Who Makes the Price-Value Tradeoffs?

I have written a ton in the past on what I consider the fundamental problem in health care:  The taking of price-value tradeoffs out of the hands of consumers, first through encouragement of first-dollar employer plans and now through a Federal government takeover.  For example:

The computer keyboard I am typing on right now costs about $55 on Amazon.com.  Is that a fair price?

At some level, the answer must be “yes.”  Why?  Because I bought it – simple as that.  No one was compelling me to buy this particular model, so if I thought the price too high or the features too skimpy, I would have just passed on the purchase.  If I desperately wanted or needed a keyboard, I might have bought one of literally hundreds of others for sale at Amazon, priced from a low of $1.49 (used) to a high of $2400 (I kid you not).  After shopping through the various options, I chose my keyboard as the best match, for me, of price and features.

For decades, this seemingly prosaic act of individual “shopping” has been steadily eroded in health care with the growth of third party payers, particularly Medicare.   How much did you pay for you last doctor visit?  Your last x-ray?  Your last blood test?  Believe it or not, it is still possible to price-shop medical care — I do it myself, because I have a high deductible health insurance plan under which I pay all but the most bankrupting bills out of pocket.  As an example, three x-rays last month of my son’s ankle would have been billed to my insurance company at over $100, but I asked for their cash price and they pulled a separate book from a hidden place under the counter and quoted me $35.  I got a 70+% discount merely for caring about the price.

But my health plan, which includes this seemingly positive incentive to shop, will soon be illegal as high-deductible insurance plans, as well as medical savings accounts, are effectively banned.  Under Obamacare, virtually all individual payments for medical products and services will cease — the government and a few large, highly regulated insurers will pay for nearly every visit, drug, or procedure.  The government will be making price-value trade-offs for our care, and they will be doing it incredibly imperfectly, because by eliminating individual shopping they have cut off a, excuse the pun, priceless source of information.

And here:

If we are all forced to have the same, low deductible, first-dollar health plans, what incentive is one going to have to stay out of the health care system, even for something minor?  What is to stop you from going to the doctor every day because you are hypochondriacal, or you are lonely, or bored, or just because you want to save on buying your own subscription to Highlights Magazine?  The buffet will be open and everything will be essentially free – what’s to stop people from gorging themselves?

You might say that you are more responsible than that, and perhaps you are.  But think about this:  Twenty years ago we used to all complain about the 2 or 3 pieces of junk mail we might find a day in our mailbox.  That was when the each piece of mail cost real money to send.  Today, junk mail in the form of email is essentially free to send.  How many pieces of junk mail do you get today?  Even if you are not hitting the system up for free health care, you know someone else will be spamming the system, and eventually all of us as taxpayers will have to pay for it.

The only way to stop this behavior is for the government to create a department of “No” to head off this behavior — what Sarah Palin so famously called “Death Panels.”

Both Tyler Cowen and Megan McArdle discuss individual vs. the government in making price-value tradeoffs for health care in the context of Paul Ryan's proposal to voucherize Medicare.

McArdle:

Expect there to be a lot of angry back and forth over this in the next week or so.  But one thing to keep in mind is that this Medicare plan is not effectively very different from what the Democrats claim ObamaCare is going to do:  which is to say, cap the amount of money spent on providing health benefits to those who are not rich enough to opt out of the public system.  The Democrats want to do so by having a central committee of experts decide what our health dollars get spent on; the GOP wants to put those decisions into the hands of consumers.  But this is not an argument about who loves old, sick people more.  Both parties are promising to halt the rapid growth of government health care expenditures, which is definitionally going to fall hardest on old, sick people....

There are also the tradeoffs to consider.  It seems quite likely to me that vouchers are going to be better at controlling health care cost growth than a central committee.  Every committee decision that cuts off a potentially useful treatment (and I'm afraid it can't all be back surgery and hormone replacement therapy) will trigger a lobbying explosion from affected groups.  Each treatment is a decision with a small marginal cost to the taxpayer; it's in aggregate that they become expensive.  Which means that the congressional tendency is always going to be to override--and while there are supposed to be structural barriers against this in the bill, they aren't very strong . . . about like trying to quit smoking by hiding your cigarettes from yourself.

  • Bearster

    This is the second biggest problem in socialized medicine. The biggest, by far, is the contradiction inherent in declaring it to be a "right" to consume a product or service produced by someone else. This puts the former in the role of master, and the latter in the role of slave. This is evil. Think of it in the context of the doctor. What sort of doctor would be happy to function as a duty-bound slave, answerable to a myriad of bureaucrats enforcing on his hide the diktats of countless regulations, placing his economic well-being into conflict with his professional integrity? What sort of doctor will quit ("shrug")?

    For decades, there was a "brain drain" from the socialized utopias of the world to the US (the very term was coined for the exodus of physicians from England who fled socialized medicine). We will create this very dynamic here in the US.

  • me

    Spot on. I actually *expected* a high deductible reimbursement plan for medical expenses. Because that seemed to be the only option that made sense. Little did I count on the skill of DC lobbyists.

    That said, price shopping for medical care doesn't always work so well - here in WA, you'll get stared at for a long time. And then they'll consult their management and the billing office. And still won't be able to tell. "Just sign here and we'll handle all this later". Not quite.

  • http://frankania@yahoo.com frankania

    Here In Mexico, we pay as little as $2 for a office visit to as much as $40 to a specialist--all free enterprise--NOT public health. Medicines without prescriptions. Many people come to our B&B here from USA to get medical care, dental care and cheap medicine....

  • Mike Tr.

    Here's one of my favorite articles about the wacked out economics of health care, specifically MRI prices in the Bay Area. This sort of stuff needs to be fixed. I'm not for government or business paying for everyone's healthcare, but the deal must be the prices need to be reasonable.

    http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/08/22/BUHA1F0TGD.DTL

  • stuhlmann

    I wish I could find doctors like yours. The last two times I went to a doctor in the US (I live in Germany), I asked to pay cash, and they didn't know how to make that happen. The one doctor ended up taking a credit card. The other insisted on sending me a bill.

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  • caseyboy

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    The one thing you must understand about the progressives as it relates to healthcare is that it is a means to an end. Can you spell DOMINATION? They could care less what it costs or if it works. They just want to make sure the people are under their thumb. I'll give them this, they have been extremely successful in dumbing Americans down. They been in control of the levers of higher education for decades and it shows.

  • Mike Tr.

    One of the mistakes I made with my old (best ever, btw) dentist is announcing at first that I was paying cash -- no insurance. I paid through the nose, erm, for my teeth. I never thought to think about standard negotiation techniques Coyote Blog mentions. Some days you sit back and wonder. I should have shown up with a forged DeltaDental document, then paid cash anyway.

  • Ted Rado

    Our market economy depends on each consumer making choices. It works fine, if left alone by the government.
    Each of us has a limited amount of money to spend. Each allocates this money in accordance with their own views.
    How much life insurance to carry? How often to get a medical checkup? How big a house to buy?

    Sometimes, the choice is between dissimilar items. Back in the 70's, I considered treating myself to a Cadillac. The salesperson was a crook and the car overpriced, so I bought my first COMPUTER instead. This was my decision, not the governments.

    Whenever decisions are not based on self interest but on third party mandates, we have chaos. All sorts of irrational things happen. I guess that's why we have a government. Life would be too simple without it!