The Problem with (Artificially) Cheap Healthcare
Leaving aside the argument that whether government run healthcare can actually be considered as being cheap, let us assume that the government artificially affects the healthcare market and its prices to keep it cheap and affordable for everyone. We can now look into the (unintended) detrimental consequences that will arise when prices are kept artificially low.
There was recent evidence that the overuse of CT scans and breast cancer screening (after a certain age) can significantly increase the risk of cancer[1] [2]. These scans are generally high priced, forcing patients to use these scans as little as possible, fortunately. Now, imagine if the government had stepped in to keep these scans at a price accessible to everyone, after all as the government would argue, the scans do give a detailed report on the condition of the patient. Then, we would have had a lot more patients, who originally opted out since it was highly priced, use this scan, now that it is affordable as artificially enforced by the government. This would have significantly increased the pool of patients who used these scans, thereby increasing the number of people with a risk of cancer. This theory not only applies to scans and screenings but also to every other service and drug out on the market since every healthcare product has its set of risks and side effects. Artificially kept low prices will wrongly incentivize the people to buy drugs and use scans/services that they think will work without considering the risks and consequences.
Likewise, if all the healthcare services were kept low, it would divert the energy and resources in the innovation process towards an unnecessary and misallocated way. For example, the reduction in prices will decrease the research funded by companies into rare diseases (Darier disease, Babesiosis etc.) since the government involvement in the market will shift the market attention towards cheap prices and nothing but rather than the effectiveness too. This is because rare diseases are held by only a small percentage of people, the companies will no longer fund research since finding cures that should be marketed with low prices for only a small number of patients doesn’t get them the profits they strive for. These rare cures require high prices which the government forbids. Quality and effectiveness requires the necessary and deserving prices, especially in services that are asked for rarely. We will have to sacrifice the patients with rare and unknown disease in the name of so called “public good”.
High prices play a major role in the healthcare industry that needs to be considered. It sends two signals, one for the producer and one for the patient/doctor. It tells the producer of the particular service or drug that this will not get him the profits intended since not everyone is able to afford it. This will lead him to closely look into the causes of the high price such as the production methods and effectiveness of the drug/service. This closer look is very important because the second review of the drug/service will bring out the mistakes the producer overlooked in the initial process and with this review, it is much more likely that he will directly or indirectly curb the risks and side effects and the misallocation of the resources in order to be more appealing on the market. It might seem farfetched to say a second review of the drug/service will reduce the side effects but most of the risks that drugs carry are primarily caused by the mistakes overlooked by the company as evident in the voluntary recall of drugs by the industry due to its danger.
As for the signal sent to the patient, it obviously tells him only one thing. He cannot afford it, therefore he will not. This cessation of using the drug/service will cause the producer to find other ways as explained formerly.
So, in a sense, prices are the FDA of the free market healthcare since they force the producer to second guess his product and rectify their mistakes, which the real FDA is sloppy at doing. If the government intrudes, prices will no longer spate the efficient from the wasting, the strong from the weak and the effective from the dangerous.
[1] New mammogram advice guidelines raise questions. http://www.msnbc.msn.com/id/33973665/ns/health-cancer/
[2] CT Scan overuse May Up Cancer Risk. http://abcnews.go.com/Health/CancerPreventionAndTreatment/story?id=3927117&page=1