Thursday, May 28, 2009

Prescriptions for Disaster

"I think getting doctors on a salary is the very first solution..."
The original rationale for HMOs was that the insurance company would be paid a fixed amount per patient per month (although this might be modified by the patient's pre-existing medical conditions) and would be required to provide whatever medical care was necessary; therefore, they would have an incentive to do things the most economical way, i.e. through preventive medicine whenever possible.

That sounded great to me, and it still sounds like a good goal.

Unfortunately, as Adam Smith predicted (when talking about education), instead this gave an incentive for insurers to provide as little care as possible, by making the quality as low as possible, and making it as difficult as possible to obtain it.

In Bryan Caplan's class on microeconomics, he explained the concept of "moral hazard" to us, with plenty of amusing examples. I suggest this as another one.

So, how do we actually accomplish the original goal?


Anton Sherwood said...

Usually, "service as bad as we can get away with" is taken as a symptom of oligopoly; and I'm in the habit of blaming oligopoly on regulation (which, even if not intentionally protectionist, creates economies of scale).

Doug said...

Not all HMOs work that way. As a Kaiser doc, I can vouch that this organization tries very hard to provide high quality care because doing so is good business (we're big on preventive medicine for the same reason). I have never been restricted from ordering any studies (no one tells me 'that MRI is too expensive'), surgery, or meds. Restricting service is an all too common but shortsighted way to do business.

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