The Economics of Health Reconsidered

This book guides you toward reconsidering the field of health economics as it is taught and practiced. It discusses and analyzes the assumptions that must be met for a competitive market to be successful, concludes that these assumptions are not met in the health field, and provides a number of applications for health policy. Among the policy issues addressed are: * Effects of managed care and capitation on patient care * Access to care by the poor * Medical savings accounts

(1) What Inspired Me to Write Book: Over the years, much of my research on such topics as insurance markets, physician-induced demand, and cost containment had led me to believe that markets were often ineffective in bringing about socially desirable outcomes in health market. I had not, however, had the time to come up with a unifying framework. During a sabbatical taken from UCLA, I delved into finding such a framework; the book develops one based on an extensive reading in the area of welfare economics, a sub-field of the discipline that seeks to determine the social desirability of alternative economic states. I then spent the remaining time considering its lessons for health care markets.

The goal of the book is to make researchers, policy makers, and students reconsider the role of markets in the health area. It is often believed that economic theory shows markets to be a superior way to organize an economic activity, but this depends on the fulfillment of so many assumptions --- 15 are discussed in the book -- that simply are not met in health sectors. The book does not show which health care activities should rely on markets and which should not -- that is an empirical question that societies continue to grapple with. Rather, the book attempts to convince the reader that there is no reason to believe, based on theory, that markets are a superior way to organize health related activities. When that is established, than a number of potential health care policies that are not consistent with the prescriptions that fall out of a purely competitive model become attractive alternatives. Many of these focus on controlling the supply side of the market.

The book is designed to serve several audiences. One group, of course, is students taking health economics or health policy courses. Unlike some other health economics texts, this one does not attempt to summarize the empirical literature in the field. It is therefore not designed to serve as a stand-alone textbook, but rather as a supplementary text, to be used in conjunction with a more traditional one or along with a reader of classic or current journal articles. Another audience is health economics professional in universities, research firms, management, and government. Although this group hardly needs the economics background material contained in the book, the main theme will, I hope, strike a nerve, making readers realize that the case for relying on competitive markets in the health area does not arise from a careful reading of economic theory. Finally, the book is addressed also to non-economists. Because these practitioners are less schooled in the details of economic analysis, they often have to take health economists at their word when the latter speak about the policy implications of economic analysis. The book should help put those people on a more level playing field when it comes to discussions of health policy alternatives.