Imagine being a cash-poor college student who likes expensive sports cars. While you intend to buy one someday, for now you focus on paying for tuition, books, etc. Then your rich uncle dies and, knowing your car passion, leaves you a sports car in his will. While you
In several states medical cannabis is legal and so such a service would also be legal.It seems to be an issue of net neutrality and free speech wherein a communications carrier such as T-Mobile makes its own moral judgments on the content it carries and censors that which doesnt meet its own moral standards. There is nothing wrong with the content being transmitted as that in itself is legal.
Jeffrey, I mean strictly how the fixed costs are paid. Bargaining would most likely be a negative-sum game under these circumstances unless hospitals have high pricing power, which seems unrealistic. Other actors in the healthcare market do have market power (doctors, nurses, pharma) but that can be fixed through simple institutional change; no need for a central government authority.
I don't see why we should ignore loss effects or mental accounting (the money goes in a "health bin" and is then spent on health instead of being treated as fungible wealth). That just obviously seems to be what's going on here and it torpedoes the whole original argument.
When people have more medical insurance, they consume more medicine.
I question this premise. We have excellent "medical insurance" (retired military) and yet we don't look for ways to "consume" medical care. We don't ask the doc to run extra tests, or prescribe more meds or beg for hospital stays because beyond the fact that we don't NEED the medical care, it is not a valued good if we are not sick. I don't WANT to spend more time at the docs, or emergency room, or pharmacy. I've better things to do with my time, no matter how "cheap/free" the medical care is.
I think that's true for most people. There will be outliers, but for the most part, medical care is driven by NEED (illness, accident, etc) much more so than by availability or price point.
Having said that, being able to make care choices based on cost would be very useful. We do that with our pets all the time. The scale is smaller, but the principle is the same: "Does it make sense to spend $$ to buy medical care to do YY?" The criteria, weighted differently in each instance, are costs, anticipated efficacy of care, quality of life, risks of medical treatment, risks of abstaining from treatment, etc.
This is fundamentally a legal problem. If A receives a service from B without prenegotiating the prices, what does A owe? "Whatever price B pre-published" might be a good answer. It would at least allow more price shopping, and would be a huge improvement over our current answer, "As much or as little as B thinks they can get away with squeezing out of A."
"It bugs me that even economists mostly consider alternate more efficient institutions as ways to argue for their favored versions of our inefficient institutions."
Does anybody else besides me find it incredily difficult to decipher the full meaning behind this sentence?
Anon, when you say that bargaining power can result in similar outcomes, do you just mean in terms of how the non-incremental costs ultimately get paid for, or do you mean similar outcomes with respect to the social optimality calculations also? I can see how, if there were a spectrum of individuals consuming health care, and if they had differences in their price sensitivities (ultimately reflecting differences in how much they value it), that it is reasonable for the fixed costs to get borne more heavily by those individuals that value it more highly. This doesn't translate into having a systematic difference between the price borne by individuals and the price borne by insurance companies buying services which are ultimately consumed by similar individuals. If this is simply an artifact of the additional bargaining power insurance companies get by being bulk buyers, couldn't we, as consumers, opt to aggregate together into a government purchaser and obtain the bargaining power that way?
Jeffrey, bargaining power can also influence price discrimination outcomes obviously, and large insurance companies do have bargaining power. This is somewhat hard to model compared to the simple elasticity rule, but the outcomes are quite similar.
Perhaps Robin is being unclear, but the cash payouts would be set by the insurance company, depending on the medical diagnosis. (In principle the payout for each ailment would be spelled out in the insurance contract; in practice, reputational enforcement would likely predominate. Also, insurance companies would still want to subsidize preventive care, in order to offset moral hazard.)
In this scenario, the goal of insurance is to "make you whole" if you get sick, rather than provide medical care directly. Hence, a rough estimate of costs would suffice for non-catastrophic ailments.
There are some problems with this idea, though: for instance, in kind provision of medical care obviously deters fraud, since healthy folks have no need for it. Also, as mentioned above, collective bargaining by insurance companies has no direct equivalent in this alternative system.
Giving patients the option to take cash instead of treatment has one ENORMOUS flaw. How do you decide what the proper treatment is? There are doctors who will write prescriptions for medical marijuana if you tell them your back hurts and pay them $100. Now you've just given doctors an enormous incentive to write prescriptions for MRIs, pacemakers, aggressive surgeries, etc so that their patients can collect cash from their insurance companies by turning down these treatments.
Your idea makes sense only in a world of pure theory, as you seem to be saying in your second-to-last paragraph, before your last paragraph wonders why the idea isn't more popular.
anon, this? hmm... This seems like an odd map to the situation we are discussing. The health care providers aren't really monopolists. The insurance companies are only indirectly consuming health care services, so I'm not quite sure what their elasticity of demand represents fundamentally... Interesting analogy though...
Jeffry, efficiency is the right term, if you mean efficiency at making profit, that is making the most profit by supplying the minimum of goods and services.
Monopolies of essential services are always the most efficient at making profit because they can charge whatever the market will bear and there is no competition for customers to use instead.
Monopolies at supplying “protection” against being shot are even more efficient. If they are well they only have to pay for bullets and guns at the beginning when they are setting up their business. Once they have “signaled” that they are serious, they usually don't need to shoot reluctant customers any more.
Jeffrey, if the firm faces fixed costs which are not offset by increasing marginal costs (a reasonable assumption in many real-world situations), then marginal cost pricing is unsustainable and price needs to exceed marginal cost. It is then efficient to price-discriminate, following the Ramsey-Boiteux rule (markup is inversely proportional to the price-elasticity of demand for the good).
