Giving Competition in Medical Care and Health Insurance a Chance

47 Pages Posted: 20 Feb 2019

See all articles by Mark V. Pauly

Mark V. Pauly

University of Pennsylvania - Health Care Systems Department; National Bureau of Economic Research (NBER)

Date Written: February 19, 2019


This study summarizes what we know and do not know, in both economic theory and empirical practice, about the potential to more closely approximate competitive markets in healthcare and insurance in ways that will do more good than harm to the current dysfunctional system. The alternatives to competitive markets are, on the one hand, private markets where sellers of medical products and health insurance have market power, and, on the other hand, markets in which government both funds and controls production of such items. This study briefly discusses the economic ideal of competition and its current state in hospital, physician, pharmaceutical, and health insurance markets. It then considers circumstances in which more supply-side competition would or would not improve outcomes, identifies imperfect information as a key problem, and closes by discussing competition among health plans, systems, and networks. This research combines data, theory, and reasonable conjecture to focus on market-like improvements that are likely to do more good than harm.

Keywords: healthcare, insurance, competition, monopoly, regulation, Medicare, Medicaid, Affordable Care Act, markets

JEL Classification: I11, I18

Suggested Citation

Pauly, Mark V., Giving Competition in Medical Care and Health Insurance a Chance (February 19, 2019). Mercatus Research Paper. Available at SSRN: or

Mark V. Pauly (Contact Author)

University of Pennsylvania - Health Care Systems Department ( email )

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