In the rest of the developed world, they pay much less the US for the same OR better care.
Yes … we know Trumpcare is a joke. It is worse than Obamacare, but the real kicker is the Republican-like ACA still cannot compare to healthcare in the rest of the developed world.
You hear the constant Republican talking point about if only we used free market solutions in healthcare, the US would be able to deliver better healthcare at a lower price.
The only problem is healthcare does not have the preconditions necessary for a free market.
Basic Economics:
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Humans have unlimited wants and needs, but limited resources to meet those needs.
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Because of the limited resources, humans must prioritize their wants to provide the highest level of satisfaction.
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Efficiency for consumption is consumer use resources where they get the highest satisfaction.
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Efficiency for the producer is they produce at the lowest possible average cost.
- Highest satisfaction and lowest average cost … No waste in production or consumption.
Pure Competitive Model:
It’s not like economists have not commented …
The free market does work for most goods and services. But in 1963, economist Kenneth Arrow, who later won a Nobel Prize, offered an explanation as to why markets would not work well in this area. In his article entitled “Uncertainty and the Welfare Economics of Medical Care” (copyright 1963 American Economic Association), 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 television, you can easily choose another or just walk away. If a doctor insists that you need a medication or a procedure, you are far less likely to reject the advice. And, Arrow pointed out, people think they don’t need health care until they get sick, and then they need lots of it.
Just to make you sick with the detailed analysis …
Structure of markets in healthcare is not competitive:
- Barriers to entry and exit:
- Physicians:
- professional licensing, long and expensive training
- Hospitals:
- expensive investment requirements (e.g. hospitals are expensive to build).
- Monopoly in a rural location.
- Oligopoly in cities.
- Prices are not the same for the same service.
- Knowledge of service is not the same for physicians and consumers.
- Doctors (suppliers) know more about illness and treatments than their patients.
- Patients depend on the doctor to act in their best interest, but there is a conflict of interest because the doctor is selling a service to the patient.
- market failure is termed “supplier induced demand”
- Health is not a marketable product, that is, it cannot be exchanged between consumers. Since demand for health care is derived from the demand for health, the non-marketability of health reduces the power of market forces (demand and supply) to determine prices and quantities.
- ADVERSE SELECTION:
- Individuals in poor health have a greater incentive to purchase health insurance than those in good health.Insurance Co. have to have high premiums and/or co-pays/deductions which discourage healthy people from purchasing insurance.
- This market failure can be corrected by universal coverage
- MORAL HAZARD:
- Individuals covered by insurance tend to use more health care and they might not take necessary precautions to stay healthy because they know they have insurance coverage.
- INTERDEPENDENT DEMAND AND SUPPLY DETERMINATION:
- An increase in demand for health care (e.g. due to an influx of population, or an epidemic) can lead to higher prices for such care. The increase in prices might result in the physician supplying less hours of work.
- Thus supply and demand in health care are not determined independently leading to market failures.
- CONSUMER RATIONALITY AND ABILITY TO MAKE THE BEST JUDGMENTS ABOUT THEIR WELFARE:
- Consumers seeking care are not always able to make the best judgment about their welfare even if they have the ability and freedom to do so.
- For one, they lack necessary information about their illness or the effective treatment.
- Moreover, there are some situations of extreme stress making it impossible for the individual consumer to make the judgment (e.g. someone in a car accident, passed out on the roadside).
- Furthermore, consumers cannot accurately predict the results of consuming health care.
- EXTERNALITIES:
- Positive externality: immunization – helps other not get sick.
- Negative externality: smoking – 2nd had smoke effects other.
- PREDETERMINED CONSUMER TASTES:
- Consumers tastes are predetermined prior to entering the market
- In Healthcare consumers are malleable – goes for the new Rx or new technology when old Rx or technology may be less expensive and just as effective
- RETURNS TO SCALE:
- Increasing returns to scale refer to production situations with large fixed costs so that as the scale of production increases the average (per unit) cost of production decreases.
- Not the case in Healthcare: The bottom line then is that this condition (no economies of scale) is contravened in health care
Republicans know nothing about healthcare or the free market.
They do know talking points.