Ideal Free Market In Healthcare

Healthcare is the maintenance and improvement of physical and mental health, especially through the provision of medical services and is also the topic I chose for this paper. A familiar and well known argument heard in health care and health care policies reform debate is that the government should have nothing to do and stay out of health care. That they should let the market allocate resources efficiently. It is further argued that government rules and regulations applied in health care markets interfere with proper resource allocation resulting in inefficiency. The argument further states that without government interference, the “invisible hand” of the market would allocate resources optimally leading to economic efficiency in health care.

Although interesting, this argument is based on the assumption that health care meets all necessary conditions for an ideal perfect/free market. Unfortunately, this assumption is never articulated

explicitly therefore the argument is not fully explored, understood or challenged. It is important to explore fully the argument, the assumptions made about the free market, and the conditions necessary for the “invisible hand” to allocate resources efficiently.

A market that meets all necessary conditions for efficient resource allocation is an ideal in economic theory, but a rarity in the real world.

Markets do fail because necessary conditions for perfect/free markets are rarely met in any industry and least of all in health care. When the necessary conditions of the ideal free market are not met, there can be market failures some of which are not easily corrected by the market and therefore require interventions from outside the market.

Another important issue that is also rarely articulated is whether free markets are a desirable feature of a health care system. This issue cannot be easily addressed through economic theory. It is an issue that requires a closer examination of the philosophy behind the foundation of the health care system in any country. It requires an examination of the culture and beliefs of the country about health and health care. Is health care a commodity to be bought and sold for profit, or is it a basic human right that should be accessible to all

citizens?

Health care has several interdependent markets such as: education, manpower, institutional, pharmaceutical and others. The education market determines how many doctors, nurses and other professionals are trained every year and therefore how many such professionals are available to provide services. In this market, prices can be viewed in terms of tuition and other costs to the individual seeking training to be a physician, a nurse or other professional. Manpower markets determine labour prices (salaries and wages) paid to professionals. Institutional markets determine prices for hospital stays, or stays in nursing homes. In the pharmaceutical markets, prices of medications are determined. One can identify many other markets in health care. Because of the nature of the product for sale and the structure of health care markets most of these markets do not meet the ideal perfect market conditions that facilitate efficient resource allocation.