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Can A Free Market In US Healthcare Work? – OpEd

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As the author of Priceless: Curing the Healthcare Crisis, from time to time I hear policy wonks claim that the market cannot work in healthcare. Usually, they cite a very old article by Stanford University economist Kenneth Arrow, who claimed that the market for medical care is inherently imperfect. True, but most markets are imperfect. The question is: does the market for healthcare work better than a nonmarket for healthcare? I believe the evidence supports an unqualified yes.

Consider some standard complaints that are normally leveled at the current system: that price and quality information is not transparent, that the market is not competitive, that unsustainable rising costs are inevitable, that quality is inadequate, and that providers make inadequate use of technology, including electronic medical records and electronic prescribing. But do these problems exist because of an inherent flaw in healthcare markets? Or do they exist because normal market forces have been systematically suppressed?

As it turns out, healthcare markets seem to work reasonably well wherever third-party payers are not the dominant payers. Wherever patients are paying with their own money, providers always compete on price, and where there is price competition, transparency is never a problem. Moreover, in such markets, we do not find the problem of healthcare inflation that plagues the rest of the system. The real price of cosmetic surgery has actually declined over the past fifteen years. The real price of LASIK surgery has declined by 30 percent over the past decade.

I know of nothing in health economics that would lead a rational person to conclude that markets cannot work in medical care. Indeed, the evidence all points in the other direction: Markets can work much better than our current system, if they are allowed to do so.

[Cross-posted at Psychology Today]



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John C. Goodman

John C. Goodman

John C. Goodman is President of the Goodman Institute and Senior Fellow at The Independent Institute. His books include the widely acclaimed A Better Choice: Healthcare Solutions for America and the award-winning Priceless: Curing the Healthcare Crisis. The Wall Street Journal and the National Journal, among other media, have called him the “Father of Health Savings Accounts.”

One thought on “Can A Free Market In US Healthcare Work? – OpEd

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    October 18, 2012 at 4:11 pm
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    Thank you. Yes, free market health care would perform a thousand times better that the current mishmash of local, state and federal regulations that control it now. Elected political hacks think that they can construct a better system designed by bureaucrats and “experts” than the free hand of market forces. This is foolhardy arrogance and egos run wild.

    Before the madness of the Great Society had a great effect on the healthcare market, prices were much LOWER in relation to earned income.
    In 1968 I was in a private hospital ward of four beds known as semi-private care in those days. I made about $125 per week then. Three days in the hospital with twenty-four hour care cost my health care provider $176!!!! I still have the original bill.

    My son was born in 1970. The bill was $672. My daughter was born in 1972. The bill was $740. I was making about $150 a week then.

    I had to have four stitches in my thumb about five years ago and each stitch was $100 — ridiculous.

    Why aren’t the weak sister Republicans touting complete deregulation of health care? It worked very well for the trucking and communications sectors. The unions don’t like deregulation but so what. Deregulation works for everyone else. Where would the computer industry would be today if the politicians were writing government regulations for the industry? A desktop PC would cost $5000 or more.

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