Thursday, August 27, 2009
Saturday, August 8, 2009
Health Care Reform
This article from Harvard's new medical school dean (Jeffrey Flier) was especially interesting. It's written back in '94 but foresees a lot of the problems we're having with health care now.
He explains how sometimes markets fail to provide good information to both people involved in a transaction. Take car buying for example (esp. used care buying). The average car buyer has a difficult time knowing the true quality or value of the car he/she is buying. If a customer thinks she is buying a good car but it turns out to be a lemon, she's made a non-beneficial, even harmful, exchange. The same thing can happen when you purchase health care because you have limited information about the health care you are going to receive. In an ideal market you would be able to ask yourself whether paying X number of dollars for procedure Y is actually worth your money. But because you don't know the full value of procedure Y you'll have a tough time making that cost-benefit analysis and you'll likely pay for procedure Y "just in case." Many times people guess wrong (and are encouraged to do so because they're not directly paying the bill) and demand procedures that they don't actually need. And what happens when demand for a specific good goes up? The price goes up too.
So if this market weakness allows people to make detrimental exchanges then the government ought to step in and fix it, right? Well, we've got to remember that government fails too. In this article, Flier argues two points: 1) The cost of government intervention in health care will outweigh the benefits and 2) A large part of the reason that health care costs so much is because of previous failed government intervention.
He explains how sometimes markets fail to provide good information to both people involved in a transaction. Take car buying for example (esp. used care buying). The average car buyer has a difficult time knowing the true quality or value of the car he/she is buying. If a customer thinks she is buying a good car but it turns out to be a lemon, she's made a non-beneficial, even harmful, exchange. The same thing can happen when you purchase health care because you have limited information about the health care you are going to receive. In an ideal market you would be able to ask yourself whether paying X number of dollars for procedure Y is actually worth your money. But because you don't know the full value of procedure Y you'll have a tough time making that cost-benefit analysis and you'll likely pay for procedure Y "just in case." Many times people guess wrong (and are encouraged to do so because they're not directly paying the bill) and demand procedures that they don't actually need. And what happens when demand for a specific good goes up? The price goes up too.
So if this market weakness allows people to make detrimental exchanges then the government ought to step in and fix it, right? Well, we've got to remember that government fails too. In this article, Flier argues two points: 1) The cost of government intervention in health care will outweigh the benefits and 2) A large part of the reason that health care costs so much is because of previous failed government intervention.
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