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April 5, 2010

The Genius of the Healthcare Consumer

On 3/23/2010 in my post, A First Reaction to Our New Healthcare Reform Law,  I wrote that an engaged and accountable consumer would be a necessary element for universal coverage to work. 

Of course, consumers are always “engaged and accountable,” most notably to themselves, and so, I went on to say parenthetically that HC should not be perceived as “free” or a “right,” but as a cost/liability managed by the collective diligence of individual beneficiaries (and I point out here that often some of my better points end up inside parenthesis).

So what did I mean by this?  Well, check out what is claimed to be going on in Massachusetts, as reported by today’s Boston Globe in a piece titled, Short-term Customers Boosting Health Costs:

“Thousands of consumers are gaming Massachusetts’ 2006 health insurance law by buying insurance when they need to cover pricey medical care, such as fertility treatments and knee surgery, and then swiftly dropping coverage…  [According to Blue Cross Blue Shield of Massachusetts] the typical monthly premium for these short-term members was $400, but their average claims exceeded $2,200 per month…  The problem is, it is less expensive for consumers — especially young and healthy people — to pay the monthly penalty of as much as $93 imposed under the state law for not having insurance, than to buy the coverage year-round.”

Here we again have individuals acting in their self-interest, something we have been able to predict perfectly since the origins of economic theory.  The Bay State healthcare law contains perverse incentives and consumers are exploiting them to the detriment of the collective goal.  No doubt, this behavior will be a cause for premiums to rise unless incentives are altered.

Ideally, self-interested consumer behavior, which is a given in all cases, should be leveraged to improve quality and lower cost in HC.  This requires that all individual consumers have a direct economic stake in HC costs.  That is not the case in HC today and it will definitely not be the case under our new reform law, which contains the same moral hazard problems as the Massachusetts law.

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