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.

Conviscating professional services

I’ve been watching a lot of the health care debate and town-hall meetings lately, as I believe this is a seminal issue that will define our view of rights vs. privileges in this country for a long time to come.  Now the analogy that I am going to draw is a stretch, but it really is the general direction that we are currently headed.

What if some legislators decided that everyone in America had a right to ‘affordable’ professional tax preparation?  How would this potentially affect the market for tax preparation services?  Furthermore, these same legislators want to tell you how to provide this service and help you define the extent of service each client may need.  At the same time, they will tell you how much this service is worth under the auspice of ‘negotiating the best deal for the customer.’

Would you be excited to be providing services in this type of marketplace?  Would the customers be excited to receive the services that are grudgingly provided by professionals who used to work in a free enterprise?  Would there still be the same incentives to become more effective and efficient and utilize technology or would these improvements be mandated with more legislation and grudgingly implemented?

How do you think that doctors and patients will fare any better than other professionals under the same circumstance?  Are they so much more altruistic that it will work?