Ask any healthcare economist. Private healthcare sector has the most market failures in any sector.
1. Adverse Selection loop: Individuals in poor health are more likely to purchase health insurance, leading to higher payouts for insurance companies. Premiums may rise, discouraging healthier people from buying insurance, and so on.
2. Moral Hazard: Insured use more healthcare services than necessary or neglect preventive measures, when insurance will cover the costs. This leads to inefficient resource and costs.
3. Information Asymmetry: Patients lack information to make informed choices.
4. Monopoly Control and Entry Barriers lead to higher prices and limited choices for consumers
5. Interdependent Demand and Supply: supply and demand are not determined independently. Often more demand -> less supply.
6. Externalities, such as the spread of communicable diseases, can't be efficiently addressed by the market.
7. Public goods: non-excludable and non-rivalrous, are underprovided by the market
How would you categorize the asymmetry of power and lack of real choice?
When I buy indoor plants or VOD subscriptions, I'm participating in a market. I can choose to not buy these things at all.
When I buy healthcare (via insurance or not), I'm basically doing what my doctor suggests, because well, it's about my _health_. The consequences and risks of not buying can be too great.
Is healthcare an actual market in the real sense, or are we just pretending it is?
Are there things that are inherently unsuitable for privatization?
My thinking is that public transport, healthcare, law enforcement (including prisons obviously), public education and so on are all to some degree or another unsuitable for competitive markets. The incentives, power relations, feedback loops etc. just don't fit.
The list of services in your last 'graph are all what are generally considered public goods, not in the sense that they are publicly provided, but that they are non-excludable and non-rivalrous. That is, an ideal public good cannot limit who benefits by it (directly or indirectly), and additional users don't affect total availability (much). These are both ideal conditions, and there may be some degree of excludability and/or rivalrousness in practice, but generally public goods have far less as a matter of degree.
Other notable public goods are national defence, information, other general infrastructure, communications technology, etc.
There's another class of goods and services which are often at least in part government-provided because of coordination problems when provided by independent entities. Examples would include standards (weights and measures, specifications, safety requirements, shipping containers), transactional interchange formats (e.g., billing and purchase codes), large-scale information gathering (census, economic data), and the establishment of laws, regulations, courts, and enforcement themselves. Max Weber's definition of government as having a monopoly on the claim to legitimate use of force is another such case: regions in which that legitimate claim monopoly doesn't exist, in any of its three variants (not a monopoly, illegitimate, ineffectual force) are effectively ungoverned.
And then there's the case of insurance services, especially over broad areas or long periods. Pensions, healthcare, and disaster insurance would be three areas in which governments often, though not always, play a role, largely because private provision of such services simply fails to meet social needs.
If one looks at national governmental budgets, the largest items are typically pensions (e.g., Social Security in the US), healthcare (Medicare), and defence, with all other spending (largely: collective-action regulatory roles) being about a quarter of the overall total.
"Is healthcare an actual market in the real sense, or are we just pretending it is?"
Who actually is pretending this is a real market? In a functioning market all participants have access to the relevant information, there is choice and competition.
* With employer based insurance you basically have no or minimal choice.
* Getting information from providers and hospitals to make a decision is extremely hard to impossible
* Pharmacies have contracts that forbid them to inform patients about alternatives
* Insurances' websites often list doctors that not in network anymore
The system in the US is very far away from anything resembling a market.
In all sane markets, the buyer is both the person who selects the goods to purchase, and the one who pays the price agreed upon. These things seem linked, but it turns out it's really easy for them to be separated.
When medical care is funded by health insurance, you are the person who selects the goods, but you're not the one that pays the price. In some cases, you will never even be informed of the price, you don't want to be. And you rarely find out unless there are "problems".
The insurer doesn't worry if the bills are high, they'll just raise your premiums... but your monkey brain never makes the connection that your poor goods selection resulted in the higher price. It might even be unfair to blame you, even if you are careful which products you purchase, someone else was curious and you're punished with them. This incentivizes you to be less careful, not more. But if bills are really getting out of hand, the insurance company can just deny the claim.
This incentivizes the medical care provider to raise the number on the bills. If half of claims are denied, just double the bills and the math works out. The medical care provider is incentivized to get tricky with the billing codes, to obfuscate, to over-complicate. Over decades, a culture of being borderline fraudulent develops, a mythology that it's impossible to even know the costs upfront.
If I wanted to invent a machine that would cause prices to spiral out of control at the fastest possible rate, I don't think I could beat this.
