Recently I've seen the questions come up regarding why the market doesn't respond to health care or why supply and demand don't seem to work in health care as in other economic models.
The answer is simple. There is no free market nor is there a supply/demand model for health care.
While some might dispute that claim, consider the way the process works. Supply and demand is based upon the notion that prices will be set based on what the market will bear and consequently supply and demand will rise or fall in response to those prices. Even though one could argue that such a premise is seriously flawed when it comes to health care anyway, there's another reason why it doesn't work; insurance.
The role of the insurance company is that it effectively guarantees the price that the medical profession can charge. In other words, there is no concept of "what the market will bear" because it is the insurer that determines what prices are acceptable. Without the medical profession having to be paid by their actual "customers", there is no market force being directed at them or their prices.
As a result, the market forces are between the patient and the insurance companies as well as between the medical profession and the insurance companies. The common ingredient here is the insurance companies are the parties that are actually engaged in the economic model. It's little wonder that health care is not the result of this relationship.
In other words, the insurance companies must engage in figuring out "what the market will bear" based on the premiums that they can charge. As long as they're profitable then they've satisified their business model and if they have a sufficient customer base, then they can be successful. Similarly, the medical community represents the liability that the insurance company must pay; their cost. If they can control their expenditures then they are successful. This balance is what makes the insurance companies work.
However, no where in that example is there any consideration for the actual needs of the patient. This isn't a simplistic commodity choice like deciding to have steak versus hamburger.
The problem is that the medical profession operates on the assumption that they are entitled to a certain level of compensation, so there is no need to respond to the realities of the marketplace, since they only have to satisfy the insurance companies. Similarly the insurance companies only need to control their balance sheets, so once again, there is no requirement to actually provide reasonable healthcare since that isn't their mission.
This is why medical costs keep going up and insurance premiums keep going up while actual care is declining. There is no room in this economic model for the actual delivery of services.
The purpose of the free market is to allow the participants to respond to the various pressures each brings to bear so that adjustments can be made without guarantees. People are allowed to succeed or fail based solely on their ability to participate in the market. However when artificial guarantees are put in place, then there is no market, nor can there be a market response.
In short, the solution is actually to remove the insurance companies from the mix and let the medical profession have to directly deal with their "customers". In this way the true force of the market will be felt and the appropriate decisions and responses can occur. While a doctor may feel he's entitled to large sums of money, if he can't actually get it from his patients, then his attitude will change quickly enough. Similarly when it comes to the extravagances that have become standard for hospitals. Perhaps the choice of equipment and technology needs to be brought into line with what people can actually afford, rather than relying solely on the money that can be collected from the insurance companies.
This would cause a real assessment about the state of our health insurance and health care system, in general. After all, what's the point in having world class technology and treatment facilities if no one can actually afford to use them?
Some Thoughts on Health Care Economics