Why the Government Intervenes in Health Care?
... Given the technical nature of medical services and the potential harm that may be inflicted upon an ill-informed patient by an incompetent provider, for the sake of social health, the government, working through the health professions and health institutions, should provide consumer protection. As for this aspect, NHS is responsible for establishing safety standards for drugs as well as ensuring the quality of health care such as training doctors & nurses. Without government intervention, consumer ignorance on individual demand for health care can end up with under-consumption or over consumption. 1.2 Imperfect competition It is not uncommon consumers stick with what they are familiar with in health care because they can not evaluate the quality of the products or services against another¡¯s .As a result, there are little competitions in health care market, which would easily lead to monopoly where the output is likely to be less than optimal. Moreover, the markets for inputs such as skilled doctors and drugs are uncompetitive. Doctors may not act rationally in terms of profit-maximizing, due to motivation for professional reputation and the economic environment. Firstly, doctors value reputation more than money in that no reputation means no work. They may be prone to develop more advanced techniques rather than follow previous way of treatment, which may increase the cost of medical treatment. Secondly, basically there is no budget constraint facing doctors except for the willingness of consumers. In China, doctors can get brokerage by prescribing drugs produced in certain drug company, while for most purposes there exists cheaper and better substitutes. Thirdly, it costs tremendous time and money to become an eligible doctor. It is likely that doctors would charge more to compensate for their efforts in market-oriental system than under government intervention. Consequently, the supple side is distorted and imperfect competition decreases consumer¡¯s choice as well as their ability to minimize costs. NHS provides some solutions to this non-competitive behaviour. ¡®Until 2004, most hospitals were overseen by governing bodies ultimately appointed by the Secretary of State, and were subject to considerable central control and target setting¡¯(Barr, N. 2004). Most of doctors employed by NHS are paid a salary by public finance rather than a fee for service, though in some types of medical care such as dentistry, doctors are paid on a fee-for-service basis but on an agreed scale. Moreover, government offer subsidies for students who are willing to become a nurse or doctor in the future. 1.2 Uncertainty ¡®Whether a physician is defining a disease, making a diagnosis, selecting a procedure, observing outcomes, assessing probabilities, assigning preferences, or putting it all together, he is walking on very slippery terrain¡¯(Eddy, 1988). Uncertainty is hot issue in health care system. Due to asymmetric information, consumers are facing great uncertainty. Numerous policies of NHS have been put into execution with a view to reducing uncertainty, just as discussed above. Furthermore, demand for health care is uncertain. It is hard to plan saving and expenditure for unexpected medical costs. One possible answer is insurance. However, there are problems such as adverse selection, moral hazard and third party payment for medical insurance. That may be one of the reasons why government spends money in providing universal medical care. It makes sure that no people will be left dying in the wild. Patients who would not be taken care of by their relatives, or those who are homeless, can be in hospital until they recover. 1.4 Market Failure 1.4.1 Externality Externality occurs when an action undertaken by an individual or firm has spill-over effects on others, no matter favourable or unfavourable, which would result in sub-optimal equilibrium. That is because any individual or firm only considers their own benefits and costs when making a consumption or production decision. Externality that occurs in health care market is usually related to public health and treatment of contagious diseases, which result in large external benefits. To incorporate external benefits and costs when large numbers of individuals are involved in the externality, group or collective decision making is required to determine both the optimal level of provision and who should pay for the extra output for the sake of social benefits. It is a legitimate role for government to serve as a representative in this case. Only government can collect taxes and offer subsidies for inadequate health care provision.. In addition, promoting consumption of merit goods is a crucial role for government. Merit goods are commodities which are thought to be good for someone regardless of the person¡¯s own preferences, while individuals are not always conscious of it. Undoubtedly, to some extent, policies regarding...