> public education
By all means, I wish medical care could be as wonderful as public education. We could have the excellence of inner city Baltimore schools, coupled with the overabundance of service we see in California schools and the high levels of compensation of the average nationwide teacher salaries. Never mind the great outcomes that institution provides.
I'm not American so I don't know whether the last paragraph is sarcastic or not. But from the tone I guess it is.
Public education where I live is not perfect, but it works well and teachers are compensated fairly. I consider it one of the bedrocks of a democratic society.
In know of people who went to public schools in America and have said good things about it. From my very limited knowledge it seems like the quality of public schools varies a lot from area to area though.
I am American and since it's been mumble mumble years since the public school system, I'm sure the situation is changed. I grew up in a factory town and they did a pretty good job teaching the basics of English, mathematics, and science. Going to college was a bit of a shock but that's a well-known problem.
Nowadays, it is incredibly variable because school systems are funded at the local level, most the curricula is decided at the local level so you can go from a very well-funded high-quality teacher school like the Newton, Wellesley, and Weston high schools to the low income areas out West where the public school system has been outsourced to Christian schools.
I also think the public school system is a bedrock of a democratic society if the curriculum is uniform and covers critical thinking, history, literature, and sciences without flinching. I feel like we need to draw a line in the sand and say what someone needs to know to be a citizen of this country. The problem is, there are lots of different opinions where that line should go ranging from the religious and racist to the equally dogmatic far left.
I think it's misguided to point at the failures of one chronically underfunded public function to say that another would also perform poorly, unless the point is to say we would probably underfund public health care as well.
I used the analogy of having a heart attack to describe why making medical care market-driven is not wise. Imagine being loaded into the ambulance, and the driver asks, "Do you want to go to the nearest hospital, or do you want to call around and see which hospital is in-network and has the best price for cardiac care?"
If you have that small tight ball of nuclear fire burning in your chest, indicating something is very wrong, you really want to get to the hospital right away. Unfortunately, when you are having a cardiac event, you will make stupid decisions. I'm sure you can guess how I know.
I dropped out of a US-state public medical school pre-ACA ("Obamacare") and am grateful every day.
The decade+ since I have helped several friends die more dignifiedly, including my own mother.
Take advantage every. fucking. day. and get your Last Wishes in order (e.g. EoL options/terminations; DNR; who-do-what?)
In the chaos of the inevitable stroke/heart attack (which will kill many of us, reading and writing this very comment), your un-informed family will be in even more chaotic whorlwind than our soon-to-be medically-endebted patient/cadaver.
Add to that excellent list: the principle-agent problem, specifically the disjoint roles of the consumption decision, which is made by the patient and doctor(s), and the consumption payor, typically the insurance carrier or public health plan.
Classically, economists often pair the somewhat jarring set of healthcare and military procurement as sharing many of the same characteristics: high-ticket, high-consequence, difficult-to-assess purchasing behaviour in which the entity who is tasked with making the go/no-go decision is not the same as the party paying the bill. In the military case this would be a procurement officer (usually a commissioned officer within the military establishment) and the taxpayers generally.
Most of the other characteristics of your description of healthcare markets also apply to the military spending case.
Public sector economics and health economics generally. The principles discussed are fundamental to both subdisciplines and should be covered in the introductory chapter(s) of a basic textbook on the subject.
I'd used a textbook by Joseph Stiglitz several decades ago whilst at uni, and there should be an updated version of it out.
I think this might be it or close: Economics of the Public Sector, Fourth Edition. By Joseph E Stiglitz (Author, Columbia University), Jay K Rosengard (Author, Harvard University).
We covered it a lot in international political economy (IPE) since market failure scenarios tend to be exactly when even (non-looney/non-bad-faith) capitalism fans want governments to get involved. Guessing textbooks and readers on that sub-field would also be helpful.
(This is also why other posters here observe that examples of sectors prone to market failure have high levels of government involvement)
Okay, how do moral hazard (as defined here), information asymmetry, and monopoly not apply to public health systems as well? Point 5 here is a little under-explained, how exactly does demand for healthcare reduce supply and why can public systems cope with that while private ones fail? And which aspects of medicine are non-excludable and non-rivalrous, aside from herd immunity? From what I can tell vaccines tend to be subsidized by the govt. in the US anyway, which doesn't require overhauling the entire healthcare system to rectify.
