The design of a health-care system concerns matters of information and strategy at several points…

The design of a health-care system concerns matters of
information and strategy at several points. The users—potential and actual
patients—

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have better information about their own state of health,
lifestyle, and so forth—than the insurance companies can find out. The
providers— doctors, hospitals, and so forth—know more about what the patients
need than do either the patients themselves or the insurance companies. Doctors
also know more about their own skills and efforts, and hospitals about their
own facilities. Insurance companies may have some statistical information about
outcomes of treatments or surgical procedures from their past records. But
outcomes are affected by many unobservable and random factors, so the
underlying skills, efforts, or facilities cannot be inferred perfectly from
observation of the outcomes. The pharmaceutical companies know more about the
efficacy of drugs than do the others. As usual, the parties do not have natural
incentives to share their information fully or accurately with others. The
design of the overall scheme must try to face these matters and find the best
feasible solutions. Consider the relative merits of various payment schemes—fee
for service versus capitation fees to doctors, comprehensive premiums per year
versus payment for each visit for patients, and so forth—from this strategic
perspective. Which are likely to be most beneficial to those seeking health
care? To those providing health care? Think also about the relative merits of
private insurance and coverage of costs from general tax revenues.

 

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