Tuesday, August 19, 2008

If You Can't Bring Compeitive Markets to Health Care ...

bring your health care to the competition.

Competition lowers prices and improves welfare for the average consumer. Trade, offshoring, outsourcing, immigration, privatization, etc. all tend to promote competition. But one problem with health care is that high fixed costs and localization of many markets allow the market to be dominated by a small number of providers who don't have to do much to compete, and often cross-subsidize losses on emergency care with high prices on "elective care." The Economist briefing asks, "What if elective care procedures can be performed equally well in developing countries at a cost low enough to offset the travel cost?"

Until recently most medical outsourcing was limited to hospitals reducing costs by having tests performed and analyzed offshore. But now, folks are taking it to the competition themselves. Other issues here are complex, but it provides an interesting economic analysis in three areas: competition/basic micro; trade and offshoring, and; insurance.

The first two are related and more clear cut. Insurance is an interesting aspect because one might ask what happens once insurance companies start to save a buck by allowing patients to go to India for their knee surgery? Will they begin to require patients to do so if they want that to be covered at their current rates? Will the compensate for it by lowering prices? Will insurers, foreign providers, and patients be equally informed about the benefits and costs? How will US providers respond - will they compete by lowering prices or will they try to differentiate their product by bashing foreign facilities and/or playing to nationalism? All intersting questions. I do not have the answers to them.

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