Healthcare Reform – Irrational Consumers

The actual thought of price comparisons on medical services seems almost ridiculous. You don’t cut costs on your health. But that’s exactly the problem. If you had forethought and a choice between two procedures; One was $10,000 and the other $100,000, both with equal chance of success, which would you choose?

An individual having a heart attack typically does not provide a preference for which hospital they are taken to by ambulance. It typically is based on distance. Unless one is specifically staffed for cardiac emergencies, you will most likely be taken to the closest.

You probably don’t have time to the go on line and check the prices for cardiac services. Even then, these prices are typically are not available. Think about this. When is last time you when to a restaurant and ate without knowing the price of the meal? Would you even entertain eating at such a place? Probably not because you don’t know if the veal is $10 or $150. These are rational consumer choices that you apply to everything except health care.

These choices are not typically provided to us and they are mechanism through which competitive market forces prices down. We don’t allow this to happen, thus we are irrational consumers.

HMO’s do provide this service to a limited extent by in network and out of network coverage. They pre-negotiate rates to try to get the best prices on services. If you work with in their network, you are getting the best rates they could find.

On the individual side, Heath Savings Accounts try to encourage this behavior. This type of account combines a tax free savings account with a high deductible health plan. The idea is that the consumer controls spending from the HSA up to the deductible. Since the consumer is in charge, they tend to make better choices.