Why “Free Market Competition” Fails in Healthcare

In attempting to consider the way forward for healthcare, thoughtful, intelligent people frequently ask, “Why can’t we simply allow the free market be employed in healthcare? That will drive lower costs and increase quality.” They indicate the successes of competition in other industries. However their belief is misplaced, for economic reasons which are peculiar to healthcare.

More “free market” competition could certainly improve the way forward for healthcare in a few areas. However the problems from the sector in general won’t yield to “free market” ideas – won’t, never can – for reasons which are ineluctable, that be a consequence of the main nature from the market. We may parse them out into three:

1. True medical demand is extremely variable, random, and absolute. Many people get cancer, others don’t. Some keel over from cardiac arrest, get shot, or disappear a high cliff, other medication is interior and exterior hospitals for a long time before they die.

Aggregate risk varies by socioeconomic class and age – the older you’re, the greater your chances will be to need medical assistance poor and uneducated people are more inclined to get diabetes. Individual risk varies somewhat by lifestyle – individuals who eat better and workout have lower chance of some illnesses individuals who sky dive, ski, or spend time in a few bars have greater chance of trauma.

But crucially, risk doesn’t have regards to capability to pay. An undesirable person doesn’t all of a sudden uncover a complete have to purchase a new Jaguar, but might well all of a sudden uncover a complete demand for services of the neurosurgeon, an oncologist, a cancer center, and exactly what complements it. And also the require is truly absolute. The demand generally is, “You get this or else you die.”

2. All demand apes this absolute demand. Prescription medication is dependent on high skill and huge understanding. So doctors, by necessity, behave as sellers, and agents of other sellers (hospitals, labs, pharmaceutical companies). Buyers must rely on the judgment of sellers in regards to what is essential, or perhaps prudent. The saying “Doctor’s orders” includes a peremptory and absolute flavor.

Typically, people don’t access healthcare just for fun. Recreational colonoscopies aren’t big motorists of healthcare costs. In some instances, for example plastic surgery or laser eye corrections, the choice is clearly one the customer could make. It is a classic economic decision: “Will I such as this enough to cover it?” But typically, people only access healthcare simply because they feel they need to. As well as in most situations, it is not easy for that buyer to distinguish the truly absolute demand (“Do that or else you die”) in the optional.

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