This article is from TOS Vol. 8, No. 2. The full contents of the issue are listed here.
Priceless: Curing the Healthcare Crisis, by John C. Goodman
Oakland, CA: Independent Institute, 2012. 392 pp. $24.95 (hardcover).
Think about the health-related services you or your family need occasionally, if not regularly—doctor visits, hospital stays, casts, surgeries, health insurance. When was the last time you saw a meaningful price for any of these?
This is the question with which health-care economist John C. Goodman kicks off his critique of the American health-care system in Priceless: Curing the Healthcare Crisis. Goodman points out: “[F]ew people ever see a real price for anything. Employees never see a premium reflecting the real cost of their health insurance. Patients almost never see a real price for their medical care. Even at the family doctor’s office, it’s hard to discover what anything costs” (p. 1). On the supply side, health-care providers are not paid real, market-clearing prices; they are paid according to reimbursement schedules that are either set by the federal government or heavily influenced by it due to the enormous size and presence of Medicare and Medicaid—the two “entitlement” programs that make the federal government the single largest payer for health care in the country.
When buyers and sellers are free to act and thus contract in accordance with their own judgment, they negotiate prices that communicate valuable information about prevailing and expected supply and demand of goods and services. Such prices are critical for encouraging suppliers to meet consumers’ needs, for encouraging consumers to spend their money prudently, and for helping both sides avoid shortages and gluts. Such prices, Goodman points out, are largely absent in the health-care industry—precisely because buyers and sellers are not free to act on their own judgment. Instead, producers and consumers of health services face myriad controls. To take but two examples, federal tax policy promotes employer-subsidized insurance, and entitlement programs put federal bureaucrats in charge of pay schedules for medical services.
Goodman shows that the lack of meaningful prices drastically distorts the behavior of consumers. . . .