Health Care and Free Markets

I recently read a blog entry by Paul Krugman, a famous liberal op-ed columnist for the NY Times, in which he lists his reason as to why free markets cannot cure our health care problems. Mr. Krugman is an accomplished economist and is also a professor of Economics and International Affairs at Princeton University. His credentials are impressive, and the fact he has these credentials makes me even more confused when I consider his point of view. In short, Mr. Krugman postulates free markets are unable to help correct our health care challenges because:

1) You never know when you'll need health care and the costs are extremely high. The high costs create a need for insurance companies and since they operate for profit, your medical costs are their loss. This reality encourages companies to deny payment or insurance whenever possible.

2) You can't comparatively shop for health care, like you would a TV.

These points are valid, in a sense. However, I'm baffled as to why Mr. Krugman doesn't address the heart of the health care problem: costs are out of control. I've never understood why when considering health care, so many people, especially those with a pro-government solution point of view, do not ask why health care is so expensive (the rising cost of college is another example). Those who support a free market solution to addressing health care are putting costs front and center and believe the patient, not the insurance company or government officials, should be making health care decisions --- and yes, cost should be a factor when determining the next steps.

Insurance companies and medicare/medicaid provide near guaranteed sources of payment to those in the health care industry. As a result, companies will often produce new expensivee drugs and equipment with only marginal incremental benefits. Since patients have a reduced role in the decision process, the cost/benefit analysis between drug or equipment A vs. B has been diminished. This creates an environment where the most expensive "solutions" are being delivered to the patients too often.

The intent of the free market solution is to increase competition in pharmaceuticals and equipment which will ultimately encourage those in the health care industry to provide these products in the most efficient manner. Just like TVs, automobiles, and other products, companies will want to be able to provide their product to the most people to improve their bottom line. In order to do so, they will need to develop ways to produce their product in the most cost effective manner which will allow allow them to be profitable at lower price-points; and just as the decreased prices for TVs and automobiles allowed more people to obtain these items, increased competition will drive down prices for drugs and equipment which will allow more people to be able to afford them.

Secondly, Mr. Krugman's comments about comparative shopping are absurd. Yes, when you have a heart attack, you're not going to shop around for the best hospital while you're on a guerney. However, in a free market, the "shopping around" would have already taken place prior to the emergency. People will be aware of the best hospitals for a given service prior to their emergency, and they will choose to go to the best known hospital in their time of need. Again, the fact that Krugman even lists this as a reason why markets can't help our health care problems  makes me wonder if he is really this silly or just disingenuous. Both of which are rather concerning given his impressive credentials.

Maybe one day we as a society will learn that our current practices and regulations around health care are key drivers in the rising health care costs. I would suggest Mr. Krugman read articles from one of his employers, the NY Times, as well as another left leaning site, MSNBC. These articles list similar reasons for rising costs, as do others. The majority of the reasons all have a similar theme: rising costs are the result of increased government intervention. Until we adopt remedies which recognize government involvement as a key driver in rising costs, more and more people are going to be unable to afford the health care they need.

Finally, I'll end with a direct quote from F.A. Hayek which was in his book, The Road to Serfdom. His comments, I think, can be applied to how increased government involvement through regulation and medicare in our health care has actually made things worse vs. better:

"...the present state of the world may be the result of genuine error on our own part and that the pursuit of some of our most cherished ideals has apparently produced results utterly different from those which we expected."