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© 2008 Delmar Cengage Learning.
Chapter 2
Markets and Politics
Thomas Rice
© 2008 Delmar Cengage Learning.
2
Assumptions of the Ideal Market: The Rational Actor
• Individuals are rational when it comes to their behavior in a given market
• Persons possess the ability to discern which goods or services will improve their situation – Employing all available information, individuals
will choose the best of available options
© 2008 Delmar Cengage Learning.
3
Realities of the “Health Care Market” The Rational Actor
• “Counterfactual problem” in health care makes it difficult to decide if an alternative decision in care would have yielded a better, or even different, outcome– Market offers few cues
• Few know about different health plans– Good “report cards” on plans hard to come by
© 2008 Delmar Cengage Learning.
4
Assumptions of the Ideal Market:Predetermination of Preferences
• Preferences are inherent to the very identity of an individual– Produced, as if by magic, through the
“Immaculate Conception of the Indifference Curve”
• Providers of goods and services cannot significantly alter individual preferences
© 2008 Delmar Cengage Learning.
5
Realities of the “Health Care Market”Variability of “Consumer” Preference• Patient preferences can be “physician-
induced” – Doctors possess far more information than
patient– Extent to which this actually occurs is unclear
© 2008 Delmar Cengage Learning.
6
Assumptions of Ideal Market: Broad Agreement on Resource Distribution
• Members of society:– Expected to share some degree of consensus
on the way in which goods and services are distributed
• Improvements in the fortunes of others do not cause significant distress on the part of others
© 2008 Delmar Cengage Learning.
7
Realities of the “Health Care Market”
• Possible resentment at superior care offered some– Vastly superior care available to the wealthy in
American society– Could create envy among those who are not
better off
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8
Realities of the “Health Care Market”
• Possible resentment at superior care offered some– Causes unease among many policy makers
• Who believe provision of care should not be tied to ability to pay
© 2008 Delmar Cengage Learning.
9
Regulation in Health Care:The Options
• Microregulation– Relies upon direct observation and control of
key actors in market – Actually commonly employed in U.S.
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10
Regulation in Health Care:The Options
• Macroregulation: – Emphasis is placed on broader incentives or
disincentives– Examples include global budgeting
• Largely found in systems elsewhere
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11
Policy Alternatives to “Pure” Market
• Demand-side policies– Seek to regulate pricing of services through
such mechanisms as patient cost-sharing• Consumer-driven health care
© 2008 Delmar Cengage Learning.
12
Policy Alternatives to “Pure” Market
• Supply-side policies– Seek to control the amount, availability of
services available through controls on “suppliers”
– Measures include global budgeting, limits on quantity of physicians, hospital beds
© 2008 Delmar Cengage Learning.
13
Markets and Government in Health Care: Cross-National Complexity
• Different countries attach differing ideals to their respective health care systems
• Detection of the level of regulation versus market processes often problematic
© 2008 Delmar Cengage Learning.
14
Markets and Government in Health Care: Cross-National Complexity
• Even measures of outcomes are imperfect
• Decisions on the role of markets and regulation in health care – Require the consideration of national ideals
and priorities
© 2008 Delmar Cengage Learning.
15
Chapter 2 Summary
• Economists define the ideal market as:– One in which individuals are rational– Preferences are pre-established– Broad agreement exists on the distribution of
resources
© 2008 Delmar Cengage Learning.
16
Chapter 2 Summary
• None of these conditions are met in the case of health care
• Various forms of regulation present alternatives in cases of market failure
