Health Care Markets (a Follow Up)

I recently read an interesting article by David Goldhill in the Atlantic.  It's a discussion of the wildly misaligned incentives in the U.S. health care system.  Essentially, the article asserts that a lack of transparency in costs and reimbursement have allowed costs to skyrocket while providing generally poor care.  In view of my previous post on the huge market for cancer treatments, one should question whether that market size is due to actual need or a dysfunctional funding system.  In other words, the existence of a market may not always indicate great medical need, particularly if the market is artificially inflated.  This means that the massive investment in research may not necessarily provide a great benefit to the public, as I suggested in the post.

On the topic of health care markets, the underlying conclusion of the article is that many health care costs (at the very least, routine costs) should be paid directly by consumers who can exercise choice and encourage competition.  According the the author, this would solve existing incentive misalignment through a traditional market approach.  The market for LASIK surgery, which is generally not reimbursed by insurance, is used as an example, where costs have significantly decreased since the procedure was introduced.

Total consumer control may not be as attractive as it sounds, as basic health care is not like other markets.  The most important difference is that in many cases we do not want people to choose to forgo treatment, and this may happen if they had to completely internalize the costs.  LASIK is clearly an optional procedure, and people who could benefit from it (like me) lead perfectly happy and healthy lives without it (like me). But prenatal care, hypertension treatments, cancer screening and the like can be demonstrated to positively impact the quality of life and should not be promoted as optional.  Many consumers may not be sophisticated enough to make decisions on heath care spending in every case (like me). In truth, we want a system that encourages people to attain some preventative care and treatments that they might not pay for themselves.  A pure market approach in this context may lead to some undesirable outcomes.