ABSTRACT

In industries subject to even a reasonably close approximation of textbook price competition, sellers need to pare their costs to gain and keep customers. There are in fact several real problems stemming from certain peculiarities of health care, especially the nature of its market, how it is paid for, and the uncertainties of its effectiveness. Health care "purchases" are made mostly by insurers and the payers behind them and predominantly reflect choices made by seller-providers. One economic-model approach sometimes advocated both to reduce the national government's deficit and to discourage "overinsurance" removes or limits the tax subsidy for health insurance. All of the approaches are preferable to the emphasis on cost-shifting and cost-cutting of the economic model, which could turn medical care from a profession into a competitive bottom-line industry not basically different from the world of used car sales.