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Ask any healthcare economist. Private healthcare sector has the most market failures in any sector. 1. Adverse Selection loop: Individuals in poor health are m

by nabla9 2y ago

Ask any healthcare economist. Private healthcare sector has the most market failures in any sector. 1. Adverse Selection loop: Individuals in poor health are more likely to purchase health insurance, leading to higher payouts for insurance companies. Premiums may rise, discouraging healthier people from buying insurance, and so on. 2. Moral Hazard: Insured use more healthcare services than necessary or neglect preventive measures, when insurance will cover the costs. This leads to inefficient resource and costs. 3. Information Asymmetry: Patients lack information to make informed choices. 4. Monopoly Control and Entry Barriers lead to higher prices and limited choices for consumers 5. Interdependent Demand and Supply: supply and demand are not determined independently. Often more demand -> less supply. 6. Externalities, such as the spread of communicable diseases, can't be efficiently addressed by the market. 7. Public goods: non-excludable and non-rivalrous, are underprovided by the market

fourier54 2y ago
Interesting, would like to read more, can you provide references?
- spencerchubb 2y ago
  Any undergrad economics textbook will have chapters about market failure. Do you want something more specific?
  - vundercind 2y ago
    We covered it a lot in international political economy (IPE) since market failure scenarios tend to be exactly when even (non-looney/non-bad-faith) capitalism fans want governments to get involved. Guessing textbooks and readers on that sub-field would also be helpful. (This is also why other posters here observe that examples of sectors prone to market failure have high levels of government involvement)
- dredmorbius 2y ago
  Public sector economics and health economics generally. The principles discussed are fundamental to both subdisciplines and should be covered in the introductory chapter(s) of a basic textbook on the subject. I'd used a textbook by Joseph Stiglitz several decades ago whilst at uni, and there should be an updated version of it out. I think this might be it or close: Economics of the Public Sector, Fourth Edition. By Joseph E Stiglitz (Author, Columbia University), Jay K Rosengard (Author, Harvard University). <https://wwnorton.com/books/9780393925227 https://wwnorton.com/books/9780393925227> The table of contents looks promising, particularly chapter 5. Also at: <https://search.worldcat.org/title/39485400 https://search.worldcat.org/title/39485400> You might also find this in Handbook of public economics by Alan J. Auerbach, Martin S. Feldstein, Raj Chetty, and Emmanuel Saez. <https://search.worldcat.org/title/13360368 https://search.worldcat.org/title/13360368>
spencerchubb 2y ago
Spot on. I would also add that it's extremely inelastic. If you want to stay alive, you don't have a choice as to whether you need healthcare. Capitalism is amazing except for where market failures occur, which is many cases. The industries that suck the most also have the most market failures: healthcare, housing, and education
- coredog64 2y ago
  Not every healthcare intervention is a matter of life and death. If you get your glasses today or next week, you’re still generally better off. Once we stop motte-and-baileying this, then we can have productive discussions that identify cases where market capitalism actually does work and then fortify the cases where it doesn’t.
  - quantified 2y ago
    We can define healthcare more or less expansively. Seeing clearly, like many things, is sorr of optional of course. But the example of glasses is interesting in its own way with the predatory pricing of the Essilor-Luxottica monopoly on opticians' offices.
  - dgb23 2y ago
    I generally agree with this take. But it's not easy to draw that line. There are obvious cases and many non-obvious ones. To make an exaggerated point: Medical research is not too far off from throwing things at the wall and seeing what sticks. A lot of working therapies and drugs aren't as well understood as one would hope. Also it's incredibly complicated. I'm thinking of preventative measures, psychosomatic symptoms, rare conditions, varying sensitivity, long term risks and so on. There's just no easy answer to any of those things. In a perfect world, you'd have the social control by families and communities combined with the expertise of health care professionals that determine where the line is on a case by case basis.
  - mindslight 2y ago
    > Once we stop motte-and-baileying this, then we can have productive discussions that identify cases where market capitalism actually does work and then fortify the cases where it doesn’t. Well said, 100% this. It's also worth noting that so many things that one might abstractly think of as matters of life and death are currently being provided on a "sometime in the next several months if you're lucky" basis. There are surely some aspects of healthcare that can never really have a functioning market dynamic, like emergency care. But the vast majority of medical care is provided not at the speed of cardiac monitor beeping, but rather at the speed of scheduled appointments and billable events. What we really have is one big market failure due to criminal behavior of "insurance" companies (price fixing and restraint of trade) as well as providers (collusion and extortion). I'd say that no matter who may be ultimately paying, two critical first steps to restoring some patient agency are outlawing "insurance" "networks" and outlawing post-facto billing shakedowns.
throwawaymanbot 2y ago
[dead]
dgb23 2y ago
How would you categorize the asymmetry of power and lack of real choice? When I buy indoor plants or VOD subscriptions, I'm participating in a market. I can choose to not buy these things at all. When I buy healthcare (via insurance or not), I'm basically doing what my doctor suggests, because well, it's about my _health_. The consequences and risks of not buying can be too great. Is healthcare an actual market in the real sense, or are we just pretending it is? Are there things that are inherently unsuitable for privatization? My thinking is that public transport, healthcare, law enforcement (including prisons obviously), public education and so on are all to some degree or another unsuitable for competitive markets. The incentives, power relations, feedback loops etc. just don't fit.
- NoMoreNicksLeft 2y ago
