The term “health care” is widely used to refer to a wide range of medical services and treatments. It also is frequently used to describe the industry that provides health care, which encompasses both public and private sectors. As with any industry, it has a variety of different factors that influence performance: the quality and cost of the product, the market structure, the distribution of ownership and the extent to which supply and demand are incentivized by government programs and commercial insurers.
The unique features of health care can make it more difficult to compare it with other goods and services. The industry has a nebulous and uncertain product, large segments are often dominated by nonprofit providers, and the system is highly incentivized by government and private insurance. All of these tend to reduce efficiency compared with more transparent markets in other industries.
While the distinctive features of health care can make it hard to compare it with other goods and services, there are many important similarities between the underlying market processes. Consumers and providers behave much like consumers and providers in other markets, and they respond to incentives. For example, information asymmetries in health care can cause market failure: patients may fail to purchase care they would have purchased if they were well-informed, they may buy health care of differing quality and they may engage in various forms of moral hazard.
Efficient resource allocation requires that health care be consumed only when its marginal contribution to utility exceeds its marginal cost. However, the marginal contribution of health care to utility is subjective and known only to the individual. The marginal productivity of health care in producing health, HS/HC, on the other hand, is a technical relationship that can be measured and a third party can understand.
In fact, the productivity of health care in promoting welfare can be substantially higher than that of many other goods. For example, the treatment of heart disease and low-birth-weight births has dramatically reduced deaths over recent decades and has more than offset the high costs of the resulting health care.
Countries vary considerably in their systems for funding and providing health care. Some offer free-at-the-point-of-entry universal healthcare, such as the United Kingdom’s National Health Service and Canada’s Medicare, which is funded by taxation and available to all citizens regardless of financial status. Others rely on private insurance coverage, but offer access to healthcare for the poor through government-subsidised programs.
Affordability measures how accessible and affordable the health care system is to the general population. Countries with high scores on this metric include the Netherlands, Australia and Germany, which have low cost-related barriers to care and small out-of-pocket costs (Exhibit 4).
Affordability is closely linked to availability. The U.S. performs poorly on this measure, largely because of undercompensation for primary care clinicians and the increasing number of physicians purchasing solo practices and joining multispecialty groups, which has led to nationwide shortages of primary care practitioners. This deficit will exacerbate the need to rely on expensive emergency, specialty and hospital care, which leads to high out-of-pocket costs.