Coyote Blog has a great post on how to evaluate government health care proposals. With a Dem soon to be POTUS and a House controlled by Dems, there will surely be some sort of comprehensive health care law passed in the next four years. Here’s a snippet of Coyote’s thoughts:
For every proposal, you should make sure you understand 1) Who is choosing the amount and quality of the care and 2) who is paying the bills and is therefore trying to pay attention to the cost of care.
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Take purchasing a car. When I need a new car, who determines what car I end up with? Why, I do. And who pays for the car and shops around for a price that makes sense in the context of the perceived value of the car? Why, I do again. The person who uses the car, the person who chooses the type and quality of the car, and the person who pays for the car are all the same person.
This clever procurement model of integrating the payer, the shopper, and the user all into a single individual is one we use for, well, just about every product and service we buy. Milk, Internet service, DVD’s, house painting, airline tickets — all the same model.
OK, lets consider a model that does not work this way. Let’s say someone just rear-ended your car and, miracle of miracles, they actually have a good, solid insurance policy that owes you for your car repairs. In this case, you will be consuming the repair services, and have the incentive to find the absolute best, cost-no-object body shop you can find to do the best, most fabulous job fixing your car, because someone else (ie the insurance company) is paying. The insurance company has a different incentive. They want to get off with as small a loss as possible, to protect their profitability as well as keeping prices low for future policy-holders. They are going to want you car fixed cheap, particularly since you are probably not even their customer. They are going to try to deliver the minimum.
No surprisingly, people tend to get ticked off in these situations, as they grind against the opposing incentives of the insurance company. It’s one reason that the insurance field is highly regulated (because nowadays people complain to their Congressman whenever they get irritated). It’s also a measure of how ineffective regulation is in really managing this friction, since despite zillions of government rules people still get pissed off. The reason is that there is simply no good solution. Both parties want a solution at the extreme end of a cost-value scale, neither have much of an incentive to compromise, and neither will be happy with a solution in the middle of these extreme incentives, and no amount of government fiddling with the tradeoff point is going to change this.
OK, but in this example, at the end of the day, it is just a car, and probably this is a once-in-a-lifetime event. What if we replace “car” with “baby daughter” or “grandmother” or “your life?” Now, as Bill Murray says, the kidding around is pretty much over. It is a recipe for an incendiary disaster. Which is exactly what we have in health care.
Please read the full post. Coyote even cites some interesting data, such as an interesting graph that shows the price of cosmetic surgery rising at a lower rate than the CPI and at a drastically lower rate than health care prices.
Hmm, I wonder if this would have something to do with the fact that there is a true market for cosmetic surgery? Because most cosmetic surgery is elective, meaning that consumers choose to pay for it with their own money, I would suspect that providers are forced to compete for customers and customers are a bit more discerning about price, which leads to lower price increases over the years compared to regulated goods and services.
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