Imagine, for a moment, grocery shopping where everything is (nearly)
free. You casually peruse the aisles of
your favorite store loading up on anything and everything. You pick more expensive name brands over
cheaper generic brands, and fill your cart with more than you need. But who cares? It’s all free. At the checkout, you plunk down $20 dollars
and your membership card. That’s it!
This scenario would, without question, lead to the
overconsumption and decreased supply of food.
Without the price system to guide you into making wise choices, you
over-consume. You have no incentive
otherwise. This is our healthcare
system.
In the absence of the price system, Americans over-consume
healthcare. Most of us pay an annual
premium and then a small co-pay at the doctor’s office. It matters not if I have one test run or 100
– my co-pay remains the same. And
because my premium adjusts only once per year, any correlation between usage
and costs is vague at best. In fact, my
premium continues to rise despite my consumption of healthcare.
So, despite everyone’s constant lament that we spend 15% of
GDP on healthcare, this fact is no surprise to me. Incentives matter, and without the price
system to shape our choices, we will continue to over-consume and pay ever
higher premiums.
Good analogy. Will be using in discussion with my more hard-headed/dense friends.
ReplyDeleteThanks. Please let me know if it works. I have a few hard-headed friends too.
ReplyDeleteWhy are prices of healthcare services so opaque? The last few times we visited the doctor, we asked and probed about the costs, but we failed to get any straight answers. Why are prices such a big secret? A little transparency would go a long way.