Medical Care: When Cost Consciousness Curtails Consumption of What Was Perceived as a Free Good

A "free good', in economics parlance, generally describes a good that is available in as great a quantity as desired without impeding its availability to others and at no cost to society or the consumer. That many in the U.S. have historically treated medical care in this fashion -- those lucky enough to have been covered at zero or minuscule deductibles -- has undoubtedly contributed to over consumption. Air is an example of a free good, though not necessarily clean air, mind you. Healthcare, obviously is not.

As the U.S. struggles with how to sufficiently cover the medical needs of its inhabitants, insurers have increasingly offered policies with higher and higher deductibles in exchange for lower premiums, or not. These escalating deductibles are increasingly paid by consumers whether or not they also pay the full, partial or no premium for the base policy. So it shouldn't be surprising that the WSJ reported this morning that "Americans are using fewer medical services...[and] Insurers, lab-testing companies, hospitals and doctor-billing concerns say that patient visits, drug prescriptions and procedures were down in the second quarter from year-ago levels." But The Journal also quotes Wayne DeVeydt, WellPoint Inc.'s chief financial officer, in an interview Wednesday saying "Utilization is lower than we expected, and it's unusual."

The article also points out that industry analysts say "The new trend comes amid a broader drop in health-care use as more Americans lose their jobs and their health insurance. Such cutbacks have happened before in recessions, but the drop seems to be more pronounced this time..." If reduced consumption becomes a sustained trend, we may well see a reduction in premiums that has been long sought by policy makers. To wit, as The Journal states: "...the recent drop in usage could make it difficult for insurers to argue that continued price increases are necessary."

Hind sight, as the saying goes, is always 20/20. But when goods and services are free or nearly so, they will inevitably be over consumed. Precisely how this truism escaped the attention of Healthcare policy makers and insurers in decades past is a mystery. And for that matter, so are my statements that indicate my provider billed 3X, my insurer paid X, and I paid .005X – and the account is settled. We still have a ways to go before this whole mess is brought into alignment.

William Busch

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