  In all sane markets, the buyer is both the person who selects the goods to purchase, and the one who pays the price agreed upon. These things seem linked, but it turns out it's really easy for them to be separated. When medical care is funded by health insurance, you are the person who selects the goods, but you're not the one that pays the price. In some cases, you will never even be informed of the price, you don't want to be. And you rarely find out unless there are "problems". The insurer doesn't worry if the bills are high, they'll just raise your premiums... but your monkey brain never makes the connection that your poor goods selection resulted in the higher price. It might even be unfair to blame you, even if you are careful which products you purchase, someone else was curious and you're punished with them. This incentivizes you to be less careful, not more. But if bills are really getting out of hand, the insurance company can just deny the claim. This incentivizes the medical care provider to raise the number on the bills. If half of claims are denied, just double the bills and the math works out. The medical care provider is incentivized to get tricky with the billing codes, to obfuscate, to over-complicate. Over decades, a culture of being borderline fraudulent develops, a mythology that it's impossible to even know the costs upfront. If I wanted to invent a machine that would cause prices to spiral out of control at the fastest possible rate, I don't think I could beat this. > public education By all means, I wish medical care could be as wonderful as public education. We could have the excellence of inner city Baltimore schools, coupled with the overabundance of service we see in California schools and the high levels of compensation of the average nationwide teacher salaries. Never mind the great outcomes that institution provides.
freitzkriesler2 2y ago
After putting up with the national health systems of Canada and the UK, I'll take America's any day of the week. My standard of care went way up when I got private insurance in the UK as well. The only thing the public services were ever good at was emergency care. This is an unpopular opinion and it's a shame that there isn't a panacea. Both systems have their strengths and weaknesses.
- Ylpertnodi 2y ago
  Did you pay more when you went private? I rather suspect you'd pay even more in the States. At least in the uk and can, there are choices to be made.
  - freitzkriesler2 2y ago
    Contrary to popular belief, you still "pay" for health insurance in the UK and Canada, it just comes out of your paycheck and numbers wise it's still the same. The exception is you don't have copays and deductibles but those aren't ever arduous and now that I've been using HSAs, it's negligible and a great hack at investing which is really what I use it for.
- xtracto 2y ago
  Wow, your comments make me have two thoughts: 1. When did you experienced the UK health system? 2. US health system should be REALLY good then. I had to use the UK NHS between 2004 and 2008 kind of "extensively": Started with GPs (which I think is the weakest link, as they only give you 15 minutes for appointment and appointments are difficult to get). But once I got into a hospital; attention was so amazing, and all the studies were free and I was pretty well treated (blood work, ultrasound, colonoscopy, among others). All in all, my experience with the NHS was hugely positive the 4 years I lived there. I feel it was even better than the one I had in Germany (where I also lived 4 years and also had some touch with its health system). If I understand correctly, In the US I would have to earn some good money and jump hoops and loops through the insurance process to get something barely similar no? and those horror stories I read about the premiums payment, or that I need to be working to have insurance, but if I get in some accident and cannot work but have to use the health system then, I'm screwed? TBH when I had the chance, I choose to go live in the UK instead of the US partly due to the fear of its health system.
somnic 2y ago
Okay, how do moral hazard (as defined here), information asymmetry, and monopoly not apply to public health systems as well? Point 5 here is a little under-explained, how exactly does demand for healthcare reduce supply and why can public systems cope with that while private ones fail? And which aspects of medicine are non-excludable and non-rivalrous, aside from herd immunity? From what I can tell vaccines tend to be subsidized by the govt. in the US anyway, which doesn't require overhauling the entire healthcare system to rectify. I'm quite pleased to live in a country with a decent public healthcare system. It does indeed have some significant benefits. It still has half the problems on your list, and more besides.
rickydroll 2y ago
I used the analogy of having a heart attack to describe why making medical care market-driven is not wise. Imagine being loaded into the ambulance, and the driver asks, "Do you want to go to the nearest hospital, or do you want to call around and see which hospital is in-network and has the best price for cardiac care?" If you have that small tight ball of nuclear fire burning in your chest, indicating something is very wrong, you really want to get to the hospital right away. Unfortunately, when you are having a cardiac event, you will make stupid decisions. I'm sure you can guess how I know.
- ProllyInfamous 2y ago
  I dropped out of a US-state public medical school pre-ACA ("Obamacare") and am grateful every day. The decade+ since I have helped several friends die more dignifiedly, including my own mother. Take advantage every. fucking. day. and get your Last Wishes in order (e.g. EoL options/terminations; DNR; who-do-what?) In the chaos of the inevitable stroke/heart attack (which will kill many of us, reading and writing this very comment), your un-informed family will be in even more chaotic whorlwind than our soon-to-be medically-endebted patient/cadaver. Best wishes to all.
dredmorbius 2y ago
Add to that excellent list: the principle-agent problem, specifically the disjoint roles of the consumption decision, which is made by the patient and doctor(s), and the consumption payor, typically the insurance carrier or public health plan. Classically, economists often pair the somewhat jarring set of healthcare and military procurement as sharing many of the same characteristics: high-ticket, high-consequence, difficult-to-assess purchasing behaviour in which the entity who is tasked with making the go/no-go decision is not the same as the party paying the bill. In the military case this would be a procurement officer (usually a commissioned officer within the military establishment) and the taxpayers generally. Most of the other characteristics of your description of healthcare markets also apply to the military spending case. (NoMoreNicksLeft made this same point in an earlier downthread comment: <https://news.ycombinator.com/item?id=41192300 https://news.ycombinator.com/item?id=41192300>.)

