Market Failure In The Healthcare Industry

Another element of market failure is asymmetric information, which occurs when the economic agents involved in a transaction have disparate amounts of information. As Francis Bacon states, “knowledge is power”, and superior amounts of information could result in undesired outcomes for one party in the transaction. Such is the problem that plagues healthcare insurance businesses, as the patient has more knowledge about their health risks and infirmities than the insurers do, which results in higher prices as the insurer attempts to pay for the customers with significant health risks and aversion from healthcare by those consumers who have low-risk health and lack desire to pay the higher prices. In the healthcare market, asymmetric information
can also go the other way, where consumers are the ones who are unaware of the full extent of benefits provided by healthcare services. In Economics of the Public Sector, Norton demonstrates in a study of 6,000 low income Americans, roughly half of all the people surveyed did not understand the Affordable Care Act or Obamacare. Congress employed ‘navigators’ in order to help uninsured US citizens locate an affordable healthcare plan, but many people were unaware of the existence of these ‘navigators’. A possible scheme to combat this particular issue of asymmetric information could lie in advertisement, where information about healthcare plans could be broadcast on radio, television, or billboards. This would let uninsured consumers become enlightened on the different varieties of healthcare plans that exist for their benefit. Asymmetric information is rooted in the problems that arise from differences in knowledge about the good or service that is being delivered from producer to consumer, and could possibly be solved through extensive advertisement.