Friday, January 30, 2015

The Health Care Market

We’ve long had trouble deciding whether the health care establishment can legitimately be considered a market and, if so, how the market should be organized.

Apparently, the White House staff had the same difficulty during the run-up to passage of the Affordable Care Act, aka Obamacare.  According to a lengthy review of Steven Brill’s book “America’s Bitter Pill” by Malcolm Gladwell in the January issue of The New Yorker, the White House health care people and its economics people contested mightily and at length over the issue.  The health care people seemed to think that health care was a special economic case and that its costs could only be controlled by a hefty dose of regulation.  The economics people thought competition was the best way to do it.

The kind of competition being visualized involved patients having a financial incentive to shop around for services.  The argument against that is that when one is sick or injured, finances are the farthest thing from the mind.

Apparently, no consideration was given to a possible role for HMOs and insurance companies.  Those organizations can assemble panels of providers with which they have negotiated prices.  Patients can then choose among competing companies based on what they consider to be the best value in terms of price and quality.  An insurance company can actually assemble more than one panel with different premiums associated with each.

The advantage of that arrangement is that patients make economic decisions relating to health care by choosing an insurance company and a panel of providers when they are well rather than when they are ill or injured..

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