One thing we can all agree with is the frustration of navigating the healthcare system and its high costs. How is it that our nation’s GDP spending on healthcare services is nearly 18% (that means one in every six dollars spent in the US is on healthcare), yet our healthcare outcomes compared to other developed nations falls short?
How is it that in one of the most affluent countries in the world families can end up bankrupt because they can’t afford their healthcare bills, or they avoid seeking necessary care because they’re afraid of the bills they’ll accrue?
The business model of healthcare in the US is, well, simply put… complicated. My frustration with this drove me to pursue my graduate studies, and now career, in healthcare access.
The standard economic theory of how markets work is the model of supply and demand, in which buyers and sellers are guided by prices to an efficient allocation of resources under these stipulations:
1. The main parties are consumers + producers.
2. Consumers pick what they buy from producers.
3. Consumers pay producers directly for goods + services exchanged.
4. Market prices are the primary mechanism for driving the decisions of the parties.
5. Which yields an efficient allocation of resources.
Yet none of these characteristics of the standard economic model reflects what goes on in the healthcare market.
1. In addition to patients (consumers) + medical providers (producers), there are also insurers (which act as payers).
2. Patients often don’t know what they need, and they don’t get to select what services they get — providers do.
3. Patients don’t know the costs of what they get until after the services are rendered, and they don’t pay providers directly — insurers do.
4. Market prices are trade secrets that are negotiated between the providers + insurers (this is the space I worked in previously negotiating rates between these two). So, rather than prices, rules + regulations drive market trends.
5. Given the four deviations above, the allocation of resources in the healthcare market is inefficient and often inequitable.
It’s frustrating that healthcare is as inefficient and costly as it is, but the system is performing under the incentives it was designed on. There are rules imposed on each of the three main parties in attempt to regulate the financing, access, and payment of the provision of healthcare services.
In the healthcare market, the provider delivers healthcare services to the patient, but is paid by an insurer (either a private insurance company or the government).
The patient, sequentially, generally doesn’t know what services they’ll get nor how much they’ll cost, leaving them in the dark.
So while we continue to try and solve this healthcare conundrum, understanding these economic forces at play is a good starting point for vexing health policy and reform.
