Thinking about Health Care

This is going to be a short post, and just one to record where I'm coming from.

While the legal debate on health care revolves around interpretation of the commerce clause (which would be radically redefined if the high court strikes down the law), the economics of the health care market have roots that go back decades.  My thinking on the topic grows out of three articles that have shaped my view of what's wrong with the health care market, and how it can be fixed.  One of the articles is a piece of journalism that uses an anecdote to make a point specific to health care costs, while two are scholarly academic papers, one of which isn't explicitly about heath care, but which analyzes markets that have some characteristics that make the health care market prone to market failure (most notably, informational asymmetries).

The first is Atul Gawande's New Yorker piece from 2009, "The Cost Conundrum", detailing why runaway costs in a Texas town are substantially higher than those in towns with similar demographic profiles but different delivery methods for heath care.

The second is Nobel Prize winning economist (and Larry Summers's uncle) Kenneth Arrow's 1963 paper "Uncertainty and the Welfare Economics of Medical Care".  It details just what it is that makes the health care market prone to failure, and why efficient delivery requires a regulatory approach.  In other words, it systematically demolishes the case for an efficient market for health care services.

The last is by another Nobel Prize winner, George Akerlof.  It's one of the most famous papers in economics, called "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism".  It details, generally, how markets with asymmetrical information don't allocate resources efficiently due to confounding data that prevents the price mechanism from efficiently allocating resources.  There's a section on the insurance market that is particularly applicable to health care.

All of these are, I think, crucial reading to understand the economics of the health care market.  They've certainly been vital in shaping my understanding.