Friday, March 17, 2006

"Policy making is so much easier when you simply assume your conclusion"

Via EclectEcon, Brain Ferguson, inspired by an editorial in The Wall Street Journal, illustrates that competition and demand brings the price down, and this includes the price of medical procedures and prescription drugs. According to Ferguson, the essential premise of the piece is that:

. . the reason health care costs so much in the US is that health insurance, as presently structured, makes everybody but the insurer insensitive to the price of care (and if the insurers try to do something about the cost of care they're accused of putting profit ahead of people's health, so they settle for passing the cost on in the form of higher premiums).
Laser eye surgery is cited as an example. Patients desiring the procedure have to pay for it out of their own pockets, but the price is coming down as the demand rises and competition moves in to satisfy that demand. Reforms in Germany and the Netherlands to insurance plans limiting the number of entitlements a patient can claim have produced similiar results.
So there's evidence from around the world that, when patients are faced with making a significant out of pocket payment for care they become very price sensitive, and, importantly, that suppliers respond to that price sensitivity by cutting prices. Sounds like textbook intro microeconomics because it is textbook intro microeconomics.

Now, one of the loudest claims made by opponents of increased market involvement in Canadian health care is that increased market involvement will drive the cost of health care up - just look at the US, right? So does this evidence give them a moment's pause? Of course not.

I won't name names, since I wouldn't want to embarass the University of Toronto by pointing out the type of logic employed by faculty in their medical school, but anti-market types have been faced with the LASIK evidence before, and their response has been that the fact that competition drives the price of care down is bad because it encourages people to have unnecessary care (by which, of course, they mean care that the individual patient thinks is worth sacrificing purchasing power to obtain but which the experts think he should just do without). So, markets are bad because they drive costs up except when they drive down costs in which case markets are bad because they drive costs down. Got that?

It's much clearer if you start from the premise that whatever markets do must be bad.

Policy making is so much easier when you simply assume your conclusion, isn't it?

1 Comment:

Anonymous said...

He's quite right if we were allowed to have anybody practice medicine without restriction the costs of common procedures would likely come down, but so long as we have a professional organization restricting the numbers allowed to practice this will not happen. Perhaps the reason laser eye surgery has gone down in price is because a surplus of doctors have entered the field. If we were to substaintially limit entrance by doctors into this field we would likely not see the same results. Markets are good for lowering prices - when you care not about quality and don't allow the restriction of them. You see policy making is truly far easier when you assume your conclusion, like markets are often good so they are always good.