Why assuming we’re rational about health care may be a dangerous assumption
I am reading a wonderful book called The Undoing Project by Michael Lewis, about the development of behavioral economics by two of its pioneers, Daniel Kahneman and Amos Tversky. One point of their work over five decades is that while we think we make decisions rationally and objectively, in actuality, our thinking and valuation of things are fluid, and uses different criteria with different weights at different times.
For example, if I am weighing where to take a vacation trip, I might choose the beach if I’m particularly tired one day, but the mountains if I’m not. Both choices would be rational ones, but not consistent from moment to moment, and therefore seemingly illogical. Which do you want, the beach or the mountains? Make up your mind!
In health care reform there are many reforms that assume consistent values and rationality: health savings accounts, reference pricing, narrow networks. All these phenomena have in common a belief that if you have people spend their own money, they’ll rationally find the best value and shift their buying choices toward those that serve them best. But what if the perceived value of services shifts depending on my circumstances as a consumer? For example, if I am buying a health insurance policy, and at the time I’m perfectly healthy, what would I choose? Most likely I would be buying strongly based on price at that moment. If I never see the doctor, I’m not actually buying medical services at that time; more likely I’m buying relief from worry that if I get sick I’ll go broke. In that case, I’m buying the cheapest policy available that allows me to sleep at night.
And, in that same case, let’s say I get diagnosed with diabetes while holding that cheapest policy. Suddenly my priorities shift. I now want a policy that gets me the care I need at the lowest price. I am no longer as interested in cheapness, and more interested in comprehensiveness. Will I be able to go to an endocrinologist, or even an academic diabetes center? How low can I keep my copays and deductibles? My focus shifts partly from what I’m paying to what I’m getting.
There are instances where market theory seems to work well. The classic is Lasik eye surgery to correct nearsightedness or farsightedness. Market proponents correctly cite the steady drop in the cost of that service. But Lasik surgery has some special circumstances attached to it:
- First, no one dies without Lasik. I could get that procedure because I’m nearsighted, but glasses have worked for me since I was 10, so it’s purely elective for me.
- There are advertisements online all the time, and I can readily get pricing and a sense of how often a given surgeon performs the procedure. (This relates to safety and likelihood I’ll get the result I want.)
- I am spending my own money because the procedure isn’t covered by insurance in most cases, so I have a natural incentive to shop around.
But me rolling into the ED after a car accident? It’s possible that none of the three conditions above apply at that time. And thus the conundrum that our thinking when we purchase insurance policies may be different than when we consume services: which do you want, cheap or comprehensive? Make up your mind!
Pundits debate how much health care is like Lasik, and how much it’s like a car accident. Is it purely elective, or is it a bolt from the blue? Can I shop for it and control costs, or am I at the mercy of the provider in an emergency? The debate rages on, and we are about to see a shift in worldview in the federal government from a belief in health care’s unpredictability to it being elective and shoppable.
Which do you think health care is, mostly elective, or mostly unpredictable?
What do you think? Feel free to use the comment section below to let us know.