Saturday, 25 July 2009

health care and the free market

Krugman's recent blog explains why free market principles just don't work well when it come to health care distribution. He's essentially summarizing an important paper Kenneth Arrow wrote way back in 1963, "Uncertainty and the Welfare Economics of Health Care". To summarize his summary, there are two key factors that make health care very different than things that the free market might be able to distribute more efficiently:

a) health care is completely unlike most good or services because it's largely unpredictable when we'll need it and when we do need it, it is very expensive. Hence, it requires some kind of insurance and consumer choice becomes largely a non-factor. (and insurance companies are not out to get you effective coverage but to minimize costs)
b) health care is far too complicated to allow us to do things that can make us effective agents in the marketplace, you can't rely on experience or comparison shopping.

I'd rant on about this but Krugman does a great job of summing up the situation in my opinion: "There are a number of successful health-care systems, at least as measured by pretty good care much cheaper than here, and they are quite different from each other. There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn’t work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence."

No comments: