Is health care different than other commodities? Should it be purchased and provided through the market or through government programs? Robert L. Ohsfeldt and John E. Schneider address these questions in their new book, The Business of Health: The Role of Competition, Markets, and Regulation, published in September by the AEI Press. Because health care “is a complex good with a value that often is unknown to the consumer,” it is frequently perceived to be “different” than other sectors of the economy. For this reason, along with cultural and historical precedents which no longer apply, it is often assumed that health-care providers ought not to seek profit.
Ohsfeldt and Schneider turn the tables on this way of thinking by arguing that the health-care industry should be based on a market model. “The available evidence suggests that competition in health care spurs innovation, induces efficiency, and enhances quality, just as it does in other types of markets,” they write. It is precisely because of health care’s complexity that markets are the best means of organizing health-care delivery.
The authors begin with an assessment of the U.S. health-care system and its effectiveness. Health care costs more in the United States than in most other developed countries, but the benefits of good health care--including longer life spans and lower infant mortality rates--do not outshine those in any economically similar country. Ohsfeldt and Schneider warn that the solution to health-care problems lies in embracing the profit motive, not in suppressing it with centralized systems.
The authors evaluate competition in three key areas: hospitals, insurance, and pharmaceuticals. Applying economic analysis, they conclude that specialty hospitals improve care, that regulation of health insurance often tends to cause the very problems that it is intended to solve, and that pharmaceutical advertising improves knowledge of health-care options. The authors argue that the United States can strike a balance, allowing markets to expand efficiency and consumer choice while offering government help to those who cannot afford health care.
