Health Care Competition

Readers of this blog know that I recommend and regularly read John Cochrane’s blog The Grumpy Economist. I recently saw a post on this blog which was a real eye-opener. Want to know why we have a non-competitive health care system? Read on.

It seems there is a hospital in Oklahoma that posts prices for its services on the web (check out their prices here). Curiously, the hospital will not take Medicare insurance and the reason? If they take Medicare, they will not be able to post their prices on the web! I repeat, Medicare will not allow them to implement one of the standard practices that we observe in competitive markets. And so, to avoid regulation, the hospital does not accept Medicare or Medicaid. Also read this local news article about the hospital. Two other examples are suggestive about the lack of competition in health care.

In a community near my home, the Henry Ford Health System wanted to build a new hospital. In order to do this, they needed to win a court battle. The reason for the court case, as explained to me by a Ford physician, was that Ford’s competitors had to give their approval under Michigan law and they would not do so. Other states have restrictions on hospitals of this sort. So a firm cannot manage its capital stock in a profit-seeking way because of government interference. Does AMD need to give permission for Intel to build a new plant? Of course not and it is absurd to impose such restrictions.

Finally, ever wonder why we have not had a nation-wide market in health insurance? My guess is that we will find the government’s footprints on this fact as well.

Competition is one factor needed to bring down the cost of health care. But the central planners in government think they can do this through their administrative edicts. The Soviet Union had central planners who had similar thoughts. Look how well the Soviet Union turned out. It no longer exists.


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Economics One

A blog by John B. Taylor

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One economist's views on economic policy.

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