The market for health care

Health care marketThis graph demonstrates that while the health care market may as a whole find an equilibrium price, we suffer from few customers for health care.  The main customers for health care are major health insurance companies and the government.

If we were to segment the prices paid by those respective customers into private and government, we would necessarily find that the government pays below the market rate, while the private insurers pay above the market rate, and no one really pays the total market equilibrium.  It is a theoretical price that is somewhere between the two.

I would also anticipate that any small amount of cash customers in the market will be charged even more than the common private insurance rate, which is already above market, due to lack of bargaining power.  I suppose this based on my own billings that start with an artificially high price, and move down to a negotiated rate with the insurance provider.  Without the insurance negotiation, I would be charged the top line price.

Private insurers do not have the same incentives and motivations as their customers and are primarily driven in the health care market by what is needed to succeed in the health insurance market, covered in a forthcoming post.

If the health insurance market were to suffer a huge shift towards government plans, and future government plans also paid significantly below market rates in the health care market, care becomes necessarily rationed because of the gap in supply and demand caused by the price ceiling below the market rate.  If private insurers survive a large shift to government insurance, the disparity between the two prices paid will become greater, further affecting the competitive landscape of the health insurance market.