things. (got the analogy from Atul Gawande's recent New Yorker article)
The same thing can happen in healthcare. Physicians study for four years, and have several more years of training before they can begin to make informed decisions about other people's health. As a consumer if you're told that you need to take X prescription or do Y procedure you do it because you defer to the expert. The demand is thus not controlled by the consumer, but rather by the provider. This works synergistically with a fee-for-service system to promote the practice of "unnecessary care," which has been written about extensively in healthcare reform literature.
Much of healthcare is very inelastic. If you--or someone you love-- need a life-saving procedure you're willing to pay an unreasonable price. One can charge $10,000 for a surgery that realistically costs $1,000 to supply and because you are in a captive market you have little choice. This is compounded by the fact that billing is so opaque in today's system. You oftentimes don't know how much something costs until you're footed with the $5,000 bill. To be fair, however, this isn't an intrinsic part of the healthcare system. There is, however, no motivation on the part of the suppliers to be transparent because otherwise consumers could make informed choices that lead them to not seek out care.
Does that sound like a free market? What do you all think? Am I an idiot?