by nabla9 2y ago

fourier54 2y ago

Interesting, would like to read more, can you provide references?

spencerchubb 2y ago
Any undergrad economics textbook will have chapters about market failure. Do you want something more specific?
- vundercind 2y ago
  We covered it a lot in international political economy (IPE) since market failure scenarios tend to be exactly when even (non-looney/non-bad-faith) capitalism fans want governments to get involved. Guessing textbooks and readers on that sub-field would also be helpful. (This is also why other posters here observe that examples of sectors prone to market failure have high levels of government involvement)
dredmorbius 2y ago
Public sector economics and health economics generally. The principles discussed are fundamental to both subdisciplines and should be covered in the introductory chapter(s) of a basic textbook on the subject. I'd used a textbook by Joseph Stiglitz several decades ago whilst at uni, and there should be an updated version of it out. I think this might be it or close: Economics of the Public Sector, Fourth Edition. By Joseph E Stiglitz (Author, Columbia University), Jay K Rosengard (Author, Harvard University). <https://wwnorton.com/books/9780393925227 https://wwnorton.com/books/9780393925227> The table of contents looks promising, particularly chapter 5. Also at: <https://search.worldcat.org/title/39485400 https://search.worldcat.org/title/39485400> You might also find this in Handbook of public economics by Alan J. Auerbach, Martin S. Feldstein, Raj Chetty, and Emmanuel Saez. <https://search.worldcat.org/title/13360368 https://search.worldcat.org/title/13360368>

