While it is commonly argued that market forces should dictate the health sector, state intervention is common in most health care markets internationally. This is because health markets are not perfect markets, meaning that market forces do not dictate an efficient distribution of goods and services. Instead, health markets are plagued by scarcity of resources, and oftentimes, there are numerous instances of market failure. In such instances, the state will intervene in healthcare markets in order to protect patient safety, promote public health, and ensure an equitable distribution of resources and equitable outcomes.

Market failure occurs when inefficiencies arise in the distribution of goods and services in the health sector. One instance of market failure is a case when there are not many buyers and sellers. This is often the case in the health sector. For example, if a pharmaceutical company has a patent over a new drug, they effectively have a monopoly over this drug. This means that the company can set prices without any competition to encourage fair pricing. In this scenario, prescription drug prices can be exorbitantly high, making these drugs too costly for many patients. To protect patient safety and promote patient health, states will often intervene in these instances. In most European countries, for example, the state sets a maximum sale price and a maximum reimbursement rate. This helps to ensure that patients can access therapies that are crucial to their survival without significant financial risk.

Market failure may also occur when there are externalities — the impact of one individual’s conditions or action on another. This was the case during the coronavirus pandemic, during which negative externalities such as negligence for mask wearing or vaccine hesitancy threatened the health of others. Governments, therefore, intervened in the health sector in numerous ways. For example, local and state governments in the US mandated mask wearing in specific regions, and they also incentivized vaccination through personal benefits. State intervention, in this case, occurred in an effort to promote public health in the face of market failure caused by negative externalities. Another negative externality in the health sector is smoking, as second-hand smoke has serious health implications. In countries like Bosnia, Israel, and Slovakia, the state has implemented a cigarette tax to curb smoking rates. Just as was the case during the pandemic, state intervention has occurred to promote public health.

Another instance of market failure in the health sector stems from inequality. Unequal distribution of wealth and income, along with discrimination, can create health disparities, but these disparities are often not corrected by the market. In these instances, the state may assume responsibility and intervene in order to secure equitable distribution of resources and outcomes. A recent example of this is the Justice40 initiative pioneered by the Biden administration, which guarantees that 40% of benefits from federal investments in environmental measures are directed towards marginalized communities. These communities have faced disproportionate health impacts such as lead poisoning, respiratory issues, and cancers as a result of environmentally racist policies. State intervention, therefore, is crucial to securing equity, as the free market in the US has failed to remedy such issues for generations.

In conclusion, because health markets are hardly perfect markets, they often suffer from market failure. When market failure occurs, the state should intervene to protect patient safety, promote public health, and generate equity.