Tuesday, March 21, 2006

fooling themselves

Earlier today, I was having a conversation with my mom, in which when she tells me that she is babysitting my niece, since my sister had to run a few errands. Presently, she mentions that she doesn't even have to watch her since my niece's therapist is working with her.

"What?!" I interject, "Why is a perfectly normal toddler receiving therapy? I don't know for certain, but I don't ever remember a time with so many children receiving therapy."

My mother presently concedes that in the last few years, therapy for various issues is being administered to more and more children. Even my wife's only two nephews, one who is age 4, the other one age 2, are also undergoing "occupational" therapy and speech therapy, respectively.

Maybe this is only some anecdotal phenomena, local to only my circles of influence, but nagging voices of economists long deceased tell me that this is probably the result of government setting the price to zero, a price floor needlessly causing overconsumption.

In any case, I admit that I can neither criticize from knowledge nor experience in the field of early childhood development therapy, but only that lately it seems that most young parents I know are utilizing the "free" services of a speech therapist because their 1-2 year old child isn't an effusive chatterbox socialite, and besides, the "government is paying for it anyway".

Which we know isn't true. Government has no wealth to speak of, only that which is has already confiscated from private holders or will do so in the future. But people tend to ignore costs and they irrationally adorn blinders to perpetuate a disconnect between low/no-cost services and goods provided, and the respective invoice.

What I'm afraid of is that therapists have made themselves comfortable that government insures them a steady flow of public-paid business. They will not have any objectivity in the matter when it comes to deciding whether a child requires therapy. I, for one would not trust the judgement of a therapist in such a case. If the price of the services rendered were paid for by the parties responsible, therapists would risk ruining their reputation by taking on clients who didn't need therapy, as the paying parents would find out upon doing their homework of getting a second opinion.

(The ideal in this case would obviously be to make each user responsible to pay for the services rendered in the private market. But in this case, the government has declared it free, and essentially is taxing the wealth of society to pay this boon to the industry. What can make this possibly worse is for the government not to pay it from current revenues, but to finance it with a bond, which only further abstracts the costs to taxpayers; which after all, taxpayers at some later date will have to pay back that bond with interest.)

One is only deluding himself to think that there are any goods which are free, and furthermore it's impossible to make a rational decision in such a case regarding the question of therapy, when the only indicator one could go by is the price system, which has now been tampered by government intervention on the side of costs.

"What could possibly be the harm?" you ask, "so there are children recieving unneccesary therapy, what could be so bad about that?" Well for one, you aren't acting in the child's best interest when you saddle him later with the costs of your foolishness. Secondly, you are at best only diverting resources, at worst you are taking present wealth and destroying it. I know people who won't dare waste a morsel of food, but in this case are content to delude themselves.

Vernon Smith (via this Cafe Hayek article) writes in the WSJ regarding healthcare and third party systems:
Here is a bare-bones way to think about this situation: A is the customer, B is the service provider. B informs A what A should buy from B, and a third entity, C, pays for it from a common pool of funds. Stated this way, the problem has no known economic solution because there is no equilibrium. There is no automatic balance between willingness to pay by the consumer and willingness to accept by the producer that constrains and limits the choices of each....

....if third-party deep pockets pay whatever is the price B charges A this year, the effect is to reinforce the incentive to raise the price next year. Spending escalates, which leads to a demand for cost control. In health care there is increasing control over access to medical services. Insurance companies disallow patient free choice of physicians, clinics and hospitals outside their approved network. Physicians and medical organizations face escalating administrative costs of complying with ever more detailed regulations. The system is overwhelmed by the administrative cost of attempting to control the cost of medical service delivery....

If there is a solution to this problem, it will take the form of changing the incentive structure: empowering the consumer by channeling third-party payment allowances through the patients or students who are choosing and consuming the service. Each pays the difference between the price of the service and the insurance or subsidy allowance. Since he who pays the physician or college calls the tune, we have a better chance of disciplining cost and tailoring services to the customer's willingness to pay.

Many will say that neither the patients nor the students are competent to make choices. If that is true today, it is mostly due to the fact that they cannot choose and have no reason to become competent! Service providers are oriented to whoever pays: physicians to the insurance companies and the government; universities to their legislatures. Both should pay more heed to their customers -- which they will if that is where they collect their fees.

I have always thought it was obvious, that third-party healthcare would become a nightmare for doctors and their patients. Doctors who bill insurance for treatment will pad up the bill, trying to see how much will 'stick' with the insurer. The insurance companies play the opposite game, trying to limit how much they are willing to pay for the services, and what services they will even cover.

Of course, every one knows that the price being quoted to the insurance company is significantly higher than what a patient would regularly be charged. But doctors, who are better suited to treating bodily ills must now become bold entreprenuers who have no idea of how much they can expect to be paid from the insurers.

How can a doctor rationally set a price, where there is barely any direct input from the consumer of these goods? Is it really that suprising that more and more doctors are dropping out of medicare participation and other third party systems?

Don't even think of talking me into a "national healthcare" system.

1 comment:

Chris said...

A reasoned argument, but perhaps a little too limited in scope.

Healthcare demand is far more complex than simple market economics and overconsumption based on government-subsidized pricing. Granted, these things don't help - but the consumers all demand health care as a right. If you want to approach this from an economic perspective, consider that this is one of the logical places where a populace goes when most everyone is in a 'have' situation.

That includes parents wanting their children to receive developmental therapies so they can be prepared enough to meet NCLB demands on one end of life and families demanding life extending interventions for elders on the other.

As you can see, these consumer demands aren't exclusively economically oriented.

Anyway, interesting rant.