Academic economists often publish analyses of the consequences of possible policies; in fact, I’d say it is the bread and butter of what economists do. Such analyses usually rate policies using economist’s standard evaluation criteria: economic efficiency. When a policy of more government intervention is ranked higher that a policy of less government intervention, that is usually because of an identified “market failure”, i.e., a reason why a low regulation “market” situation would not achieve high economic efficiency.
2. Insurance adverse selection - If those who privately know their risks are lower buy less insurance, too little insurance gets bought.
This is standard economics, but simple arithmetical argument shows it may often be wrong. The objective function of a utilitarian public policymaker should (arguably) be the risk-weighted quantity of insurance bought. Given this objective, some adverse selection may actually increase coverage (when coverage is correctly measured, ex-post not ex-ante). Some "adverse" selection may not be "adverse" at all. Google "loss coverage as a public policy objective", or look at these papershttp://tinyurl.com/cgal3g
You know what one of the biggest market failures in the U.S. health care market is?
Individuals don't get to choose their insurer. Their employer chooses their insurer for them. And employers have little incentive to choose the insurer their employees would prefer.
Agent failure is a well-known type of market failure, isn't it?
In the pod cast linked below John Cogan says that the uninsured only contribute 1 to 4% of the cost of health insurance. http://www.econtalk.org/arc...
Robin, I made no claim about that. Your logic was faulty. Noting the existence of regulation-free credence goods is not in any way a rebuttal to Tomasz's point 11. That is, given "X is Y, Y has problem Z, ergo it should have intervention", saying "A, B, and C are also Y, and don't have intervention" is a non-sequitur.
However, one of the distinctive features of a credence good is extreme information asymmetry, which is a pretty standard imperfection that reduces market efficiency. Whether or not there's any useful way to correct it, that does actually seem like a pretty clear-cut case of a minor market failure, unless you're using some definition of "market failure" that doesn't boil down to "suboptimal economic efficiency".
Do we want to add product or service transparency? Medical choices are extremely complex. What I want to buy is an effective healthcare outcome weighing costs and benefits. What I pay for is doctor hours generally for each specialist (each with its own overhead). The market tends to be stove pipe by type of specialist. To the extent they have market power doesn't this create double marginalization.
Quality rankings: Virginia has begun publishing hospital quality measures (e.g., infections from IV) which certainly should have an impact on consumer choice as it has on on restaurant inspections.
Medical incomes are extraordinarily high even with insurance company cost controls. Moreover, incomes seem to be positively correlated with the number of medical specialists in a metro area. I understand that a new class: "doctor's assistants" are being used to serve medicare-medicaid patients in some offices. The expansion of these types of providers may lower the overall cost particularly for routine care. This may allow medical offices to compete on price and quality.
Yup. Try to find out how much a medical procedure will cost you in advance of getting it.
I did this recently. I called several hospitals and clinics to try to find out the cost of an endoscopy. I never got what I considered a straight answer. I got passed around from person to person and had to leave messages to get called back. They wanted me to tell them exactly which medical codes were going to be applied for the endoscopy. I also had to give them my insurance information for them to be able to tell me anything.
In the end I got guesses ranging from $600 to $4000 and decided not to bother with the endoscopy.
At least my dentist can still give a straight answer when I want to know how much something's going to cost me. For now anwyay.
I have probably missed a lot of the subtleties of this argument, but isn't this what you would expect? Health spending increases with illness and morbidity, healthy people do not incur large costs. Much of healthcare spending in developed nations is incurred for very marginal improvements, the easy stuff (sanitation, vaccination, childbirth) has been largely covered, what is left is the difficult, high-cost, low benefit areas. This is exacerbated by "lifestyle" costs such as obesity, diabetes etc, which vastly increase costs for little or no gain in outcome over "healthy" people without such conditions. In developing nations I would expect health spending to correlate strongly with health outcomes, in "first-world" countries I think we are well towards the asymptotic part of the curve.
Both seem to have a complicated set of incentives, but at the core the corporate mission is not expressly to serve the public good, while this is at the core of the govt mission.
Rather than argue in abstract, it would be nice to see if someone has studied trends in claim denials comparing Medicare to private insurers.
Soulless, credence goods are simply not market failures. It might be bad if it rains on your picnic, but that doesn't make the rain a market failure. You might prefer a good not be a credence good, but that doesn't make it a market failure either.
1. Fragmented markets allow insurers an advantage. In many states there are only a few health insurers which allows the insurers to raise rates with little regard to competition.
2. Not an even playing field. If you are an individual buying insurance outside of a group, you are pretty much screwed: you pay more for less. Individuals have no bargaining power with health insurers.
3. Bad incentives. Health insurers have an interest in selling you insurance, not making or keeping you healthy. Therefore, they do their best to deny your claims. Yet, people are forced to deal with health insurance because they cannot afford the catastrophic cost of care for a serious illness.
If these are, in fact, market failures, they are discussed all over the place.
This may or may not be a market failure:
4. Inability to explicitly limit care when that care is of minimal utility, particularly in end of life care. Should you spend millions of dollars to keep me alive for a few more weeks?
> I prevent the causes of death responsible for 46% of the mortality rate in the USA.
it does not follow that you will be saving any money.
if you avoid the illnesses that kill you, you may end up living a very long time with very expensive lower intensity illnesses -- COPD for example, or organ impairment requiring dialysis, etc.
Dragon: Just because the best economists aren't spending their time as economic pundits doesn't mean that economic pundits don't derive their status from their economic credentials.
