My Small Contribution to the Health Care Debate

I usually try to keep politics off this blog, partly because I know not everyone wants to hear about it, but mostly, I confess, because I am a coward and I fear losing friends. Correct me if I'm wrong, but it seems like political discourse has gotten a lot less friendly and a lot more scream-y over recent years. And of course the health care debate is no exception.

I am no fan of government-run health care, but I have to admit that the current system needs work. And so, though I know it would not solve everything, I present my own modest proposal:

No flat co-pays.

It's all about externalities. In economic terms, an externality is when someone makes a decision but doesn't bear the consequences of that decision. When you buy a plane ticket your boss is paying for, that's an externality. And generally externalities lead to extra costs: you just aren't as careful with someone else's money as you are with your own. Maybe you forget to buy that ticket until after the rates go up; maybe you pay through the nose for a direct flight you wouldn't have bought with your own scratch.

It seems to me that a lot of the problems with American health care can be traced to two externalities:

1. The insurance company is involved in making medical decisions, but they don't care how bad you feel and
2. You are involved in making medical decisions, but you don't care how much the insurance company pays
   

Though, of course, you should care -- you're paying for it in the end. Anyway, let's deal with Externality #2 for a moment. Let me tell you a little story.

A couple of years back, Mark had a bruise on his leg that wouldn't go away. Many days after the injury, it was still dark-colored and painful. I convinced him to go to the doctor to check it out -- maybe the bone had a stress fracture? Or maybe I was a nervous Nellie. Anyway, he went.

"It's not a stress fracture," said the doctor. "To be honest with you, I think it's just a bad bruise. There's a small chance -- really small -- that you could have a blood clot. If you want, we can do an ultrasound to be sure. But honestly I don't think it's necessary."

For us, this decision seemed easy. We were paying the same flat co-pay either way, so why not just do the ultrasound? The other decision -- leave and come back in a week or so if the pain persisted -- might wind up costing us time, whereas this option cost us nothing.

If we had been paying a percentage-based co-pay instead, maybe it wouldn't have been such a no-brainer. Maybe we would have looked at the extra cost and decided against it. But as it was, we made a decision that benefited us marginally and hurt everyone else on our plan.

And we weren't alone. Because this is the same thing everybody else is doing when they assent to all these "extra procedures" the touted government efficiency is supposed to prevent. These people aren't evil, or even necessarily all that callous, they're just sensible. And because of an externality, they have no incentive to act differently. Heck, they don't even have an incentive to check over the bill and make sure the services their insurance was billed for were actually performed.

Make patients bear some of the costs of their own decisions, and you would enlist them in keeping those costs down.

So that addresses Externality #2, and now we're back to Externality #1: insurance companies don't care how bad you feel. Well, in my ideal world, what you'd "buy" for accepting a percentage-based co-pay would be greater control over your own health care decisions. Now that you're working to balance the two concerns at hand: -- your health and the cost of your care -- your insurance company should be able to just butt out and more or less let you run things.

Also, decouple insurance and employment and you'd allow consumers to punish bad business practices by (1) switching providers and (2) spreading word of mouth. Then maybe, just maybe, the insurance company would care how you feel.