Truck and Barter: The Perils of Choice

May 12, 2004

The Perils of Choice

By Ian

The topic is not a new subject around T&B: the impact of high levels of choice on the consumer.

This time it's manifested itself in the world of Medicare. Tthe range of discount card options has hit 73, and seniors are saying that it's tough discerning which one is the right one for them.

I have to admit, I'm not entirely sympathetic to the issue. Complexity of choices is inherent in a great deal of daily life, and building policy based on the perceived cognitive power of those to be affected strikes me as a quick way to devlove the whole issue into a "you don't know enough so let the government decide" sort of argument. (To put it rudely, I don't think we should regulate based on intelligence versus stupidity.)

On top of that, there seems to be a bit of a discrepancy in the story:

When Mildred Fruhling and her husband lost their prescription drug coverage in 2001, they suddenly faced drug bills of $7,000 a year. Mrs. Fruhling, now 76, began scrambling to find discounts on the Internet, by mail order, from Canada and through free samples from her doctors. "It's the only way I can continue to have some ease in my retirement," she said.
Last week, when the federal government rolled out a new discount drug program, Mrs. Fruhling studied her options with the same thoroughness. What she found, she said, was confusion: 73 competing drug discount cards, each providing different savings on different medications, and all subject to change.

Well, if one is able to keep track of deals from multiple websites, the mail, personal contact with physicians, and international comparisons, I'm not entirely sure why turning to a website as a single source of information should be that difficult. Certainly I can understand that government intervention has created a bit of a hydra here, when there are certainly more efficient ways to shift the price of drugs off of seniors to somewhere else, but compared to the adhoc method Mrs. Fruhling and others were resorting to before, isn't this at least a marginal improvement by way of reduced transaction costs?

Posted at May 12, 2004 12:26 PM

Comments

"...there are certainly more efficient ways to shift the price of drugs off of seniors to somewhere else..."

Yes, but why would you wantto?

Comment by Noah Yetter at May 13, 2004 04:43 PM | Permalink

A fair question, actually. Reducing the share of the price that a group is responsible for in paying for a good/service to be seems odd in the abstract. If a group of people need something, it's usually their responsibility to pay for it. No one subsidizes my movie going, as much as I'd like them too.

But of course, this isn't how healtcare works. Somewhere the country decided that the price of medication for the poor, young, and old, should be supported by the rest of those people paying into a social safety net. Personally, I can't write this off as an unquestionably good thing. Heartless as that may sound, and as torn as people are on explaining the rising cost of health care (which drives the higher price), I have to think that the moral hazard and adverse selection issues inherent in insurance and the safety net contribute in some fashion. If a hospital knows it can get $XXX for a procedure, because it is covered by insurance, why not charge it? It's not doing any real harm to the person, whose premia are rising anyway if they go to the doctor regularly. And then when HMOs and PPOs start dictating prices, they take all of their price signals from industries and professionals who are unconcerned with market demand -- they know the HMO has to approve it, and the approval is mechanical, so there is little incentive to innovate, improve, or change the price much. Meanwhile, facing little to no pressure to cover health costs personally, people head to the doctor at every whim, demand certain drugs, and threaten malpractice when the doctor doesn't give them certain tests. (And, indeed, people sue for piles of money that would stun an elephant in its tracks if it's ever discovered that a doctor made a mistake or missed something -when doctors prove themselves human in any fashion whatsoever. Which means malpractice insurance rises, and the circle starts anew).

I'm not an advocate of social darwinism. I don't think that people should simply be left to rot if they can't keep up with the herd. But this article, I think, makes clear the tension around people simply demanding something they believe they are owed (all of their drugs paid for no matter what they are, and absolutely no effort in getting them), and finding a good way to support people in need without writing blank checks the economy can't support.

Comment by Ian at May 15, 2004 09:07 AM | Permalink