Healthcare Reform Policies Need to Focus on Prices

So healthcare reform has finally passed. Cheer or boo depending on which side you're on! I'm not moved that much one way or the other because I don't buy either side's argument that socialist or capitalist healthcare is significantly better than the other. I'll tell you what I do think needs to be fixed with healthcare after I tell you a story about my day today. I promise it's relevant!

I was out and about today and then around noon, I was starving. So I hopped into my local McDonald's to grab a bite to eat. Something was off because the price board was off, but whatever - a McDonald's cheeseburger is a McDonald's cheeseburger.

I'm pretty familiar with the prices. So I order my usual, take my seat, and chow down. While I'm eating they also brought me one of those apple pies. I've never had one before so I didn't even know if I liked them, but they seemed to think I should try one. So why not? The apple pie was just alright. Probably would have been just fine without it.

After eating, it turns out they wanted $200 for my cheeseburger and fries. And they wanted another $100 for the apple pie! I tried to tell them I didn't even want the apple pie, but they said that didn't matter. I had already eaten it.

You've probably figured out by now that my story isn't true. But I did have a shockingly similar experience at the dentist's office.

I went in for my usual checkup. Just a $20 co-pay. Cheap for me! Then they say I need a prophy. To this day I don't know what a prophy is. Is it short for prophylactic, which is simply a fancy greek word for preventative? Well I don't know what it was, but they insisted I get it. How much does it cost, I asked? Nothing for me - my insurance would cover it. Alright, no big deal to me I guess. My cleaning was awfully similar to my usual cleaning, but I also had a prophy thrown in.

Later I received my summary of payments??? from my insurance company. It said my trip to the dentist cost over $500! The prophy made up $250 of that. If I had had to pay extra for the prophy, I absolutely would not have had it.

Therein lies the problem. McDonald's is part of a competitive marketplace. If they try to charge me $200 for a cheeseburger and fries, I'll just head over to Burger King. Or maybe even Wendy's if I'm ok with square burgers. And if I stay at McDonald's and they want an extra $100 for an apple pie that I probably don't need, I can tell them no way José!

In this competitive marketplace, companies have to be upfront with their prices and consumers (you and me) can make optimal decisions based on that pricing information. It's often efficient - much of the time consumers will make the decision that brings them the most benefit for the least price. Yes, I know that consumers don't always pull that off, but they're usually in the ballpark with simple decisions like fast food.

Equally important, the producers (McDonald's, Burger King, etc.) have to compete with each other to offer the best quality at the lower price. If I Burger King finds a way to offer a significantly better burger for half the price, I (and most other people) probably won't be heading to McDonald's again (I, like most people, have both a McDonald's and a Burger King very close to my house). And if we do, it won't be nearly as often. This is also efficient. The producers who can make the best product for the lowest price will get to make more of them. That's how we want it - the best should make more burgers and the sub-par burger-makers can find something else more useful to do. It also keeps prices down.

Now this falls apart sometimes, which is why capitalism is not ALWAYS the answer for everything (sorry to conservative readers). But it generally works well when there are many consumers, many producers, and enough information (mainly on prices and quality) is available for each side to make a good decision.

But alas, the healthcare market looks nothing like the fast food market. I have no idea how much the exact same dental procedure would have cost at the other dentist down the road. Or the one by my work. I could have easily gone to any of them if one was noticeably cheaper than the other (I'm assuming they all offer similar quality, which seems to be the case in my area).

I do know that if my dentist had a price board like at McDonald's-one that also made clear what a prophy was-I wouldn't have paid $100 for one. Keep in mind that even though I didn't actually pay for the prophy, I pay a monthly premium that covers mine and everybody else's prophy, con-phy, or root canal.

The other big part of this problem is an overquality issue. Do I really need to pay $200 to have a doctor help me with my pulled hamstring? I hear doctor's blather on about how they're not overpaid because they spent so many years in med school, have lots of debt, and are so valuable to people. I disagree, but that's not the point. Do I really need somebody who has gone to school for 7 years and knows plenty about my hamstring and the endocrine system to help me with my hamstring and prescribe me the pain killers I need? I'd imagine there are many Americans who know nothing about the endocrine system and could do an equally good job for me for for $50?. They can't though, since you seem to need to know about the endocrine system to earn the credentials needed to prescribe medicine. That's probably government's fault (sorry liberal readers), and it makes my $50 hamstring injury cost $200. But I'm in good hands if my endocrine system fails while I'm getting my hamstring looked at!

I realize that there are a ton of other problems with healthcare that I'm ignoring here, but I'm confident this one is the biggie.

#1 - Information has to be clear up front. When I go to the dentist, I need to know what they're going to do, roughly how good they are at doing it, and for how much. And I need to know the same about the two other dentists up the road. And I'll pick the one that's best for me. This should lead to us doing things more efficiently - a better combination of quality and price. Perhaps even better quality at a lower price! This could be fixed relatively easily with some simple government regulations that would force capitalism on an uncompetitive market. Sorry conservatives and liberals for mixing your dogmata together, but I think they work together well here.

#2 - Some government regulations need to be reconsidered. Oh no, in #1 he argues for more regulation and in #2 he argues for less regulation! Unfortunately, these issues aren't as simple as "I'm for government making the world a better place!" or "Stay out of my life government!" The regulation in #1 is a good one, while the regulation that forces me to overpay for an over-trained doctor is a bad one. I'm not familiar enough with the regulations, unfortunately, but I know I'd like to be have the choice to pay $50 for my hamstring instead of $200, even if I would get worse quality (and that's not necessarily going to happen). Then when I have endocrine problems, I can have more money later to pay for the MD who spent all those years studying endocrinology!

This could work in a country that's socialist on healthcare or one that has no socialism at all. That difficult question (that I'm conveniently dodging), has limited bearing on these ideas. You could even have a socialist plan that uses these ideas to get more of the benefits that capitalist ideas would bring to the healthcare market!