Sunday, March 03, 2013

Why Do We Want Prices in Health Care? - The Daily Beast

Why Do We Want Prices in Health Care? - The Daily Beast: Megan McArdle talks with Nobel prize winning economist Bart Wilson about the role of prices in medical care and whether experts can do a better job than markets.

It's what we do know that an't so.....

Sequestration, Tea Party conspiracy?

Reich mentions something I have heard on occasion: that Medicare is more efficient than private insurance. I have not seen the study and Dr. Reich does not mention it but it is something I have heard before and I suspect that it is in some sense true. Since Medicare does no advertising and doesn't have to collect premiums (which is done for it by the IRS) all it has to do is cut checks. It is hard to see how Medicare would not be more efficient when measured purely by its payouts to administrative costs ratio. But is that the whole story?

It is hard to tell how efficient Medicare is because it is not a price taker, it is so large that it is a price maker. Indeed, it almost surely to some extent is a price maker and quantity increaser (though it also may do the exact opposite in some areas on some occasions). Indeed, since, largely thanks to the influence of government, there are few real price signals in the provision of medical care, it is hard to see how one would actually evaluate the efficiency of the Medicare program.