Wednesday, April 02, 2008

The Goddess of Less-Than-Free Markets

That's me, when it comes to certain markets, especially the markets for medical care. It's not terribly popular in this country to point out that markets are technical things, not something that god has created to mete out justice, love and bon-bons for all, and that markets which are pretty much left alone work great with some products and horribly with other products.

One product the markets have trouble with is health care. Of course health care is not just one product, but I'm going to pretend it is, for reasons of exposition. To see why this particular product (or many actual products inside that general category) causes difficulties for the markets, think of a totally different product, say bread.

Bread is something most of us have eaten and bought. We know how to judge whether bread is fresh and we know whether we like its taste. We can also judge pretty well what the price tag of, say, $3.25 on the loaf means to us. Sure, the baker of the bread knows more about it than we do, but on the whole we are pretty confident in our ability to judge bread as it is sold in the marketplace.

Now imagine a very odd world in which health care is called bread. You wake up in the morning and listen to your stomach rumbling, wondering what that might mean. The rumblings don't stop after a day or so and you start getting weaker. Better make an appointment with a bread specialist.

The specialist will then examine you and run some additional tests to see if you need bread or not, and if so, what kind of bread might be best for you. You sit there hoping that it's not an expensive type of bread and praying that the rumblings were not about hunger at all.

Then the bread specialist comes back and gives you a diagnosis and a recommendation for a particular type of bread, one which she or he has just happened to have baked and can sell you at $23, 567! You will then have to decide if that seems like a good deal.

Now, the story is preposterous, but the point of it is not: Consumers have very little information in health care markets, they don't really know if the product they are told to consume is the one they should be consuming, and they don't really know if the price is fair to pay. The recommendations they get come from the very same people who are selling the product to them! And all this happens in a situation that might be akin to starving to death from the lack of bread so you can't really get up and shop around to get the bread at the cheapest possible price.

Not all health care products are like the imaginary bread of my little story. But most of the products which really cost us a lot are indeed almost exactly like that. Yet McCain's health care proposal advocates more market competition as the way to reduce health care costs, presumably in the form of greater price competition. But what does such a competition mean in these circumstances?

Health care markets have never been allowed to operate without government intervention, by the way. Note that physicians must be licensed and that medical schools stress their role as the patients' agents, not as the sellers of health care. Malpractice suits exist to provide a reason for all physicians to avoid overtreatment for selfish financial reasons, and all types of medical firms must satisfy various governmental watchdog organizations. I'm not sure if McCain knows this, of course.