spencerchubb 2y ago

Spot on. I would also add that it's extremely inelastic. If you want to stay alive, you don't have a choice as to whether you need healthcare. Capitalism is amazing except for where market failures occur, which is many cases. The industries that suck the most also have the most market failures: healthcare, housing, and education

coredog64 2y ago
Not every healthcare intervention is a matter of life and death. If you get your glasses today or next week, you’re still generally better off. Once we stop motte-and-baileying this, then we can have productive discussions that identify cases where market capitalism actually does work and then fortify the cases where it doesn’t.
- quantified 2y ago
  We can define healthcare more or less expansively. Seeing clearly, like many things, is sorr of optional of course. But the example of glasses is interesting in its own way with the predatory pricing of the Essilor-Luxottica monopoly on opticians' offices.
- dgb23 2y ago
  I generally agree with this take. But it's not easy to draw that line. There are obvious cases and many non-obvious ones. To make an exaggerated point: Medical research is not too far off from throwing things at the wall and seeing what sticks. A lot of working therapies and drugs aren't as well understood as one would hope. Also it's incredibly complicated. I'm thinking of preventative measures, psychosomatic symptoms, rare conditions, varying sensitivity, long term risks and so on. There's just no easy answer to any of those things. In a perfect world, you'd have the social control by families and communities combined with the expertise of health care professionals that determine where the line is on a case by case basis.
- mindslight 2y ago
  > Once we stop motte-and-baileying this, then we can have productive discussions that identify cases where market capitalism actually does work and then fortify the cases where it doesn’t. Well said, 100% this. It's also worth noting that so many things that one might abstractly think of as matters of life and death are currently being provided on a "sometime in the next several months if you're lucky" basis. There are surely some aspects of healthcare that can never really have a functioning market dynamic, like emergency care. But the vast majority of medical care is provided not at the speed of cardiac monitor beeping, but rather at the speed of scheduled appointments and billable events. What we really have is one big market failure due to criminal behavior of "insurance" companies (price fixing and restraint of trade) as well as providers (collusion and extortion). I'd say that no matter who may be ultimately paying, two critical first steps to restoring some patient agency are outlawing "insurance" "networks" and outlawing post-facto billing shakedowns.

throwawaymanbot 2y ago

[dead]

dgb23 2y ago

How would you categorize the asymmetry of power and lack of real choice? When I buy indoor plants or VOD subscriptions, I'm participating in a market. I can choose to not buy these things at all. When I buy healthcare (via insurance or not), I'm basically doing what my doctor suggests, because well, it's about my _health_. The consequences and risks of not buying can be too great. Is healthcare an actual market in the real sense, or are we just pretending it is? Are there things that are inherently unsuitable for privatization? My thinking is that public transport, healthcare, law enforcement (including prisons obviously), public education and so on are all to some degree or another unsuitable for competitive markets. The incentives, power relations, feedback loops etc. just don't fit.

NoMoreNicksLeft 2y ago
In all sane markets, the buyer is both the person who selects the goods to purchase, and the one who pays the price agreed upon. These things seem linked, but it turns out it's really easy for them to be separated. When medical care is funded by health insurance, you are the person who selects the goods, but you're not the one that pays the price. In some cases, you will never even be informed of the price, you don't want to be. And you rarely find out unless there are "problems". The insurer doesn't worry if the bills are high, they'll just raise your premiums... but your monkey brain never makes the connection that your poor goods selection resulted in the higher price. It might even be unfair to blame you, even if you are careful which products you purchase, someone else was curious and you're punished with them. This incentivizes you to be less careful, not more. But if bills are really getting out of hand, the insurance company can just deny the claim. This incentivizes the medical care provider to raise the number on the bills. If half of claims are denied, just double the bills and the math works out. The medical care provider is incentivized to get tricky with the billing codes, to obfuscate, to over-complicate. Over decades, a culture of being borderline fraudulent develops, a mythology that it's impossible to even know the costs upfront. If I wanted to invent a machine that would cause prices to spiral out of control at the fastest possible rate, I don't think I could beat this. > public education By all means, I wish medical care could be as wonderful as public education. We could have the excellence of inner city Baltimore schools, coupled with the overabundance of service we see in California schools and the high levels of compensation of the average nationwide teacher salaries. Never mind the great outcomes that institution provides.

freitzkriesler2 2y ago

After putting up with the national health systems of Canada and the UK, I'll take America's any day of the week. My standard of care went way up when I got private insurance in the UK as well. The only thing the public services were ever good at was emergency care. This is an unpopular opinion and it's a shame that there isn't a panacea. Both systems have their strengths and weaknesses.

