I think there is a specific complication with healthcare in that it is not the care itself we consume (many interventions are simply unaffordable, even for relatively well-off people), but the cover for the risk that we need some expensive medical intervention — effectively we’re looking at insurance. And it makes no difference whether it’s car, home or travel insurance (other than the fact that for medical care, there is almost no limit to the cost, e.g. for chronic conditions). That said…
On the other hand, the higher prices would, as per Smith and Hayek, increase and improve the supply of healthcare and decrease the prices.
I am not sure it would, though of course it might. But why might it not? Suppliers will only supply that which they can supply profitably, and therefore even if there is demand for something (e.g. psychotherapy or psychoactive drugs to combat depression or schizophrenia), if it is so far beyond the ability to pay of some people, they will focus on the profitable segment of the market.
With this in mind, when healthcare is entirely in the public sector… a few people might appear to be better off. But in reality, we are all worse off than we would have been if healthcare had remained in the private sector.
Arguably healthcare is never entirely in the public sector: its employees are private individuals who need to be hired (and in the UK’s NHS, the purest example of public healthcare, general practitioners are self-employed — something not a lot of people know, even in the UK!). The problem is the lack of effective feedback: in the NHS, GP consultations being free at the point of use means that there is a lot of waste (people come for trivial conditions, or simply don’t turn up to their appointments), and often prescriptions are given without regard to the cost; in a mostly private-insurance based system like in the US, the waste is in the low cost-effectiveness of interventions (unnecessary treatments, add-ons) so that it is at twice the cost of the UK, with pretty much the same health outcomes.
Of course there’s a third way… a pragmatarian market. Healthcare could be in both sectors… the private and the public.
This is de facto the UK healthcare market (without the pragmatarianism :-)) — about 1/6 of the total healthcare expenditure is private.
Whether we’re talking about libertarianism or pragmatarianism… the fundamental challenge is to try and imagine what the supply of cars, computers or clothes would be like if they had been produced entirely by the Visible Hand. Can you imagine it? I imagine that the supply would be really terrible. This is simply because the absence of consumer choice would eliminate the pressure for the supply to improve/progress/evolve.
Sure — the efficient allocation of resources requires constant, fluid feedback from demand to supply.
I am returning to a point I have made earlier in other comments: ability to pay is an important factor. Whether nationalization of goods and services that are of vital importance and outside the reach of poor people is the best way of responding to this, is doubtful, but the markets alone will not solve this either.