July 26, 2009

Health care and the free market

On his blog, Krugman says:

There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn’t work.
"But, Professor! We've been told all our lives that free markets are the cure-all for lower prices for consumer goods! How can you say otherwise?"

"Simple. Health care is not a consumer good. Here's what I mean:

. . .you don’t know when or whether you’ll need care — but if you do, the care can be extremely expensive. The big bucks are in triple coronary bypass surgery, not routine visits to the doctor’s office; and very, very few people can afford to pay major medical costs out of pocket.

This tells you right away that health care can’t be sold like bread. It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy.

"See?"

"Oh, and the companies making those decisions are in it to make money. Every payout to a doctor, hospital, or pharmaceutical company for a medical good or service is a cost to them. They want to reduce costs, thus it's in their interest to keep those payouts to a minimum. That means refusing procedures to patients.

"And that, grasshopper, is why free markets won't work for health care; the incentives are perverse and go against the public good."

Posted by Linkmeister at July 26, 2009 08:23 AM | TrackBack
Comments

Exactly!

Posted by: Illanoy Gal at July 26, 2009 12:36 PM

1. Profit-seeking and optimizing medical benefit for patients are mutually exclusive objectives.

2. The only benefit of insurance is the spreading of risk across populations and time. Insurance companies take money from the economy for doing that. Medical insurance doesn't spread risk in the current business model, it merely controls what doctors and patients are allowed to do, and takes money for that.

3. There's no such thing as a free market.

Posted by: Bruce Cohen (SpeakerToManagers) at July 26, 2009 02:05 PM