Question

What are the main ways in which the market for health services differs from a competitive market? What are two changes to the market for health services you would recommend to increase efficiency in the market for health services and make the market more competitive?

Answer 1

Health services are a form of an imperfect market due to the following reasons;

1) No common market price in the market: There is no complete knowledge of the services provided by health facilities and there is only information from one way. Through this, the natural forces of demand and supply do not work to establish a market price as there is no feedback mechanism nor complete knowledge about the market.

2) Services are heterogeneous: Health services differ from patient to patient and thus the scope of these facilities varies among the members of the population. There is no 'one common' service that is provided, but a number of health facilities provided on the basis of medical requirements of the patient.

3) Indirect payments: With the existence of health insurance, the cost of treatment is borne by the third party company, given that the patient is covered by their package. Thus these payments are not done by the direct 'treatment benefited' party but through a third person.

A simple way to bring more efficiency into the health service industry is to bring government intervention into the market, and enable government set up health facilities that provide treatment to the taxpayers at reasonable or no costs. Through this, the supply deficiency is met through government and thus the market is much more efficient and more competitive. As there is government participation in supply of health care services, the market becomes more competitive as there is more supply of the commodity and price becomes more stable and competitive.