Giving Competition in Medical Care and Health Insurance a Chance

Abstract

This study summarizes what we know and do not know, in both economic theory and empirical practice, about the potential to more closely approximate competitive markets in healthcare and insurance in ways that will do more good than harm to the current dysfunctional system. The alternatives to competitive markets are, on the one hand, private markets where sellers of medical products and health insurance have market power, and, on the other hand, markets in which government both funds and controls production of such items. This study briefly discusses the economic ideal of competition and its current state in hospital, physician, pharmaceutical, and health insurance markets. It then considers circumstances in which more supply-side competition would or would not improve outcomes, identifies imperfect information as a key problem, and closes by discussing competition among health plans, systems, and networks. This research combines data, theory, and reasonable conjecture to focus on market-like improvements that are likely to do more good than harm.