Introduction
In economics, there are certain conditions which, theoretically, must be met for a perfectly competitive market to operate. In reality however, these conditions are never realisable. This is also true for the healthcare market. Conditions for the delivery of healthcare are not always optimal owing to many reasons; hence failure in the delivery of health care is prevalent. This work aims to discuss some of the reasons why there is market failure (monopoly, externalities, and sub-optimal investment in the delivery of public goods, asymmetry of information, moral hazard, and adverse selection) in the healthcare market. It also discusses some of the reason why the government may step in to minimize the effects of these failures. However,
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Government intervention in a market may not be sufficient enough, the government will want to provide a clinic for instance in a particular state based on political reasons and not for the sole purpose of fair distribution or equity, which the market may have failed to achieve. For that reason, government intervention may not always be efficient, political exigencies come to play.
Politicians normally do not act in public interest. They are normally driven by their own interest and political ambitions. They promote themselves with the motive of getting re-elected into office again so to win power, they indulge in things like building up to five clinics in one local government for instance while other places may have one which may not be able to cater for the population there. This is a major concern in Africa and most part of the world.
Ironically, government intervention may in itself create monopolies which as we have noted earlier affect the efficiency of the market. For instance, government can award subsidies to firms or hospital which may protect inefficient firms against competition and thus create barriers to entry for new firms/hospital because prices are kept ‘artificially’ low. Without competition, efficiency objectives may not be
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It does not meet all necessary or sufficient conditions for the ideal or perfect market. As a result failures are experienced thereby necessitating government intervention. Since markets do fail, it is necessary that government intervenes to correct some of these inefficiencies and move the market to equilibrium. Government needs to do this because as the popular saying goes ‘health is wealth’. Wealth cannot be created by an unhealthy population. To achieve its aim, government employs various means including, compulsory tax payment to the government, subsidies by government to firms to keep costs low and the transfer payments by government without anything in return. However, government intervention to resolve these failures can also create further inefficiencies to achieve a socially efficient allocation of resources due to the behavior of bureaucrats looking for short term solutions to the
Dawson, D. (1995) ‘Regulating Competition in the NHS.’ The Centre for Health Economics (University of York.)
6. The special characteristics of the U.S. health care market are Ethical and equity considerations, asymmetric information, spillover benefits, and third-party payments: insurance. Each one of these characteristics affects health care in some way. For example, ethical and equity considerations affect health care in the way that society does not consider unjust for people to be denied to health care access. Society believes that it is the same thing as not owning a car or a computer. Asymmetric information also gives health care a boost in prices. People who buy health care have no information on what procedures and diagnostics are involved, but on the other hand sellers do. This creates an unusual situation in which the doctor (seller) tells the patient(buyer) what services he or she should consume. It seems like the patient has to buy what the doctor tells him. The topic of spillover benefits also cause a rise in prices. This meaning that immunizations for diseases benefit not only the person who buys it but the whole community as well. It reduces the risk of the whole population getting infected. And the last characteristic is third-party insurance. Which involves all the insurance money people have to pay. This causes a distortion which results in excess consumption of health care services.
The health care system in the United States is one of the most complex forms of healthcare system. What makes the system complex is that there are multiple factors involved. For example, there are multiple players and payers involved in the system. This includes physicians, administrator of health services institutions, insurance companies, large employers and lastly the Government Shi & Singh, 2012). Each of these players and payers are involved to protect their own economic interest. Hospitals for instances, wants to maximize reimbursement from both private and public insurers. Insurance companies and managed care organizations are concerned with how they can maintain their share of the health care insurance market, while physicians seek to maximize their income and have minimal interference with the way they practice medicine (Shi & Singh, 2012). It is obvious that there is no centrality of the health care system. In other words, there is no one department or in particular government body that is unilaterally in charge of the administration of the health care system as it is in the other developed nations where they have a single payer system, which is the government. Instead, the U. S. has health system that is financed by private sectors. According to Shi and Singh,(2012), 54% of total health care expenditures is privately financed through employers , while the remaining 46% is financed by the government. Lack of centrality in monitoring the total expenditures through global budgets or control over the availability and utilization of services coupled with most hospitals and clinics now been privately owned may potential...
An issue that is widely discussed and debated concerning the United States’ economy is our health care system. The health care system in the United States is not public, meaning that the states does not offer free or affordable health care service. In Canada, France and Great Britain, for example, the government funds health care through taxes. The United States, on the other hand, opted for another direction and passed the burden of health care spending on individual consumers as well as employers and insurers. In July 2006, the issue was transparency: should the American people know the price of the health care service they use and the results doctors and hospitals achieve? The Wall Street Journal article revealed that “U.S. hospitals, most of them nonprofit, charged un-insured patients prices that vastly exceeded those they charged their insured patients. Driving their un-insured patients into bankruptcy." (p. B1) The most expensive health care system in the world is that of America. I will talk about the health insurance in U.S., the health care in other countries, Jeremy Bentham and John Stuart Mill, and my solution to this problem.
