Why would the law of economics work differently in medicine?
Second of all, parent is not claiming that economists' predictions about the free market system do not apply to health care. He's saying that the field of microeconomics specifically predicts that in some scenarios, the free market system just doesn't work very well; that is, the market does not facilitate a scenario in which market participants efficiently distribute goods/services, and therefore do not benefit optimally from them. This is called market failure. Healthcare fits several of the criteria for a failing, nonefficient market. Namely:
- Monopolistic competition.
- Healthcare is a non-optional service.
- Informational asymmetry - that is, doctors generally have more information about medicine, as well as about the specific medical state of their patient, than the patient does.
For more information, see:
http://en.wikipedia.org/wiki/Microeconomics#Market_failure
http://en.wikipedia.org/wiki/Market_failure
[PDF] http://www.stevereads.com/papers_to_read/uncertainty_and_the...
All Arrow's paper shows is that certain naive structures for health insurance might not work out so well. But there are plenty of other structures that might work well. For example, here is the design for a better type of healthcare company:
- The company by contract defines that 80% of all premiums must be applied to reimbursement, the other 20% of revenue pays for administration, marketing, and profits.
- As a result, the company cannot profit by denying care. If they deny care, that money must be spent on another patient.
- Since the money must be spent by contract, the company will be incentivized to spend the money in the way that maximizes the total health of the pool, so that they can attract more customers. The incentives of the insurance company and the patients are actually aligned.
Unfortunately, in my state, and in most states, the above structure for a healthcare company is illegal. Regulations prevent it. So I hardly see healthcare as an example of "market failure" when regulations prevent the types of business plans that would actually work.
Of course, the same can be said for pretty much any scientific principle!
To expect a law of economics to hold in any arbitrary market is like expecting Kepler's laws of planetary motion to hold for any possible configuration of bodies.
Whether a given law holds in the health care market, and why that may or may not be the case, is another matter, and a very complicated question to boot. The only thing that can be safely assumed is that anyone offering a pat, simple answer ("we need the government to do X so that the market will Y!") is oversimplifying.
Statistical kludges? Wow, that's already way over my head.
Certainly, data comparing US expenditures on health care to other countries supports this.
I do not understand how medical goods can be considered public goods.(Or roads and security for that matters.)
Are you forgetting to account for the various interventions that account for rise in medical cost?
I believe I recall Medicare driven up demand, thus increasing cost due to people overusing Medicare. Insurance, instead of being used to cover emergency medical care, are now being used to cover medical visit and other regular expenses.
We also have a medical cartel driving up costs by limiting the supply of doctors. Patent medicine is also adding to the cost too.
Statistics are great and all, but we really should look into the unseen on why this is happening.
I'm interpreting the OP to be suggesting that choosing to define health care as a public good has obvious benefits that outweigh the notion that it should be left to the free market.
You are coming from an opposite view that clearly sees little benefit in drawing any lines past the natural norm.
Given that there is basically no country on the planet that operates in this method - spare maybe Somalia - I am assuming that the true definition of a Public Good is not the intent.
Or, that the free market might possibly work well, but there is something else causing a market failure.
Wiki definition:
Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that are not efficient – that can be improved upon from the societal point-of-view.
In other words, the free market is the failure.