Market Failure

Capitalist free markets have been touted as the best solution to organize resources to address problems. Some extreme proponents contend that free markets can address all problems all of the time. Others acknowledge that sometimes free markets produce unintended consequences (market failure) that need to be addressed through government regulation or incentives.

In US health care, the free market has given us a situation where we spend twice as much as other developed countries but end up at the low end of health status. Some would call this market failure. On the other hand, the market has been a success for some people. Profits for all sectors of the health care industry (insurance, doctors, hospitals, pharma, device makers, etc.) are spectacularly high. Cynically, one could say that the market is a success and doing what it is intended (producing profits) and that we shouldn't expect better health as an outcome from this market. Any health benefit (or adverse health impact) is merely an unintended consequence of the market.

And this brings us to the primary dilemma of the free market and health. The primary goal for the free market is profit. Any diversion from this goal is inefficient and against the interests of the holders of capital. However, the primary goal of the population is better health. It might seem that you could organize a market to reward 'better health' but all that we have been successful in organizing is markets that deliver health products and services. Some of these improve health, others are just a waste of time and money, some can be detrimental to health.

In health, free market advocates say that personal gain is sufficient to ensure that everyone receives appropriate goods and services. Most people concede that we do need to have regulation to make sure that people don't sell goods and services that are dangerous or not effective. The problem is that when the primary motive is personal gain, there are a host of incentives to sell unneeded goods and services and to hide defects. Regulation is not adequate in many cases and some would argue that it cannot be adequate in some cases. The result is that health care market suffers from a plethora of abuses.

The bottom line is that the free market is not appropriate for health care. The U.S. needs a single payer government financed health system that covers everyone. This payer needs the authority to determine which health services and goods are useful and to determine when they will be provided. It also needs the authority to set the prices it pays.

There is plenty of money being spent on health care in the U.S. It is just not being spent on the right services for the right people.