• Health care is different

    Some sentences I agree with:

    • Health care markets and the airline industry both have barriers to entry. The former requires special licenses, the latter requires considerable capital and regulatory compliance.
    • Trust in one’s doctor is important, as is trust in one’s lawyer.
    • Information assymetries exist in health care as in auto repair. Your mechanic (doctor) knows more about your car (your internal organs) than you do.
    • Health services and health insurance products are differentiated and complex, as are other products like cell phones or personal computers.
    • Health professionals want a good income, as do those in other fields.

    Every single way one can characterize health care services, insurance, or markets, one can find another product, service, or market that is similar in that way. But, how many other products, services, or markets, possess every feature of health care that contributes to its failure as a market or the cost problems associated with it? Moreover, how many do so to the same degree? Lastly, how many also involve life and death decisions?

    There are reasons health care costs are hard to control. Some of them can be addressed, at least in part, by changes that would make health care markets more like those of other industries. Some of them can’t. Except in very rare cases, make a mistake with your choice of airline, lawyer, auto mechanic, or cell phone and you’ll be inconvenienced for a time, until you switch products or practitioners. Much less rarely, make a mistake with your health care and you could pay for it for or with your life.

    Health care is different. (See also “Like a breath of fresh air.”)

    • I guess it’s a no-no to talk about in economics, but the emotional side of the asymmetry is the part you notice when you take care of patients. When I tell the wife of a young husband that I am going to do something to him which may either paralyze him or leave him on a vent with pneumonia, I dont get an analytical, unemotional response about the costs involved. We may have only 5 minutes to sort things out. Often late at night.

      While that is a mildly extreme case, the same is true of many of our costly interventions. People have a limited amount of time to decide. They also have geographic limitations. Patients also dont usually get the chance to try things out ahead of time like they do when buying a car, cell phone or a house. No test driving that CABG.

      The trust thing is odd. I sometimes find it strange how quickly people trust us. People who have never met me hand over their 6 month child to take to an OR and do stuff to them. After I have just gone over the risks of dying. That still amazes me.


      • @steve – What you wrote is tragically beautiful. Few who have not experienced it directly, from either side (physician or patient/family member) seem to get it. Please blog something like you wrote so I can link to it (though Aaron would be the more appropriate one to catch this–we’ll work it out). Or, if you prefer, I can just extract your comment and post it. However, I bet you wrote it hastily. As good as it is, perhaps you’d rather a crack at it again in a post on your blog.

    • Ok, will try. Not really a great writer but will let ya know when done.


    • Just for fun, here are a few other differences about health care that may not have any comparables. If anyone finds other industries that do the same, please let me know:

      – The existence of a third party paying upfront for (most of) the cost and having a limited ability to control those costs.

      – Need for cost sharing: Much of the spending being so expensive that the vast majority of consumers could not afford to pay it . (see the eighty twenty rule that Krugman and Wells point to).

      – Extreme price complexity: such a long set of products and services with varying and often secret prices (e.g. drug rebates or provider contracts), often with uncertain quality differences, such that consumers cannot effectively compare prices themselves. (Ok, I bet there are comparables here)

      – Heterogeneous quality differences: extremely high costs to comparing the effectiveness of products and services for the average patient (e.g. comparative health effectiveness) and varying effectiveness for individual consumers of products. (I’m sure this is rampant in other industries, but I’d love a few good comparables. I don’t think experience goods are comparable, as I don’t think people try out specific surgeries to see if they work for them and then keep getting them done.)

    • Excellent post, Austin, and I like the replies as well.

      You make a point that I often make to my students as well. Yes, other markets have a market failure as well. Maybe a couple, but what I find fascinating and challenging about health care markets is the DEGREE of market failure, how pervasive it is, in almost every way. I write down the assumptions of the perfect competition model and show that health care violates essentially every one of them to some if not a great extent.

      To the list you started, and the others added, I might add this one. Uncertainty. Yes, that may be included in the information asymmetry aspect, and I include it there, but it is worth calling out I think. There is such huge uncertainty about everything in medical care (and in health), on both sides of the market (demand and supply), coming from uncertainty about future health status, the efficacy of medical care, and so on. Yes, other markets have uncertainty too, but I think it is matter of degree here too. And the uncertainty leads people to buy products that then distort markets (insurance).