Free Market Health Care

An excellent brief summary of the problem with a free market approach to health care from James Kwak:

I happen to think that a free market for insurance works pretty well in most circumstances (and I did co-found an insurance software company); for example, if you can afford the house, you can generally afford the insurance for the house. But it doesn’t work very well for health care, because many people are simply uninsurable under free market principles (expected health care costs exceed their income, let alone their ability to pay), and hence would be left to die. We think we have a private, for-profit insurance system today, but we can only avoid its disturbing implications by hedging it in with public backstops and regulations.

Since nobody is proposing a true free market system, we tend not to dwell on these facts. But I think they’re more important than people realize. If you think about free markets’ ability to, say, deliver falling prices for high-definition televisions I think you’ll quickly see that one key element of the process is that our society is very sincerely prepared to say that if you can’t afford an HDTV, you’re going to have to do without one. Consequently, when the technology is introduced you wind up with a larger number of people who would buy the HDTV at some price but not at the price being asked. This creates a large market incentive for someone to come up with a lower price point for HDTVs, and to invest in technical research that will make it profitable to sell cheap HDTVs.

This process works really well. But when you replace “has to watch the game at a friend’s house if he wants to see it in HD” with “gets sick and dies” then suddenly the process looks not-so-good. But absent a strong and firm social commitment to the “gets sick and dies” part of the equation, the whole process starts looking different. You wind up with a scenario where there’s a strong case for much more systematic government intervention, because whatever kind of “market” dynamic you’re willing to unleash on the health care sector is going to be substantially distorted by the baseline government interventions needed to meet our core social values.


A related part of this is that medicine has never really been understood as a commercial enterprise. A doctor is, in our social understanding, not a “medical treatments salesman” any more than a soldier is a mercenary.