One of the comments to the post called "Halachic Basis for Medicare" said, in part (check the thread to see the rest of the comment and my answers to it), the following:
In fact, Health Care is a great example of an industry that likely confounds the free market.
Consider: For thousands of years, health care operated with free market principles. Yet, there was very little relationship between the amount of money spent on a treatment and its efficacy. This is because health care providers have something I like to call a "Confuse-opoly".
The product they are selling requires a lot of specialized knowledge to detect quality. As a result, customers have a very hard time making rational market decisions. The best treatments fail to work many times, and patients often recover without any medical care, so it is super-hard to separate out the value of the care being offered.I would like to ask the author of the comment to provide evidence for what he is talking about, but I assume he is talking about practices like bloodletting.
Back in the day, when a person felt sick, he went to a doctor. The doctor looked into the current medicine books (which were based on pseudo-scientific Aristotelean view of the world) and opened up the patient’s veins to let some blood out. Obviously, this did not help the patient, but he still paid for the service, because the doctor said it was the best treatment.
If a patient was richer, he might have ordered more blood-letting services, like leeches. Or maybe some smelling salts. Or, if he was in China, he might have ordered accupuncture or tiger-bones soup, which were also not helpful.
So, why were these patients paying for bad treatment? Why didn't the free markets improve the quality in this service?
First, I urge everyone to read this article: "Socialized Healthcare vs. the Laws of Economics".
And these are my answers to the above argument:
1. I assume my friend would be able to tell a difference between healthcare in Russia (back in the day or now) vs. China vs. county hospital in the US vs. a private clinic. I assume the same about most people. And it's not just about the fact that some hospitals have Au Bon Pain in their lobbies.
2. Yes, some treatments hoodwink people into paying for them and thinking that they got better as a result of the treatment. But some treatments do make them feel better because they treated the symptoms. So, just because people sometimes get confused about the quality of the service they are receiving, doesn’t mean that they are always confused. I.e., if the population selects (with their money) the services that they think make them feel better, sometimes they will have false positives (and false negatives), but on average, they will select for improvement of the services.
3. My friend's argument is making a value judgement. It’s similar to saying: "Some people buy cars that have velvet seats and nice A/C and eye-pleasing color. Fools! A good car is a good engine, brakes, transmission, etc. How is the free market controlling for car quality?" Well, who says velvet seats and nice A/C are not products?
Perhaps the doctors who did leeching and accupuncture provided the patients with a sort of psychotherapy or a comfort therapy. They did not cure the disease (because they didn’t know how), but they provided them with a peace of mind (not to mention the possible placebo effect). It is not different from someone today doing pain management as opposed to curing the actual cause of the disease.
4. Yes, the doctors were only able to provide mumbo-jumbo treatment when there was none better available. But as soon as science and technology improved and the better results of the new treatments were clear, the patients were not so stupid as to stick to bloodletting and ignore vaccination, penicillin, and surgery. In the late-19th-century England, the free markets drove out the country doctors who practiced medicine the "good old way", because younger Sorbonne-educated doctors produced visibly better results. Plus, they explained their treatments, and many people (first of higher and middle classes, then even the rest) were educated enough to know the difference.
Going back to the car example, there are people who like "red cars" that have nice leather seats and good stereo system, and there are people who like Italian sport cars that are stripped of everything except the basic parts and have a really powerful engine.
Which brings me to my next point:
5. The markets are only as good and as efficient as the people who fill the markets. The product that the markets select for depend on the people's preferences. If people have bad taste in movies, you will get American movie industry. (Here, I know, I am making a value judgement.) So, if people are uneducated, they might select for the mumbo-jumbo comfort treatments.
We know, however, that with time, people's education improves and certain scientific facts and ideas enter the population's mind (partly because there are people who profit from spreading knowledge, either directly or indirectly). This should improve the effectiveness of judging the quality of medical service.
The assumption that people are going to stay on the same level of medical knowledge does not seem founded for me. That certainly has not happened over the course of the 20th century. (Most people know today about risks of strokes, the importance of exercise, and if someone got cancer at the age of 80, it's probably not because of the cell phones, but because of the old age. There are mythbuster TV shows and books everywhere that tell people that obsessively washing hands with antibacterial soap is bad and that we use more than 10% of out brain.)
6. It's very easy to point out the problems with something. But when one does so, one should point to a better alternative. Otherwise, all one is saying is that life is not perfect.
What’s the alternative? Ivory-tower sages deciding what is "really" the best treatment and what is "really" the best hospital? But it’s these ivory-tower sages that have historically told their patients that bloodletting was the way to go. Nowadays, ivory-tower medical giants recommend getting epidurals while giving birth, even though that increases the health risks for the mother and oftentimes makes the necessity of a C-section more probable, which presents the risks to the fetus and decreases the future fertility of the mother. (My wife who has little background in Biology found this out by reading various medical sources by herself.)
Also, how do we control for the quality of the ivory-tower sages (the Surgeon General and the likes of him)? These people are appointed by bureaucrats and politicians who, like everyone else, can have trouble distinguishing between good treatment and the bad. (I mean, they definitely have a hard time distinguishing between good science and the bad in the area of climatology.) And how do we know that the politicians are doing a good job? Who controls them?
I guess it comes down again to the people. So, if the politicians appoint bad Ministers of Healthcare who make bad decisions about the medicine, people can always vote the politicians out, right? Basically, that's the system in Russia today. Except, of course, this doesn't work, since many people are not single-issue voters ("de gospitals are vorse, but Putin brot stability to de kantry"), because the alternative may be worse, and so on.
Also, how are the people to decide whether the politicians are doing a good job? They can look at the statistics, but they can also at the individual hospitals' statistics.
The bottom line is: people can control the quality of healthcare through a complicated system of bureaucracy and politics which is extremely inefficient (it's like trying to ride a bicycle while standing on ten-meter-high crutches), or they can "vote" for the efficiency of the hospitals and doctors directly, with their money.