Free Market Assumptions and Healthcare Provision

Subject: Healthcare Financing
Pages: 3
Words: 722
Reading time:
3 min
Study level: College

A Person Is the Best Judge of His or Her Own Welfare

The economic behaviors of individuals are driven by self-interest, and it means that consumers’ freedom of choice induces greater satisfaction. However, the assumption is not always applicable to the modern healthcare market because access to healthcare goods is frequently mediated through practitioners. Due to the lack of medical knowledge, patients do not always know which services and goods to purchase to become healthier and prevent diseases.

Consumers Have Sufficient Information to Make Good Choices

The quality of choice in the free market depends on one’s knowledge of various characteristics of goods, their prices, additional values, and so forth. It is presumed that if a person has a chance to explore all this information about available options, they are more likely to make a good choice. This assumption applies to the field of healthcare: modern practitioners are encouraged to offer treatment choices to patients to increase their autonomy (Zolkefli, 2017).

Nevertheless, the purchase of medical services often depends on one’s ability to access them. For instance, it does not matter if a person knows about the presence of different treatment options. One often consumes those services/products that are covered by his/her insurance when it is not financially feasible to buy a more expensive alternative.

Consumers Can Accurately Predict the Results of their Consumption Decisions

In the ideal market environment, consumption choices are free of any risks in terms of products/services’ effects and other relevant factors. The predictability of decisions is important for making value-based choices that meet individual interests. However, in healthcare, consumption decisions are often associated with a significant risk of unpredictability, especially when treating complex and multifactorial diseases. Even though patients may pay a lot of money for the treatment of such disorders, there is no guarantee of recovery.

Individuals Are Rational

To make the best choice, one must have access to necessary information about goods and the ability to evaluate this information objectively. Conversely, when a choice is made irrationally (without proper knowledge about a product and available substitutes, as well as their functions and effects in general), the risk of poor consumer outcomes increases. In healthcare, patients frequently make choices irrationally because they lack medical knowledge and cannot predict the outcomes of healthcare service/product consumption.

Social Welfare Is Based Solely on Individual Utilities, Which in Turn Are Based Solely on Goods and Services Consumed

The assumption suggests that it is possible to stimulate the development of social welfare through consumer satisfaction with goods that individuals see as useful and enjoyable. In other words, social welfare is directly linked to a good’s ability to meet consumer needs and interests. Nevertheless, the consumption of medical products and services is associated with individual and social welfare only indirectly. Individual utility, in this case, depends on one’s health status. While medical products can promote health, they are themselves cannot result in welfare, while the feeling of being healthy can.

There Are No Negative Externalities of Consumption

Ideally, the consumption of goods should not impact other individuals negatively and impose costs on them. This condition is important for the support of social welfare through individual consumption. An example of a negative externality in healthcare is an increase in public spending on healthcare, which produces a negative fiscal externality for taxpayers (Glied, 2008).

There Are No Positive Externalities of Consumption

According to Mwachofi and Al-Assaf (2011), “positive externalities occur when the actions of one individual result in a spill-over that improves the well-being of another individual” (p. 333). The presence of positive externalities is not desirable in free markets since it is suggested that economic behaviors are driven by self-interest, and the very idea of favorable indirect effects of consumption contradicts the requirement for consumers’ and producers’ selfishness. However, some positive externalities are associated with healthcare consumption. One of the best examples is individual immunization that promotes public health.

Consumer Tastes Are Predetermined

Consumers must have predetermined tastes in order not to be influenced by sellers. However, in reality, patients are often affected by advertisements. The condition is also important to ensure pricing stability (Mwachofi & Al-Assaf, 2011). The principle does not work in the present-day healthcare market as consumer tastes are changing along with other environmental factors, such as technological advancement. Due to this, healthcare costs and prices are changing as well.


Glied, S. (2008). Universal public health insurance and private coverage: Externalities in health care consumption. Canadian Public Policy / Analyse De Politiques, 34(3), 345-357.

Mwachofi, A., & Al-Assaf, A. F. (2011). Health care market deviations from the ideal market. Sultan Qaboos University Medical Journal, 11(3), 328-337.

Zolkefli, Y. (2017). Evaluating the concept of choice in healthcare. The Malaysian Journal of Medical Sciences, 24(6), 92-96.