Comment by dandelany | Hacker News Reader

Comment by dandelany | Hacker News Reader

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First of all, F=MA is a law. Economics is a guess.

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...

Almost every single "market failure" in the economic literature is really an opportunity for a business plan.

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.

What about the possibility of artificially high barrier to entry, arbitrary regulations some which increases the cost of productions and some which block out firms? What about insurance being used to pay for everyday medical expenses instead of being used in only emergency? What about laws regulating the price of insurance? What about the effects of government welfare program on supply and demand?

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