In several states medical cannabis is legal and so such a service would also be legal.It seems to be an issue of net neutrality and free speech wherein a communications carrier such as T-Mobile makes its own moral judgments on the content it carries and censors that which doesnt meet its own moral standards. There is nothing wrong with the content being transmitted as that in itself is legal.
Anon, Many Thanks!
Jeffrey, I mean strictly how the fixed costs are paid. Bargaining would most likely be a negative-sum game under these circumstances unless hospitals have high pricing power, which seems unrealistic. Other actors in the healthcare market do have market power (doctors, nurses, pharma) but that can be fixed through simple institutional change; no need for a central government authority.
I don't see why we should ignore loss effects or mental accounting (the money goes in a "health bin" and is then spent on health instead of being treated as fungible wealth). That just obviously seems to be what's going on here and it torpedoes the whole original argument.
When people have more medical insurance, they consume more medicine.
I question this premise. We have excellent "medical insurance" (retired military) and yet we don't look for ways to "consume" medical care. We don't ask the doc to run extra tests, or prescribe more meds or beg for hospital stays because beyond the fact that we don't NEED the medical care, it is not a valued good if we are not sick. I don't WANT to spend more time at the docs, or emergency room, or pharmacy. I've better things to do with my time, no matter how "cheap/free" the medical care is.
I think that's true for most people. There will be outliers, but for the most part, medical care is driven by NEED (illness, accident, etc) much more so than by availability or price point.
Having said that, being able to make care choices based on cost would be very useful. We do that with our pets all the time. The scale is smaller, but the principle is the same: "Does it make sense to spend $$ to buy medical care to do YY?" The criteria, weighted differently in each instance, are costs, anticipated efficacy of care, quality of life, risks of medical treatment, risks of abstaining from treatment, etc.
This is fundamentally a legal problem. If A receives a service from B without prenegotiating the prices, what does A owe? "Whatever price B pre-published" might be a good answer. It would at least allow more price shopping, and would be a huge improvement over our current answer, "As much or as little as B thinks they can get away with squeezing out of A."
"It bugs me that even economists mostly consider alternate more efficient institutions as ways to argue for their favored versions of our inefficient institutions."
Does anybody else besides me find it incredily difficult to decipher the full meaning behind this sentence?
You do not need "insurance" to address your problem, a buying club will do. That is why I like very high deductible insurance over no insurance.
Also you could have gone to Apollo health care for such a procedure and so it would be good if such alternatives were incentivized.
Anon, when you say that bargaining power can result in similar outcomes, do you just mean in terms of how the non-incremental costs ultimately get paid for, or do you mean similar outcomes with respect to the social optimality calculations also? I can see how, if there were a spectrum of individuals consuming health care, and if they had differences in their price sensitivities (ultimately reflecting differences in how much they value it), that it is reasonable for the fixed costs to get borne more heavily by those individuals that value it more highly. This doesn't translate into having a systematic difference between the price borne by individuals and the price borne by insurance companies buying services which are ultimately consumed by similar individuals. If this is simply an artifact of the additional bargaining power insurance companies get by being bulk buyers, couldn't we, as consumers, opt to aggregate together into a government purchaser and obtain the bargaining power that way?
Jeffrey, bargaining power can also influence price discrimination outcomes obviously, and large insurance companies do have bargaining power. This is somewhat hard to model compared to the simple elasticity rule, but the outcomes are quite similar.
Perhaps Robin is being unclear, but the cash payouts would be set by the insurance company, depending on the medical diagnosis. (In principle the payout for each ailment would be spelled out in the insurance contract; in practice, reputational enforcement would likely predominate. Also, insurance companies would still want to subsidize preventive care, in order to offset moral hazard.)
In this scenario, the goal of insurance is to "make you whole" if you get sick, rather than provide medical care directly. Hence, a rough estimate of costs would suffice for non-catastrophic ailments.
There are some problems with this idea, though: for instance, in kind provision of medical care obviously deters fraud, since healthy folks have no need for it. Also, as mentioned above, collective bargaining by insurance companies has no direct equivalent in this alternative system.
I say let’s try to actually give patients the choice to take cash instead of treatment.
What sort of dreamland are you living in? Can't you see that every letter of the phrase "cash instead of medical treatment" is loaded with abuse?
Giving patients the option to take cash instead of treatment has one ENORMOUS flaw. How do you decide what the proper treatment is? There are doctors who will write prescriptions for medical marijuana if you tell them your back hurts and pay them $100. Now you've just given doctors an enormous incentive to write prescriptions for MRIs, pacemakers, aggressive surgeries, etc so that their patients can collect cash from their insurance companies by turning down these treatments.
Your idea makes sense only in a world of pure theory, as you seem to be saying in your second-to-last paragraph, before your last paragraph wonders why the idea isn't more popular.
anon, this? hmm... This seems like an odd map to the situation we are discussing. The health care providers aren't really monopolists. The insurance companies are only indirectly consuming health care services, so I'm not quite sure what their elasticity of demand represents fundamentally... Interesting analogy though...
Jeffry, efficiency is the right term, if you mean efficiency at making profit, that is making the most profit by supplying the minimum of goods and services.
Monopolies of essential services are always the most efficient at making profit because they can charge whatever the market will bear and there is no competition for customers to use instead.
Monopolies at supplying “protection” against being shot are even more efficient. If they are well they only have to pay for bullets and guns at the beginning when they are setting up their business. Once they have “signaled” that they are serious, they usually don't need to shoot reluctant customers any more.
Jeffrey, if the firm faces fixed costs which are not offset by increasing marginal costs (a reasonable assumption in many real-world situations), then marginal cost pricing is unsustainable and price needs to exceed marginal cost. It is then efficient to price-discriminate, following the Ramsey-Boiteux rule (markup is inversely proportional to the price-elasticity of demand for the good).