Do Markets Work in Health Care? - The New York Times - New York Times
This would still be nothing like a free-market system — it would still be a highly regulated, largely public benefit — but it would rely more on consumer incentives.
The crucial question is: Do market incentives work in health care?
This is really two questions. The economic one: Would market mechanisms improve quality and reduce costs? The psychological one: Do people want the extra cognitive burden of shopping for health care, or would they rather offload those decisions to someone else?
Most progressives say markets don’t work. They point back to a famous essay the economist Kenneth Arrow wrote in 1963, which is the same year the Beach Boys had a huge hit with “Surfer Girl.”
Arrow argued that there are several features that make health care unlike normal markets. People’s needs for health care are unpredictable, unlike food and clothing. The doctor-patient relationship is unique and demands a high level of trust, empathy and care. Providers know much more about medicine than patients do, so the information is hopelessly asymmetric. Patients on a gurney can’t really make normal choices, and payment comes after care, not before.
These are all solid points, especially the doctor-patient one. But health care has become less exceptional over time. The internet and other mechanisms help customers acquire a lot more information. Sophisticated modeling helps with unpredictability in a bunch of fields.
We put our lives in the hands of for-profit companies all the time. I spent part of my week learning from an aviation mechanic how hard manufacturers work to prevent pieces of metal from shredding through the cabin if an engine explodes. Airplanes are ridiculously safe.
Proponents of market-based health care rely less on theory and more on data. The most fair-minded review of the evidence I’ve read comes from a McKinsey report written by Penelope Dash and David Meredith. They noted that sometimes market forces lead to worse outcomes, but “we have been most struck by health systems in which provider competition, managed effectively, has improved outcomes and patient choice significantly, while at the same time reducing system costs.”
There’s much research to suggest that people are able to behave like intelligent health care consumers. Work by Amitabh Chandra of Harvard and others found higher-performing hospitals do gain greater market share over time. People know quality and flock to it.
Furthermore, health care providers work hard to keep up with the competitors. When one provider becomes more productive, the neighboring ones tend to as well.
There are plenty of examples where market competition has improved health care delivery. The Medicare Part D program, passed under President George W. Bush, created competition around drug benefits. The program has provided coverage for millions while coming in at 57 percent under the cost of what the Congressional Budget Office initially projected. A study of Indiana’s health savings accounts found the state’s expenses were reduced by 11 percent.
Laser eye surgery produces more patient satisfaction than any other surgery. But it’s generally not covered by insurance, so it’s a free market. Twenty years ago it cost about $2,200 per eye. Now I see ads starting at $250 an eye.
There’s a big chunk of evidence that market incentives would work in health care, especially in non-acute care. The harder problem for Republicans may be political. This is a harried society. People may not want the added burdens of making health care decisions on top of all the others. This is a distrustful society. People may not trust themselves or others to make decisions. This is an insecure society. People may not want what they perceive as another risk factor in their lives.
The policy case for the Republican plans is solid. Will they persuade in this psychological environment? I doubt it.
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