Why markets don't work well in health care

How do patients make health care decisions?

Classical economics teaches us that people make decisions about what to buy through rational thinking, balancing what we want with what we can afford. In health care, very rarely are people “rational” economic actors. Serious illness is a time of great vulnerability. Anxiety, fear, sadness, family stress, denial, and both hopefulness and hopelessness are widespread emotions we all know. Additionally, there are often serious pressures to make decisions quickly. For example, we cannot “shop around” for our health care when:

  • We have a significant trauma, like a car accident, and are rushed to the nearest ER that may or may not be on our insurance plan
  • Our child is very sick in the middle of the night, and we are willing to do whatever it takes to get them care.
  • Our insurance provided by our employer only allows us to see certain doctors at certain hospitals, none of whom have appointments available in a reasonable time-frame.
  • There is only one surgeon at the hospital in town, and we cannot drive hours away to get the care we need.
All of the above remind us that the health care economy must be based on different principles than the economics of purchasing a car or a TV.

How available are accurate prices in health care?

The classical view of markets assumes that buyers know the prices of the products or services they want to purchase. Anybody who uses health care nowadays knows how hard it is to find out what they are being charged. Even the doctors and clinicians who provide services often do not know prices and cannot guide their patients on how to spend their money wisely.

How are health care prices set?

In other areas of the economy, prices reflect the balance between supply and demand. But in health care, prices are not only affected by supply and demand, but also by laws, regulations, and rules. Because of this, standard prices are commonly set by private and public payers (for example Blue Cross/Blue Shield or Medicare). And these prices are greatly influenced by the political power of lobbies for the various trade associations in health care and pharmaceutical companies. For more information, see Facts and Data: Consolidation and monopolies in health care and Facts and Data: The expensive politics of health care.

Should we strive for fair markets instead of so-called “free” markets in health care?

Competition is important in health care. It encourages people to work harder and more efficiently, and to provide better service. But, in health care, the markets must include the notion of “fairness.” The definition of what is “fair” should not be determined by those who have the most dollars with access to legislators, but rather by the public interest, and the common good. Updated 6/1/2018