The basic problem of government healthcare is that no one feels the costs of their actions. Government isn’t held accountable for lack of access. Consumers aren’t held accountable for abuse of medical resources. And healthcare providers have no incentive either to enter the field or to maintain a high level of quality of care. This is your classic commons situation.

What to do about it? Surely the free market is an abysmal failure in this regard; just look at how much we’re spending for coverage, which half the time we can’t use anyway, right?

No, not really. Michael F. Cannon writes for Cato: “One need not be an advocate of socialized medicine to see that America wastes gobs and gobs of money on health care, which is one of the reasons that health care is so unaffordable.”

And as any good economist knows, waste simply ceases to exist in a truly competitive environment. People often assume industry operates in a free market just because we’re in the good old U.S. of A. The truth is, in this time of regulation, taxation, and tariffs, markets are usually anything but. This is particularly true of the health insurance industry.

One glaring absence necessary to fulfill the conditions of a free market is perfect information. This means that the consumer has to know about the cost, quality, and other aspects of the product he’s purchasing. When was the last time a surgeon told you his success rate during consultation? Complication rate? What about actual price for a doctor’s visit or a run-of-the-mill procedure? (How often does he actually catch life-threatening problems?) No clue, right?

Some of the new ways in which various companies (including coverage providers) are starting to provide this information are already showing dividends.

But perfect information is only one of the conditions necessary for a free market. Dr. T discusses another major problem, namely the coupling of HMO/PPOs to your employer. If your employer only offers to help pay costs if you go with their provider, you have what is in essence a miniature monopoly, due to the high opportunity costs. Another thing that both of he and I talk about in our posts is critical care insurance and health savings accounts. These make a lot of sense to a lot of people (more or less anyone without a kid who’s younger than 35-45).

The take home message is simply that the health market is anything but free. We don’t have enough information as consumers of medical care or medical coverage. Furthermore, our choices in the market are bounded severely by constraints both practical and absolute. You can’t say the free market failed. The free market hasn’t been tried yet.

[This is part 1 of a two-part series. Part 2 will be published Saturday.]