There are very few problems that can't be traced to information and incentives. I thought of this when Tyler Cowen discusses an attempt to improve health care costs with better information:
The health care reform bill before the U.S. Senate would require hospitals to publicize their standard charges for services, but New Hampshire and Maine have gone much further in trying to make health care costs more transparent to consumers.
New Hampshire and Maine are the only states with Web sites that let consumers compare costs based on insurance claims paid there.
In New Hampshire, the price variation across providers hasn't lessened since the Web site went live in 2007.
The problem is that this is all useless if individuals have not particular incentive to shop. If I were on Unemployment, would I bother to check a web site to see which unemployment offices had the lowest operating costs and go there to get my check? No way, what incentive would I have to do so? I am going to the closest one, or the one with the fewest lines. Ditto with most people and health care:
Of course, the new health care bill will only make this worse. Those of us who actually have an incentive to shop, either with high deductible policies and/or HSA's will see our policies banned. The new health care bill has done nothing but attempt to drive this line all the way to zero.
Update: IBD publishes on the exact same topic (I beat them by 12 hours).
Patients have little direct connection in paying for their care. Their role has fallen significantly. Meanwhile, the government's involvement has grown, as has that of the insurance industry.Because so many Americans rely on an insurance policy or a government program to pay their health care bills, the internal governors that temper the rest of their purchases are turned off. When a visit to the doctor's office or a diagnostic test costs them a mere $10 or $20 co-payment out of pocket "” or there is no charge at all "” cost has little impact on their decision to see a doctor.
"By not knowing the full costs associated with health care, consumers demand more and 'overuse' it," Kenneth E. Thorpe explained a few years back in Health Affairs.
Americans would be more judicious in seeking health care "” they would self-ration "” if the right incentives were in place. An effective way to cut overuse and bring down costs would be to encourage through public policy the use of health savings accounts. If consumers used HSAs to pay the full amount for medical care at the point of service rather than letting employer-funded insurance or a government program pay the bills, the demand would fall.
The Democrats' health care legislation, however, puts more distance between Americans and the payment process and promotes dependence on government. That will only drive down consumers' out-of-pocket expenses even further and force overall health care spending upward. Under such a regime, the system will be worse off than it is now.