Thursday, June 17, 2010

Health Care Economics

The current health care market does not work at all like other markets. Unlike cars, computers, or retailing, for example, health care services have not become better and cheaper over time. Instead, they have become more costly, and people worry about quality too. Why? Because of gross distortions in supply and demand. Consumers, the demanders, have little of the information that interests them, cannot express their feelings about the price because they rarely see the real cost of their health insurance or health care purchases, and have an artificially constrained range of choices. And when it comes to supply, hospitals suppress competition and innovation, and health care’s key suppliers, the physicians, are increasingly marginalized.

The other industry where costs have continued to go up with no noticeable increase in quality is the higher education market. There governments have subsidized the supply of colleges and universities through tax breaks and federal loans. With the potential of the internet to dis-intermediate the value chain in higher education, there is much innovation that can occur.

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