Cheaper expensive

As I strolled down the Madison Avenue, a sense of indignation assailed me on full scale. The display of excesses in the row of boutiques like La Perla, Oliver Peoples, and Breguet struck me as a manifestation of social inequality. Is there any justice that a bra, a pair of sunglasses, or a watch should cost so much that they are beyond the reach of ordinary hardworking Americans? Why is there not a legislative motion to rein in the cost of luxury goods, to make them universally accessible to all citizens of this wealthiest nation in the world?

A person with even the faintest turn of mind in economics, like me, can predict what such price restriction would do. There would be no more La Perla bras, no more Oliver Peoples sunglasses, and no more Breguet watches. So far as we want to keep luxury merchandise around, there is no way to drive down their prices, for the simple reason that price is not the paramount factor in the purchase of luxury goods. Luxury goods compete in other dimensions: quality, design, and brand recognition. The rich buy what they desire, not what is cheap.

For the same reason it will be all but impossible to rein in the cost of healthcare without sacrificing the quality of care. When we go see doctors, the cost of treatment is seldom on the top of our mind. Money is no good to anyone who is too sick to enjoy spending it. There is no financial incentive for the doctors not to prescribe the best - and often the most expensive - treatment, and there is little financial incentive for the patients to turn down a costly but presumably efficacious prescription.  Healthcare is analogous to luxury goods in that the providers compete not in price but in the quality and effectiveness of care. This may sound heartless - how can something essential such as physical well-being be compared to a Gucci coat or a Hugo Boss gown! But economics is a cold-blooded reptile that knows only incentives and no morals. So long as there is no incentive from either party to control the cost at the consumption end of healthcare, i.e., when the patient sees the doctor, driving down the cost will remain political hot air.

The only check on medical cost comes from the insurance companies, which employ an army of medical consultants to review the necessity of the prescribed treatments and deny the ones that are deemed wasteful. This practice, unfortunately and perhaps rightfully, is often vilified in the public media; denial of care is invariably described as an example of corporate greed of the health insurance industry. 

The only existing mechanisms to make patients more cost conscious are the deductibles and the annual ceiling in coverage. By making the patient share part of the cost for each treatment, the insurance companies quite effectively prevent wanton visits to the clinic and abuse of the medical insurance. With a spending limit each year, the patient is more likely to reject unconscionably expensive treatment, in order to save for another rainy day. Yet, effective as these measures are in fighting insurance fraud, they do little in controlling the average cost.

Last summer I had a horse riding accident, and I was rushed to the ER in a nearby hospital, in the affluent town of Huntington. In retrospect, I sustained only a minor injury: a horse kicked me just below my abdomen and to the left of my groin - the kick landed squarely where my cervical bone was the hardest and, even though a nail from the horseshoe penetrated three layers of clothing and cut a deep wound in the flesh, it did not reach the bone. I remained lucid throughout and felt no discomfort in my internal organs. Nevertheless, when the doctors prescribed two CAT scans and one X-ray, just to ensure that there was no internal trauma, I was in no position to refuse. Sure it did not feel like that I really needed them, but maybe the pain in the cut wound was obscuring signs of hidden internal injury. Was it not better to be safe than sorry? Who was I to say what diagnostics and treatments were rightfully called for? That was the doctors' job. 

The total bill came close to $30000, of which I had to pay a deductible of $450. I did not learn about the amount of the deductible during my ER visit, and had I known about this sizable deductible, most likely I would still not have said no to any of the prescribed procedures. It simply would not be worth saving $450 to risk permanent organ damage, or in the worst scenario, my life.

I too support the call to rein in the medical cost; I am simply skeptical of the proposals stemming from moral arguments. Conscience is never as effective in improving the world as sensible economic policies. The only solution to reduce the medical cost lies in instituting policies that will place economic incentives for either the doctors or the patients, or both, to be more price sensitive, right where and when the doctors treat the patients. I suspect that it will be the private sector who can do it better than the government. Sadly, whatever measure there is and will be, it is likely to be branded as the most evil of all greed: placing money in front of human lives.