I'm quite pleased to live in a country with a decent public healthcare system. It does indeed have some significant benefits. It still has half the problems on your list, and more besides.
Spot on. I would also add that it's extremely inelastic. If you want to stay alive, you don't have a choice as to whether you need healthcare.
Capitalism is amazing except for where market failures occur, which is many cases. The industries that suck the most also have the most market failures: healthcare, housing, and education
Standard Oil had a monopoly in the oil industry, so antitrust became a thing.
There was information asymmetry around food and drugs, because there's no way for a consumer to really know what's in a food or a drug. So the FDA mandates that they put out accurate info with penalties for incorrect info.
Information asymmetry and moral hazard led to 2008 financial crisis, which then led to Dodd-Frank reform
> Capitalism is amazing except for where market failures occur, which is many cases. The industries that suck the most also have the most market failures: healthcare, housing, and education
Those sectors you listed are actually among the least-capitalist and least-free-market in many locations.
They typically involve widespread and extremely invasive government interference that leads to significant inefficiency, service quality problems, and pricing distortions.
The healthcare industry, for example, is highly regulated in most jurisdictions. This eliminates most (or potentially even all, in particularly socialist systems) competition, which in turn eliminates consumer choice and also eliminates the incentives needed to ensure everybody involved behaves efficiently.
The housing industry is also highly regulated in most jurisdictions, and especially in urban areas where demand for housing can be highest. Restrictive zoning regulations, overzealous development review processes, unrealistic building codes, and financial system regulation result in a variety of market distortions that in turn can negatively affect the supply of available housing, the type and quality of housing that is built, rental rates, and purchase prices.
The education sector has perhaps the most government involvement of the examples you gave. In many places, it's provided directly by the government itself. Even if private options do happen to exist, they're often subjected to government-imposed accreditation and curriculum restrictions that neuter their independence. The situation can get particularly bad once government funding gets involved, especially in higher education, which can introduce severe tuition pricing distortions, inefficient use of resources, and so forth.
When a so-called "market failure" occurs, it's usually because there isn't actually a free market involved at all, but rather significant government interference and other socialist policies.
Government-imposed regulations are primarily put in place to artificially grant government actors influence and control (mainly the ability to forcefully extract and misappropriate real wealth created by the private sector) that they wouldn't naturally have in markets that are otherwise functioning perfectly fine without this interference.
Markets like healthcare, housing, education, and transportation tend to be early targets because they're large and widespread markets that are fundamental to everyday life, and thus prove to be very lucrative targets for government actors to exploit.
Sometimes, this government-imposed regulation is then co-opted by non-government actors who manage to further abuse it to their advantage, making the situation even worse.
"Market failure", "protecting the consumer", and similar phrases are simply the fake justifications used to try to make this unwanted and unjustifiable government interference more palatable to the public at large.
Government actors are inherently parasitic; they don't create real wealth, and are only able to siphon real wealth away from those who do have the ability to create it and then use it most efficiently. Thus, government interference inherently results in otherwise-fine markets becoming less-efficient and worse off, leading to what is then wrongly misinterpreted as "market failure".
Just to clarify, do you not believe in the concept of market failure? Or do you believe that market failure exists, and the government uses it as a scapegoat for intervention?
Please explain like I'm 5 how the US private healthcare insurance system is a socialist policy. Also with comparison with actual democratic socialist countries which somehow manage to provide healthcare without those major hiccups as seen in the land of the free (screech)
Not every healthcare intervention is a matter of life and death. If you get your glasses today or next week, you’re still generally better off.
Once we stop motte-and-baileying this, then we can have productive discussions that identify cases where market capitalism actually does work and then fortify the cases where it doesn’t.
I generally agree with this take. But it's not easy to draw that line.
There are obvious cases and many non-obvious ones.
To make an exaggerated point: Medical research is not too far off from throwing things at the wall and seeing what sticks. A lot of working therapies and drugs aren't as well understood as one would hope.
Also it's incredibly complicated. I'm thinking of preventative measures, psychosomatic symptoms, rare conditions, varying sensitivity, long term risks and so on.
There's just no easy answer to any of those things.
In a perfect world, you'd have the social control by families and communities combined with the expertise of health care professionals that determine where the line is on a case by case basis.
We can define healthcare more or less expansively. Seeing clearly, like many things, is sorr of optional of course. But the example of glasses is interesting in its own way with the predatory pricing of the Essilor-Luxottica monopoly on opticians' offices.
