Supply of Medical Services

Markets at work: LASIK

According to the Marginal Revolution blog (“Seeing is believing“):

Laser eye surgery has the highest patient satisfaction ratings of any surgery, it has been performed more than 3 million times in the past decade, it is new, it is high-tech, it has gotten better over time and… laser eye surgery has fallen in price. In 1998 the average price of laser eye surgery was about $2200 per eye. Today the average price is $1350, that’s a decline of 38 percent in nominal terms and slightly more than that after taking into account inflation.

Why the price decline in this market and not others? Could it have something to do with the fact that laser eye surgery is not covered by insurance, not covered by Medicaid or Medicare, and not heavily regulated? Laser eye surgery is one of the few health procedures sold in a free market with price advertising, competition and consumer driven purchases. I’m seeing things more clearly already.

Certainly, the major advantage of a free market system is that it gives the best incentives for innovation. Those who first preformed LASIK surgeries found that there was high demand for the procedure and their profits were large. However, other physicians soon gained the necessary training on how to perform LASIK and with the increased competition, prices fell.

There is no doubt that the free market is the best system to motivate the creation of innovative health care procedures. Whether the free market will maximize welfare for the more routine procedures delves into the equity-efficiency trade-off apparent in all spheres where the government interferes with the market.