My last post focused on ways in which the private insurance market doesn’t operate like much of a market at all.
This one, based on a smart NYT editorial this AM, is about how markets actually could and should work to lower health costs, if we let them.
During the debate over health care reform, we talked a lot about a key missing piece of the health market: the ability of doctors and patients to actually know what works for what ails ya, and at what cost.
Obscurely referred to as “comparative effectiveness,” it’s actually extremely simple. Here’s a real life example. I recently bought a smart phone and there were about 30 to choose from. I found one that had the features I sought when the salesman pointed me to a different one with the same features at a fraction of the cost (I know—I was amazed too—then this guy spent a long time teaching me how to work it—miracles still occur, even in retail).
And that, my friends, is comparative effectiveness in action.
It’s harder in medicine, but the Times editorial explains a study between two drugs that turned out a lot like my smart phone case.
So what’s the problem? It’s this:
“Unfortunately, in the effort to win Republican support (support that never materialized), the bill’s sponsors agreed to bar Medicare from using comparative studies to determine which treatments to pay for. Critics charged it would mean more bureaucratic interference and a step toward socialized medicine.”
For markets to work—for capitalism to work!—you need price signals that reflect the underlying value of one good relative to another. Without that, we’re toast. And unlike the insurance case, there’s actually a potentially competitive market for drugs.
At least from an economic perspective, the key to this whole health care question is figuring out where markets work and where they fail. When it’s the former, let ’em rip; when it’s the latter, craft alternatives as does the Affordable Care Act.