A free market is one in which buyer and seller can freely negotiate the price of goods or services. The market for health care can never attain this ideal simply because buyers are not always willing participants in the market. If a person can not afford a flat-screen TV, he or she does not have to buy one. They could buy a cheaper TV or a used one or simply go without television. If a person can not afford a heart attack, they might have one anyway. They can not negotiate down to heartburn or opt to simply remain healthy.
For this reason, we can not rely on free markets to control health costs. In some cases, those needing care may not be conscious or have the faculties needed to make decisions about their own treatment. End-of-life care, with the buyer desperate to live, can be terribly expensive, leaving a person torn between extending their own life or leaving behind savings and property for a spouse or children.
Furthermore, the amount of health care a person might need during their life is often a matter of chance. A person born with a genetic defect or disposition will need more care than the average person. Similarly, a person who suffers a catastrophic injury may require ongoing therapy. It's not that these people choose to spend more on health care than others; they are forced to by circumstance.
Recognizing this inherent lack of freedom for health-care consumers is crucial to understanding both the need for reform and how to go about it. Economists understand that some markets contain flaws that preclude true market freedom, but there are often ways to correct such flaws. In coming posts I will explore whether health care markets can be corrected so that competition and profit motive can still drive efficiency and innovation.