Stuff like glasses and dental work mostly works ok in the US, because employers provide limited coverage. You can buy really expensive glasses, but they aren't the only option.
> Once we stop motte-and-baileying this, then we can have productive discussions that identify cases where market capitalism actually does work and then fortify the cases where it doesn’t.
Well said, 100% this. It's also worth noting that so many things that one might abstractly think of as matters of life and death are currently being provided on a "sometime in the next several months if you're lucky" basis. There are surely some aspects of healthcare that can never really have a functioning market dynamic, like emergency care. But the vast majority of medical care is provided not at the speed of cardiac monitor beeping, but rather at the speed of scheduled appointments and billable events. What we really have is one big market failure due to criminal behavior of "insurance" companies (price fixing and restraint of trade) as well as providers (collusion and extortion). I'd say that no matter who may be ultimately paying, two critical first steps to restoring some patient agency are outlawing "insurance" "networks" and outlawing post-facto billing shakedowns.
After putting up with the national health systems of Canada and the UK, I'll take America's any day of the week.
My standard of care went way up when I got private insurance in the UK as well. The only thing the public services were ever good at was emergency care.
This is an unpopular opinion and it's a shame that there isn't a panacea. Both systems have their strengths and weaknesses.
I had to use the UK NHS between 2004 and 2008 kind of "extensively": Started with GPs (which I think is the weakest link, as they only give you 15 minutes for appointment and appointments are difficult to get). But once I got into a hospital; attention was so amazing, and all the studies were free and I was pretty well treated (blood work, ultrasound, colonoscopy, among others).
All in all, my experience with the NHS was hugely positive the 4 years I lived there. I feel it was even better than the one I had in Germany (where I also lived 4 years and also had some touch with its health system).
If I understand correctly, In the US I would have to earn some good money and jump hoops and loops through the insurance process to get something barely similar no? and those horror stories I read about the premiums payment, or that I need to be working to have insurance, but if I get in some accident and cannot work but have to use the health system then, I'm screwed?
TBH when I had the chance, I choose to go live in the UK instead of the US partly due to the fear of its health system.
The horror stories are overblown by people who are either trying to spin a lie or some other farcical story to claim "America bad".
If you have insurance, which you would because you'd have a job and not be a bum, your insurance would cover mostly everything. You have out of pocket maximum which dictate how much you are limited to pay for which is marginal at best.
The people who get $50k medical bills are lying and if they call the billing departments, they apply 80% self pay discounts which bring the fees in line with having insurance. More so, every state has low/no income programs which cover everything.
The nice thing about America is you don't need to go to a GP who will refer you. If you want to visit a urologist for a problem, you call a urologist, schedule an appointment and show up. You can be seen as early as that week of an appointment is open or most of the time as soon as the following week.
Going in network with your insurance provides the best cost/benefit ratio and of all of the insurance coverages I get, even with shit high deductible ones I still get access to research and specialty hospitals.
Consequently , nurses and doctors are better paid and have far better attitudes towards care in America. Every nurse and doctor I met in thE UK and Canada were truly miserable and over worked.
Private care in the UK is cheaper compared to the US but the US subsidizes the vast majority of medical advancements through it's over priced medical system that if it didn't exist, the advancements European countries take advantage of would disappear. Personally, I'd love to American companies get panelized tax wise in America when they are told by foreign country regulators what they can sell X drug for on their countries when the price isnt in line with the free market. They should walk or be taxed for selling at a discount but that's a different argument.
Contrary to popular belief, you still "pay" for health insurance in the UK and Canada, it just comes out of your paycheck and numbers wise it's still the same.
The exception is you don't have copays and deductibles but those aren't ever arduous and now that I've been using HSAs, it's negligible and a great hack at investing which is really what I use it for.
1. Adverse Selection loop: Individuals in poor health are more likely to purchase health insurance, leading to higher payouts for insurance companies. Premiums may rise, discouraging healthier people from buying insurance, and so on.
2. Moral Hazard: Insured use more healthcare services than necessary or neglect preventive measures, when insurance will cover the costs. This leads to inefficient resource and costs.
3. Information Asymmetry: Patients lack information to make informed choices.
4. Monopoly Control and Entry Barriers lead to higher prices and limited choices for consumers
5. Interdependent Demand and Supply: supply and demand are not determined independently. Often more demand -> less supply.
6. Externalities, such as the spread of communicable diseases, can't be efficiently addressed by the market.
7. Public goods: non-excludable and non-rivalrous, are underprovided by the market