Should healthcare prices be regulated or free?

Behind this article in The New York Times is an interesting question alluded to in its final paragraph: should health care prices be regulated or free?  PhD dissertations and books are written addressing this intricate important question that can’t be done justice in a few paragraphs but I couldn’t help my mind from wandering as follows:

Capitalism and free market economies have one great virtue: the invisible hand that sends information (through prices) to those activities and their actors that are valued most.  The latter can be quantified by the aggregated willingness to pay (WTP) of people, which is the upper ceiling on the price they are willing to—and can—pay for those activities. As such the prices in free markets direct resources in a decentralized manner. And economics 101 tells us that under perfect competition the resulting market price leads to an efficient equilibrium between supply and demand. Simple, yet remarkable.

The rub, of course, is that this holds under perfect competition and in equilibrium for society at large, not for each individual.  Humans tend to form coalitions to preserve and even better their lot (by preventing perfect competition and efficient equilibria :).  And even an efficient market equilibrium does not regulate the distribution of its efficiently produced value.  As we are witnessing (one century after the previous excesses that led to “cottages” in Newport, for example), this can lead to a widening of the income and wealth distribution, and even to a “winner takes all” equilibrium as in sports and technology markets.  Like some of you, I am benefitting from the fact that the willingness-to-pay for health care and education is so large, especially parent’s WTP for their children reflecting the perceived lifetime value they are to receive from those activities. (Technological gadgets like iPhones also seem to command high WTP, even for short-term value 🙂 I keep being amazed during my travels seeing kids run with smart phones in their hands and workers watching their gadgets on the job…  This observation is no longer surprising, but it is surprising how this so quickly—in one decennium—became a global phenomenon.  No wonder Apple is the highest-valued company…)

I admire, and subscribe to, the benefits of free market efficiency.  But even an “efficiency (wo)man” hopefully realizes that life is not only about efficiency.  Life is to be lived… decently so that we can all go to bed at night feeling that we did our best today and would not mind seeing our activities communicated to the public.  To me, this means that as a society we should also pursue the decency to provide a reasonable level of health care for all.  Therefore, capitalism is to be augmented with some restraints and regulation.  Paradoxically, perfect markets require protection against the human tendency to form “coalitions.”  The perennial question is: how much?  That balance will always move over time, reflecting the relative power of the various constituents that (can and are willing to) vote.


Or am I naive?
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1 Response to Should healthcare prices be regulated or free?

  1. Ken Cahill says:

    Mom’s situation, especially over the past year, has caused my confidence in our healthcare system to wane. I believe if you have the wealth, you can command attention and “the best” care that $$ can buy. My frustration has been the lack of connections in healthcare. The cardio person may be great at his/her area of expertise and they can prescribe etc. in that arena—but, their arena is only as big as that specialty area. So, now the cardio tells us Mom’s heart, while not great, is good enough for some years. The pulmo tells us the same about his—but what about that concern that falls between the cracks that may involve a little of this and a little of that..What I wouldn’t pay for is the ability to go into a conference room with experts from the several areas under concern and have them open discuss it…the wealthy person can o that—not o the average one…so, we bounce around with some help, some holding patterns and stiff arm death for awhile before our clock runs out. Seems like asa way to handle it all..Da >

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