2. Insurance adverse selection - If those who privately know their risks are lower buy less insurance, too little insurance gets bought.
This is standard economics, but simple arithmetical argument shows it may often be wrong. The objective function of a utilitarian public policymaker should (arguably) be the risk-weighted quantity of insurance bought. Given this objective, some adverse selection may actually increase coverage (when coverage is correctly measured, ex-post not ex-ante). Some "adverse" selection may not be "adverse" at all. Google "loss coverage as a public policy objective", or look at these papershttp://tinyurl.com/cgal3g
http://www.guythomas.org.uk...
You know what one of the biggest market failures in the U.S. health care market is?
Individuals don't get to choose their insurer. Their employer chooses their insurer for them. And employers have little incentive to choose the insurer their employees would prefer.
Agent failure is a well-known type of market failure, isn't it?
In the pod cast linked below John Cogan says that the uninsured only contribute 1 to 4% of the cost of health insurance. http://www.econtalk.org/arc...
Robin, I made no claim about that. Your logic was faulty. Noting the existence of regulation-free credence goods is not in any way a rebuttal to Tomasz's point 11. That is, given "X is Y, Y has problem Z, ergo it should have intervention", saying "A, B, and C are also Y, and don't have intervention" is a non-sequitur.
However, one of the distinctive features of a credence good is extreme information asymmetry, which is a pretty standard imperfection that reduces market efficiency. Whether or not there's any useful way to correct it, that does actually seem like a pretty clear-cut case of a minor market failure, unless you're using some definition of "market failure" that doesn't boil down to "suboptimal economic efficiency".
Your rain example is very witty, but irrelevant.
Do we want to add product or service transparency? Medical choices are extremely complex. What I want to buy is an effective healthcare outcome weighing costs and benefits. What I pay for is doctor hours generally for each specialist (each with its own overhead). The market tends to be stove pipe by type of specialist. To the extent they have market power doesn't this create double marginalization.
Quality rankings: Virginia has begun publishing hospital quality measures (e.g., infections from IV) which certainly should have an impact on consumer choice as it has on on restaurant inspections.
Medical incomes are extraordinarily high even with insurance company cost controls. Moreover, incomes seem to be positively correlated with the number of medical specialists in a metro area. I understand that a new class: "doctor's assistants" are being used to serve medicare-medicaid patients in some offices. The expansion of these types of providers may lower the overall cost particularly for routine care. This may allow medical offices to compete on price and quality.
Mike, there can be non-government non-profit insurance providers, who can whatever mission they want, including 'serving the public good.'
Yup. Try to find out how much a medical procedure will cost you in advance of getting it.
I did this recently. I called several hospitals and clinics to try to find out the cost of an endoscopy. I never got what I considered a straight answer. I got passed around from person to person and had to leave messages to get called back. They wanted me to tell them exactly which medical codes were going to be applied for the endoscopy. I also had to give them my insurance information for them to be able to tell me anything.
In the end I got guesses ranging from $600 to $4000 and decided not to bother with the endoscopy.
At least my dentist can still give a straight answer when I want to know how much something's going to cost me. For now anwyay.
That is to say, it might be bad if it kills me, but that doesn't make my death a market failure.
I have probably missed a lot of the subtleties of this argument, but isn't this what you would expect? Health spending increases with illness and morbidity, healthy people do not incur large costs. Much of healthcare spending in developed nations is incurred for very marginal improvements, the easy stuff (sanitation, vaccination, childbirth) has been largely covered, what is left is the difficult, high-cost, low benefit areas. This is exacerbated by "lifestyle" costs such as obesity, diabetes etc, which vastly increase costs for little or no gain in outcome over "healthy" people without such conditions. In developing nations I would expect health spending to correlate strongly with health outcomes, in "first-world" countries I think we are well towards the asymptotic part of the curve.
Both seem to have a complicated set of incentives, but at the core the corporate mission is not expressly to serve the public good, while this is at the core of the govt mission.
Rather than argue in abstract, it would be nice to see if someone has studied trends in claim denials comparing Medicare to private insurers.
I just added a point 11 to the post, which addresses issues raised by many comments.
No, once we control for other standard factors, we see no correlation between med spending and health.
Soulless, credence goods are simply not market failures. It might be bad if it rains on your picnic, but that doesn't make the rain a market failure. You might prefer a good not be a credence good, but that doesn't make it a market failure either.
Aren't these market failures?
1. Fragmented markets allow insurers an advantage. In many states there are only a few health insurers which allows the insurers to raise rates with little regard to competition.
2. Not an even playing field. If you are an individual buying insurance outside of a group, you are pretty much screwed: you pay more for less. Individuals have no bargaining power with health insurers.
3. Bad incentives. Health insurers have an interest in selling you insurance, not making or keeping you healthy. Therefore, they do their best to deny your claims. Yet, people are forced to deal with health insurance because they cannot afford the catastrophic cost of care for a serious illness.
If these are, in fact, market failures, they are discussed all over the place.
This may or may not be a market failure:
4. Inability to explicitly limit care when that care is of minimal utility, particularly in end of life care. Should you spend millions of dollars to keep me alive for a few more weeks?
> I prevent the causes of death responsible for 46% of the mortality rate in the USA.
it does not follow that you will be saving any money.
if you avoid the illnesses that kill you, you may end up living a very long time with very expensive lower intensity illnesses -- COPD for example, or organ impairment requiring dialysis, etc.
Dragon: Just because the best economists aren't spending their time as economic pundits doesn't mean that economic pundits don't derive their status from their economic credentials.