Tuesday, June 4, 2013

Price controls v. price signals in the U.S. health care market

Peter Sudeman argues that liberalizing the health care market will drive down the growth in health care costs.  That may be, and the article is mostly insightful, but I found this argument not at all compelling:
Market-driven price signals, on the other hand, do a remarkable job of restraining price growth—and even lowering prices—in the few instances where we actually see buyers and sellers negotiating as they do in functional markets. A recent report by Devon Herrick of the National Center for Policy Analysis, for instance, notes that between 1999 and 2011, the price for corrective eye surgery dropped by about 25 percent. Quality and service improvements, meanwhile, helped create space for price and service competition. “Eye surgeons who wanted to charge more had to provide more advanced Lasik technology, such as Custom Wavefront and IntraLase (a laser-created flap),” Herrick explains. “By 2011, the average price per eye for doctors performing Wavefront Lasik was about what conventional Lasik had been more than a decade ago; but the quality is far better. In inflation-adjusted terms, this represents a huge price decline.
I don't find it very useful to compare Lasik surgery to most of the services we consumer in our health care system.  Unlike most medical services, Lasik surgery is planned well in advance.  Consumers know that it is a luxury, not a medical necessity.  Consumers shop around for the best bargains, and, basically, the market for Lasik works like the market for most common goods.  But Lasik surgery is so far removed from most medical care that it seems almost irrelevant to compare them.  Most medical services are unplanned.  People not only lack the time to shop around for lower prices, but also the knowledge of whether or not a given service is necessary, instead relying on the doctor's word.

None of this is to say that I don't think that medical services like Lasik surgery should be liberalized.  I absolutely do believe that this market should not be too heavily regulated, since it is, as Suderman says, a mostly functioning market.  I just don't think it's very relevant to compare the market for Lasik to the rest of the health care market.


  1. Do you know if there a good source for numbers that break down spending in a way that would make it relatively easy to analyze your argument? Your argument makes sense, but I'm a little skeptical that it is as strong as you think it is.

  2. No, I wanted to look that up last night, but I was too tired and lazy. It's on my to-do list for some time when I'm feeling a bit more ambitious.