Austan Goolsbee raises the issue of market failure, but declines to consider a key principle of technical market failure inherent in health care -- imperfect/asymmetrical information. Tweaking the edges of private insurance policies doesn't get to the heart of the problem, namely that health care services are a pure seller's market where the purchaser (be it an individual or an insurance company) essentially pays whatever price the seller sets, and where consumers have strong incentives to "overbuy" services out of genuine concern or irrational fear.

The delivery of health care exhibits classic information problems in that: (1) we generally can't "shop" for hospital services, particularly in an emergency; (2) it's incredibly cumbersome to price compare services (when's the last time you called all the doctors in town to ask how much they charge for a physical, an x-ray, or a certain test?); (3) the doctor has virtually all the information and analytical ability with respect to your diagnosis, what treatments are available, and what treatments are sufficient; (4) individual patients who are covered by insurance usually don't know the actual cost of the care they consume and therefore push for services, drugs, diagnostics, etc. that may not be necessary because their out-of-pocket costs are so low; and (5) doctors have incentives to over-prescribe, over-treat, and over-diagnose given the pressure from their patients and a high likelihood that they'll get paid at the end of the day.

In reality, these information problems would exist regardless of whether it's a private insurer or single payer in the middle of the market. The single payer may have considerably more leverage as the market maker, and may (at least theoretically) be more accountable due to electoral pressures on the executive and legislative branches of government. Besides, what really is the difference between an insurance company bureaucrat and a government bureaucrat standing between you and your doctor anyway?

Successful health care reform will require greater transparency (of prices and relative "success rates") as well as other market-based changes. In addition, there absolutely have to be shifted expectations on the part of consumers -- something that will not likely to be easy to achieve. A true leader on this issue needs to be honest, stand up, and say things like, "yes, we can find a way to provdide basic coverage for everyone - but that's going to mean that you can't insist on getting an MRI for your sprained ankle," or "you can get by with an over-the-counter drug that's almost as effective as the prescription option."