Why health care is an outlier

2010-11-18 13:23

I’m a pretty consistent sort, usually. I am a big fan of market economies as a way to allocate resources. They work. They work for all sorts of things, from steak dinners to cars, from telephones to glassware.

And yet, health care doesn’t seem to work this way. The US spends a ridiculous amount of money on health care, and gets substandard results. The essence of the issue seems to be that we spend a whole lot of money treating some things that produce fairly small benefits, and completely fail to treat other things that would produce huge benefits for much less money. Why?

I think I have an answer. I’m still thinking about it, so maybe I’m wrong, but…

Markets are not good at allocating things which have infinite value to the customer.

Think about how things like steak or lobster get allocated. There’s a cap to how much people are willing to pay for them, and while it certainly goes up when they have more money, it doesn’t go up all that far, because fundamentally, there’s other competing products, and there are other things you’d rather spend your money on.

But, for most people, there’s nothing you’d rather spend your money on than staying alive, because if you don’t stay alive, you can’t spend money on anything. And that makes for a very weird imbalance. How much is it worth to get your kid treated for something that you think might be fatal? Probably all the money you have, if that’s what it takes. What this means, though, is that a very marginal chance of improvement for a rich kid is worth more than a nearly-guaranteed cure for a poor kid. And the market reacts to that.

There’s other complexities, to be sure. We spend an amazing amount of time and effort trying to decide who has to pay for what, and arguing over which treatments or which doctors are covered. One of my friends has health care which covers a particular condition… But of the doctors who treat it, the one who is covered by the insurance is so busy that there’s a months-to-years waiting list, while other doctors in the same clinic have openings every month, but don’t happen to be covered by that insurance program. This kind of thing is hopelessly inefficient. I know someone who moved to a different state to seek health care, because she wasn’t covered by insurance, had a preexisting condition and thus couldn’t get insurance, and because none of the doctors she was able to find would take payment for care. That’s right. Cash in hand, you couldn’t get medical treatment, because they only took patients with insurance.

Ultimately… Yes, a government-administered system will be woefully inefficient. However, I think it could very easily be [b]less[/b] inefficient than the system we use right now in the US. If nothing else, it might be a little more willing to allocate basic treatment, like checkups and antibiotics, to people who can’t afford to compete with rich hypochondriacs.

Peter Seebach

,

---

Comment

 
---