Thursday, April 13, 2017


Arrow and Health Care

There is something different about health care: It is not a free exchange. there is no opportunity to negotiate any more than one can negotiate with the police during a break-in or the fire department during a fire. There is a social, communal concern (you have a neighbor with TB) and a slanted give-and-take with your provider (the patient is an anxious customer.)

This is from Fareed Zakaria:

There is an understandable impulse on the right to assume that healthcare would work more efficiently if it were a free market, or a freer market. It’s true for most goods and services. But in 1963, the economist Kenneth Arrow, who later won a Nobel Prize, offered a simple explanation as to why markets would not work well in this area.

He argued that there was a huge mismatch of power and information between the buyer and the seller. If a salesman tells you to buy a particular television, you can easily choose another or just walk away. If a doctor insists that you need a medicine or a procedure, you are far less likely to reject that advice.
Every advanced economy in the world has implicitly acknowledged this argument because they have all adopted some version of a state- directed system for healthcare. Consider the 16 countries that rank higher than the United States on the conservative Heritage Foundation’s index of economic freedom.

All have universal coverage and state-driven, guided or operated systems. Hong Kong, often considered the most unregulated free market in the world, has a British-style government-run system.
Switzerland, one of the most business-friendly countries, has a private insurance system just like the United States, but found that to make it work, it had to introduce a mandate like Obamacare.

I am particularly struck by the experience of Taiwan, which canvassed the world for the best ideas before creating its system. It chose Medicare for all, a single government payer with multiple private providers.


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