Austin Frakt Explains Why We Disagree About Waste
In the context of insurance, whether public or private, health care spending presents a classic collective action problem. If I’m helping to pay the bill, it’s only rational that I only want you to receive necessary care and that I want your physicians to practice judicious care. Likewise, if you’re paying the bill, it is only rational that I want you to “mind your own business” and pay for whatever care me and my doctors want. My care is useful and appropriate. Yours is wasteful, even counterproductive. Stop it!
More on ways to assess health care spending in The Incidental Economist.
Interesting bit of psychology.
I think Austin is correct. A similar phenomenon occurs when a group of friends goes to lunch together. When the check arrives someone often looks at the long list charges and says… “let’s just split the check four ways.” Invariable, some people ate more expensive entrees, drank more wine, and over-indulged in shared appetizers. Yet they pay the same price as frugal people. I’ve sort of noticed that the big spenders are often the ones who always seem to suggest splitting the check rather than calculating their own expenditures. After this happens enough times, frugal people learn they might as well also have the extra glass of wine and filet mignon entrée, since they’re basically paying for filet dinners whether they get to eat one or not.
I believe another thought process enters into the health care equation. People develop a certain entitlement mentality when they’ve paid into a health plan. They don’t see it as pooling risk among numerous people as much as a promise to pay. The person who spends thousands on a series of physician visits, tests and medications for a temporary ailment believes they have it coming because they’ve paid insurance premiums for X number of years. The only way to get value from your health plan is to file a claim. Not only is there often no incentive to economize in the presence of third-party payment; there is often an incentive to consume in order to justify past spending on premiums.
Interesting post, as is Devon’s analysis.
This is a terrific article! Goes to show the selfish and greedy nature of humankind…and we are still trying to justify it.
Devon is right on regarding the financial incentives to use health care, especially in the light of the premiums paid.
Whatever happened to the type of insurance which was affordable, so that we hoped to never have a claim?
In a defined benefits system which we now have, your premiums are effected depending on how the pooled group performs.
Your health or lack thereof, is a relatively moot point in regards to premiums the next year.
In a defined contributions approach, in which the person, individually, is building paid-up benefits, he can more easily raise the deductible to match the balance of paid-up benefits.
In that way, the incentives to economize and consume are directly, personally, individually affected, particularly on the lower end ($25,000-$50,0000 of claims and below).
Don Levit
This analysis makes sense.
Devon always has fantastic insight.