More on Free Markets — Not good for your health

Economix continues the discussion of the inappropriateness of free market health care. Reinhardt’s discussion includes references to Kenneth Arrow’s 1960’s work on the characteristics of a perfectly competitive market.

Arrow explored in the early 1960s what the characteristics would be of a perfectly competitive market for an ordinary commodity, how the medical care industry deviated from those characteristics and what aspects of health care might explain these deviations.

And:

On the other hand, as medical science and practice advance rapidly, the information gap between physicians and their patients increases. Many transactions in the market for health care therefore still proceed on the basis of trust in the expertise and integrity of physicians and other health workers, rather than on the countervailing power of equally well-informed buyers and sellers, each looking out only for their own self-interest.

And Arrow in a recent interview:

I think the basic analysis hasn’t changed. There are wars over the details, but the basic analysis is accepted. Some specifics have changed. If you look closely at my argument there is a sociological structure. There is a kind of sociological thesis. The market won’t work –it doesn’t work well in the health context. But something else supplements the market, and the thing I put stress on in the paper are the elements that put a non-economic influence on the market: professional commitments to provide a service, to engage in services that aren’t self-serving. Standards of caring decided by non-economic actors. And one problem we have now is an erosion of professional standards. In a way there is more emphasis on markets and self-aggrandizement in the context of health care, and that has led to some of the problems we have today. (medicynical emphasis)

Medicynical note: So as the blind faith movement pushes for “free” i.e. less regulated markets in health care we should be painfully aware of the failures of this movement in the financial area (both in the 80’s and more recently), the deregulation of electric power (Enron, in case you forgot) etc. We shouldn’t forget that money makes people do funny things.

Health care is different than other commodities, it’s not optional; often there are no alternatives; shopping for care is difficult because of the urgency of needed care and the information gap — “both the diagnosis of and the likely consequences of treatment are asymmetrically allocated between the sell-side (providers) and the buy-side (patients) of the health care market.”

In the free market of ideas it’s buyer beware of those selling a free market idea for health care.