If we accept the price declining effect of managed care, the states should build down the regulations of managed care institutions. However, better information of the population and the health sector actor is crucial to avoid the previous misinterpretations. Moreover, the managed care institutions have to be incentivized to create contracts that are available and acceptable for less healthy people also.
Private Clinics, an Oligarchy of the Wealthy? Since 1966, Canada has had a universal health care system. Canada’s public health care system has been debated for many reasons such as the unreasonable waiting times to access the health care system or the growing rate of out of pocket payments. Due to these inefficiencies of the system, there has been several private clinics opening in Canada to supposedly reduce the negative impacts of the public health care system. These clinics violate the law of offering services covered by the Canada Health Act, to shorten waiting times and create an “efficient” system as in comparison to the public health system.
The United States health care system is one of the most expensive systems in the world yet it is known as being unorganized and chaotic in comparison to other countries (Barton, 2010). This factor is attributed to numerous characteristics that define what the U.S. system is comprised of. Two of the major indications are imperfect market conditions and the demand for new technology (Barton, 2010). The health care system has been described as a free market in
Enterprises need to be efficient and competitive or they lose money, and the government cannot afford to subsidise such losses. And governments anywhere are not very good at running businesses. Whether the private owner is an individual, or a corporation with thousands of shareholders, peoples' own money is at stake, so they have a strong incentive to work night and day to ensure that their enterprise becomes successful and profitable. Government lacks those incentives, so government-managed enterprises fail to perform across the world.
This view implies that governments intervene for many reasons, including the redistributional and stablisation functions. While market failure is one reason for intervention, other considerations, including questions of equity and social justice determined the nature and the extent of government intervention. This point was expanded upon by Groenewegen (1990,2) who argued that the extent of market intervention in the supply, distribution and redistibution of goods and services are not dictated by purly political and ideological considerations, other considerations may play a role including the failure of the market in certain instances to ensure efficient, equiable allocation of resources.
In micro-economics market failure is characterized by resource misallocation and subsequent Pareto inefficiency. Just as the invisible hand falters, so is the case that the unregulated markets are incapable of solving all economic problems. In laissez-faire economy, market models mainly monopolistic, perfect competition and oligopoly are expected to efficiently allocate resources for the “welfare benefit” of the society. However individualistic and selfish private interests divert the public benefits thereby prompting government intervention to correct the imperfection which may lead to disastrous economic impact. Although corrective intervention policies by government may not necessarily address the underlying imperfection induced by private sector inefficiency, it still becomes a necessary remedy to benefit the wider public if private entities are not allocating efficiency. Furthermore, as the largest contributor of the Gross Domestic Product, poor and untimely corrective measures could signal the failure of both the private and public interests. Effectiveness of the policies and mechanisms designed by the state in market intervention are fundamental in correcting any perceived market failure. Intervention however does not guarantee effective remedies expected by the economy and could lead to deeper market failures if the regulations “crowd out” the private sector but is the viable approach to address market failure.
Therefore a free market is not desirable as maximizing their utility is priority. So government is expected to correct the market failure by choosing to char...
According to Sapru R.K. (2008) p370-371 the traditional ideal of public administration which inclined to be firm and bureaucratic was based on processes instead of outcomes and on setting procedures to follow instead of focusing on results. This paradigm can be regarded as an administration under formal control of the political control, constructed on a firmly ranked model of bureaucracy, run by permanent and neutral public servants, driven only by public concern. In emerging nations the administration was true bureaucracy meaning government by officers. In this perspective Smith (1996) p235-6 perceived that“the bureaucracy controls and manages the means of production through the government. It increases chances for bureaucratic careers by the creation of public figures,demanding public managers, marketing boards.
Government intervention occurs when markets are not working optimally i.e. there is a Pareto sub-optimal allocation of resources in a market/industry. In simple terms, the market may not always allocate scarce resources efficiently in a way that achieves the highest total social welfare.
One of the ways that a government can display their power is with their ability to affect the flow of the economy. The government can manipulate interest, spending, money supply, and taxation in order to change or not change how a country operates. Due to the issue of the boom and bust cycle, the periods when a country is thriving and when they are in poor conditions, the two main ways a government can choose to run a country, keynesian and supply side
Some economists suggest that the market for healthcare is different from other competitive industries and therefore cannot act the same way. In principles, we learn the basic assumptions of a competitive market, (1) goods offered for sale are homogenous, (2) there must be many buyers and sellers so that each has a negligible impact on the market price and (3) For markets to work efficiently there can be no significant information failure affecting the decisions of the producers and consumers. In perfect competition, product’s must be homogeneous which means that goods that individual producers cannot alter or differentiate to collect a higher price. Health care is a heterogeneous product because the patient can experience a range of outcomes. There is an ongoing battle between hospitals and insurance companies. In theory, insurance companies negotiate with hospitals for a reduced rate. One of my favorites quotes I stumbled upon is from economist Uwe Reinhardt in regards to Obama and Obamacare “I wish I had a half hour with him to explain it to him. If you pit hundreds of little insurers against each other, what makes any one think that each of them has enough market clout to bargain successfully with a hospital? So I don 't think this public health plan, adding yet one more competitor, is going to bring costs down at