Question

What are the major reasons that a free, unregulated market in medical care might not be the best solution? What suggestions do you have to fix this?

Answer 1

A free, unregulated market in medical care will result in the following problems:

(i) A very high amount of healthcare in the society. This is because only those who can afford health will demand treatment and the market forces of demand and supply will result in a high equilibrium price for medical care.

(ii) there will be no social investments for the welfare of the poor and society as a whole because these kinds of investments require long gestation periods which the private players will not be willing to undertake.

(iii) Lack of innovation since there will be no government to regulate and mandate innovation to produce cheaper medicines and products etc.

(iv) Th eproblem of moral hazard will come into play since it cannot be determined with surity whether a person is sick in reality or the doctor is minting money because of the absence of alternative care.

In order to fic this issue, the government should enter the market and regulate it in order to mandate research and development, create an alternate public medical care system for health, provide tax incentives to private players for investment in public infrastructure, etc.