Has “Market Failure” Caused High Health-Care Prices?

With premiums rising an average of 22 percent and as high as 116 percent on Obamacare’s 2017 government exchanges, it seems surreal to read journalists attributing the economic pathologies of US health care to market failure. Yet that is essentially the perspective being driven by the Associated Press and NBC with approving input from industry economists and consultants.
While not a new narrative, the most recent version begins with the observation that patient co-payments and deductibles have failed to control costs. According to a Mercer consultant, “It’s not human nature to be rational thinkers about health care cost decisions. … It will never be just like buying a lawnmower.”
In popular and academic literature, this is a common assertion that is never explained in much detail, never mind rigorously proven. And hilariously, it’s still regnant dogma even as American consumers, right before our very eyes, continue their abandonment/avoidance of Obamacare because of its increasing costs.
Myth: Health Care Is Important, so Health-care Prices Rise Faster than Other Goods The second factor posited as driving market failure is “purchase priority.” After food and shelter, consumers prioritize health-care purchases over other purchases, we are told. No evidence is provided for this claim either, other than a question from the Altarum Institute’s Charles Roehrig, “What good is a better house if you are too sick to enjoy it?”
But Roehrig’s witty question doesn’t settle anything. Clothing and transportation clearly holds purchase priority over health care. How can a patient gain access to a physician’s office, treatment center, pharmacy, outpatient clinic, or hospital without both? Yet the higher priority held by clothing and transportation in purchase patterns has not driven up their prices or costs to the levels of those found in health care.

This post was published at Ludwig von Mises Institute on Dec 13, 2016.