Friday, November 26, 2004

Clarity and Stupidity

Alex Tabarrok posts on the costs of laser eye surgery pointing out that the cost of such surgery has fallen by 38 percent in nominal terms since 1998. Compared to other medical procedures which have generally increased in expense this is striking. He draws the following lesson:
Why the price decline in this market and not others?  Could it have something to do with the fact that laser eye surgery is not covered by insurance, not covered by Medicaid or Medicare, and not heavily regulated?  Laser eye surgery is one of the few health procedures sold in a free market with price advertising, competition and consumer driven purchases.  I'm seeing things more clearly already.
We are supposed to take from this that an entirely free market in health care would be an improvement. I'm not quite sure how this follows. Laser eye surgery is an "elective," "lifestyle" procedure. Thus, it has none of the problems of the rest of health care where doctors create their own demand because patients are not in a position to know what they need and etc. It is rightly left to the private sector: we don't think anyone has a right to live without glasses and there is not much ambiguity in how to treat someone with bad eyesight, people know what they need done. Such a market has the right dynamics. But most other forms of health care do not operate in this way: people don't know what they need, they can't necessarily shop around and etc. So it doesn't make sense as a free market. I certainly don't know what the right answer is, but a free market is not it.

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