Tuesday, June 18, 2013

"The fundamental problem with state and employer-based programs"..[in regared to health care]

The title comes from the following paragraph written by Nobel prize winning economist Vernon Smith in his 2008 book entitled "Rationality in Economics" which is  found on page 96:

"The fundamental problem with state and employment-based programs to solve the problem of extending medical care to all risk classes is as follows:

A (the physician,hospital,or other medical service supplier) recommends to B (the patient) what he or she should buy from A and C  (the insurance company or government) reimburses A for the services. This is an incentive nightmare and it explains why the price of medical services persistently rises faster than almost all other economic products and services...

Smith then comments that educational services are analogous and continues "These are examples in which consumer sovereignty is compromised by lack of direct experience and knowledge, and the supplier who harbors an inherent conflict of interest, is considered best capable of deciding what the consumer should buy."

If Smith analysis is on target what can we expect from the massive crony capitalism health care bill Obamacare? Many more folks will be eligible for Medicaid (depending on what various states do) and will get health care paid for by government money also known as someone else's money and possibly more will be covered by employers health insurance which is typically spent by employees in the belief that they are spending someone else's money. So the incentive nightmare of Smith's ABCs will be made even worse.


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