Ylpertnodi 2y ago
Did you pay more when you went private? I rather suspect you'd pay even more in the States. At least in the uk and can, there are choices to be made.
- freitzkriesler2 2y ago
  Contrary to popular belief, you still "pay" for health insurance in the UK and Canada, it just comes out of your paycheck and numbers wise it's still the same. The exception is you don't have copays and deductibles but those aren't ever arduous and now that I've been using HSAs, it's negligible and a great hack at investing which is really what I use it for.
xtracto 2y ago
Wow, your comments make me have two thoughts: 1. When did you experienced the UK health system? 2. US health system should be REALLY good then. I had to use the UK NHS between 2004 and 2008 kind of "extensively": Started with GPs (which I think is the weakest link, as they only give you 15 minutes for appointment and appointments are difficult to get). But once I got into a hospital; attention was so amazing, and all the studies were free and I was pretty well treated (blood work, ultrasound, colonoscopy, among others). All in all, my experience with the NHS was hugely positive the 4 years I lived there. I feel it was even better than the one I had in Germany (where I also lived 4 years and also had some touch with its health system). If I understand correctly, In the US I would have to earn some good money and jump hoops and loops through the insurance process to get something barely similar no? and those horror stories I read about the premiums payment, or that I need to be working to have insurance, but if I get in some accident and cannot work but have to use the health system then, I'm screwed? TBH when I had the chance, I choose to go live in the UK instead of the US partly due to the fear of its health system.

somnic 2y ago

Okay, how do moral hazard (as defined here), information asymmetry, and monopoly not apply to public health systems as well? Point 5 here is a little under-explained, how exactly does demand for healthcare reduce supply and why can public systems cope with that while private ones fail? And which aspects of medicine are non-excludable and non-rivalrous, aside from herd immunity? From what I can tell vaccines tend to be subsidized by the govt. in the US anyway, which doesn't require overhauling the entire healthcare system to rectify. I'm quite pleased to live in a country with a decent public healthcare system. It does indeed have some significant benefits. It still has half the problems on your list, and more besides.

rickydroll 2y ago

I used the analogy of having a heart attack to describe why making medical care market-driven is not wise. Imagine being loaded into the ambulance, and the driver asks, "Do you want to go to the nearest hospital, or do you want to call around and see which hospital is in-network and has the best price for cardiac care?" If you have that small tight ball of nuclear fire burning in your chest, indicating something is very wrong, you really want to get to the hospital right away. Unfortunately, when you are having a cardiac event, you will make stupid decisions. I'm sure you can guess how I know.

ProllyInfamous 2y ago
I dropped out of a US-state public medical school pre-ACA ("Obamacare") and am grateful every day. The decade+ since I have helped several friends die more dignifiedly, including my own mother. Take advantage every. fucking. day. and get your Last Wishes in order (e.g. EoL options/terminations; DNR; who-do-what?) In the chaos of the inevitable stroke/heart attack (which will kill many of us, reading and writing this very comment), your un-informed family will be in even more chaotic whorlwind than our soon-to-be medically-endebted patient/cadaver. Best wishes to all.

dredmorbius 2y ago

Add to that excellent list: the principle-agent problem, specifically the disjoint roles of the consumption decision, which is made by the patient and doctor(s), and the consumption payor, typically the insurance carrier or public health plan. Classically, economists often pair the somewhat jarring set of healthcare and military procurement as sharing many of the same characteristics: high-ticket, high-consequence, difficult-to-assess purchasing behaviour in which the entity who is tasked with making the go/no-go decision is not the same as the party paying the bill. In the military case this would be a procurement officer (usually a commissioned officer within the military establishment) and the taxpayers generally. Most of the other characteristics of your description of healthcare markets also apply to the military spending case. (NoMoreNicksLeft made this same point in an earlier downthread comment: <https://news.ycombinator.com/item?id=41192300 https://news.ycombinator.com/item?id=41192300>.)