© 2008 Delmar Cengage Learning. Chapter 2 Markets and Politics Thomas Rice

© 2008 Delmar Cengage Learning. 2 Assumptions of the Ideal Market: The Rational Actor Individuals are rational when it comes to their behavior in a given market Persons possess the ability to discern which goods or services will improve their situation –Employing all available information, individuals will choose the best of available options

© 2008 Delmar Cengage Learning. 3 Realities of the “Health Care Market” The Rational Actor “Counterfactual problem” in health care makes it difficult to decide if an alternative decision in care would have yielded a better, or even different, outcome –Market offers few cues Few know about different health plans –Good “report cards” on plans hard to come by

© 2008 Delmar Cengage Learning. 4 Assumptions of the Ideal Market: Predetermination of Preferences Preferences are inherent to the very identity of an individual –Produced, as if by magic, through the “Immaculate Conception of the Indifference Curve” Providers of goods and services cannot significantly alter individual preferences

© 2008 Delmar Cengage Learning. 5 Realities of the “Health Care Market” Variability of “Consumer” Preference Patient preferences can be “physician- induced” –Doctors possess far more information than patient –Extent to which this actually occurs is unclear

© 2008 Delmar Cengage Learning. 6 Assumptions of Ideal Market: Broad Agreement on Resource Distribution Members of society: –Expected to share some degree of consensus on the way in which goods and services are distributed Improvements in the fortunes of others do not cause significant distress on the part of others

© 2008 Delmar Cengage Learning. 7 Realities of the “Health Care Market” Possible resentment at superior care offered some –Vastly superior care available to the wealthy in American society –Could create envy among those who are not better off

© 2008 Delmar Cengage Learning. 8 Realities of the “Health Care Market” Possible resentment at superior care offered some –Causes unease among many policy makers Who believe provision of care should not be tied to ability to pay

© 2008 Delmar Cengage Learning. 9 Regulation in Health Care: The Options Microregulation –Relies upon direct observation and control of key actors in market –Actually commonly employed in U.S.

© 2008 Delmar Cengage Learning. 10 Regulation in Health Care: The Options Macroregulation: –Emphasis is placed on broader incentives or disincentives –Examples include global budgeting Largely found in systems elsewhere

© 2008 Delmar Cengage Learning. 11 Policy Alternatives to “Pure” Market Demand-side policies –Seek to regulate pricing of services through such mechanisms as patient cost-sharing Consumer-driven health care

© 2008 Delmar Cengage Learning. 12 Policy Alternatives to “Pure” Market Supply-side policies –Seek to control the amount, availability of services available through controls on “suppliers” –Measures include global budgeting, limits on quantity of physicians, hospital beds

© 2008 Delmar Cengage Learning. 13 Markets and Government in Health Care: Cross-National Complexity Different countries attach differing ideals to their respective health care systems Detection of the level of regulation versus market processes often problematic

© 2008 Delmar Cengage Learning. 14 Markets and Government in Health Care: Cross-National Complexity Even measures of outcomes are imperfect Decisions on the role of markets and regulation in health care –Require the consideration of national ideals and priorities

© 2008 Delmar Cengage Learning. 15 Chapter 2 Summary Economists define the ideal market as: –One in which individuals are rational –Preferences are pre-established –Broad agreement exists on the distribution of resources

© 2008 Delmar Cengage Learning. 16 Chapter 2 Summary None of these conditions are met in the case of health care Various forms of regulation present alternatives in cases of market failure