Today there is a disconnect between providers and consumers. Almost all health insurance is covered by third parties--either insurance companies or governments--so patients rarely know what most health care services cost. If you go to a hospital and ask about prices, the staff's immediate reaction is that you must be uninsured. Why else would you want to know what something costs? Yet in just about every other aspect of our commercial lives the price of things is known.
No wonder health care doesn't experience the kind of productivity gains found elsewhere. For example, the cost of food as a proportion of one's income is a mere fraction of what it was decades ago (see chart above). Twenty years ago cell phones were bulky and expensive; today they have become cheap virtual computers with easy access to the Internet. They even take pictures and videos. There are 4 billion cell phones in use around the world.
In 1900 the automobile was a toy for the rich and cost the equivalent of about $100,000 today. Henry Ford's moving assembly line turned autos into something that any working person could afford.
We could attain similar and ongoing miracles in health care. We are already seeing some in a few areas. Conventional Lasik eye surgery costs a third of what it did ten years ago. And there has been virtually no inflation in the prices of cosmetic surgery, even though there have been enormous technological advances, and the demand for these procedures has increased sixfold since the early 1990s.
Special hospital facilities in India, Thailand, Singapore and elsewhere that engage in medical "tourism" have infection rates a fraction of those found in most U.S. hospitals. These positive results are driven by the fact that patients write the checks and are thus fully conscious of the costs, as well as by the fact that providers are under pressure to make their offerings more enticing and affordable.
Genuine free-market reforms in health care will slash the number of the uninsured and lead to the same kinds of innovations and efficiencies that are experienced in most of the rest of the economy.