Health care and the market
Topic: Health
Recently, The New York Times carried an article by Donald L. Barlett and James B. Steele on health care in the United States. In the article, the authors assert that Americans do not have adequate health insurance coverage because of "the inability of market-based, for-profit medicine to deliver on the political promises".

We spend more per capita on health care than any other developed country. Yet on the important yardsticks, like life expectancy measured in healthy years, we don't even rank among the top 20 nations. In fact, according to the World Health Organisation, we come in an embarrassing 29th.

The authors claim that the market fails in the following:

The money in health care is in disease treatment whereas good health care requires disease prevention.

The market focuses on demand rather than on need, and carries out marketing to create that demand.

The United States government does not exert influence over prescription drug prices, so Americans pay more for these drugs.

The authors recommends the following:

What's needed to control the costs and to provide basic health and hospitalisation coverage for all Americans is an independent agency that would set national health care policy, collect medical fees, pay claims, reimburse doctors fairly and restrain runaway drug prices -- a single-payer system that would eliminate the costly, inefficient bureaucracy generated by thousands of different plans.

However, the authors' recommendation must be treated with a high degree of skepticism. In my opinion, the problem lies not in the fact that the market cannot deliver proper health care to Americans but that the United States has failed to provide an efficient, competitive market.

The health care market is always likely to be controlled by health care professionals because of the concentration of knowledge in the latter. An efficient market requires a free flow of information. When information between service providers and consumers is as unbalanced as it usually is in health care, the resultant market is also unlikely to be very free.

Therefore, health care regulation must focus on redressing this imbalance. Instead, health care regulation in the United States has often further distorted the free market.

Many economists have already pointed out that onerous safety requirements in drug regulation raises the cost of bringing new drugs to the market, which are then passed on to consumers with the help of patent laws that restrict competition. Contrary to what the authors assert, the United States already influences drug prices through safety and patent regulation. But because the influence is by way of reducing effective competition, prices go up.

Which makes it ironic that the authors want a single agency to control the entire health care system. The single agency will be devoid of competition and be one huge bureaucracy, with all its attendant inefficiency and disregard of market needs typical of such bureaucracies. It is hardly likely to result in an affordable and accessible health care system for the United States.