Economic Insights from My Weekend at the Hospital

I just can’t help it: economics is part of everything we do.

Some insights I gleaned from my weekend at the hospital.

1. Moral Hazard.

Free lunch is such a compelling idea. Financial intermediaries (health insurance) provide a huge incentive for both principal (doctors) and agent (patient) who sees ways to benefit from its use, even if confinement is not a prerequisite or a required procedure.

Said differently, when the cost of confinement is perceived as low (because it is paid for by a third party), then demand for its use is high.

The advantage (for us) is that health insurance financing provides the “confidence” factor arising from any lingering fears of serious diseases.

In our case, the goals were met: causality of the ailment had been ascertained and importantly the “confidence factor” was established. However, in my view, it would seem that my wife’s confinement as more representative of a placebo effect, because hospital procedures were more about the symptoms and that the treatment could have been done as an outpatient.

Translated into social policies. While private financial intermediaries are governed by profit and loss from the actuarial calculated premium and liability tradeoffs, extrapolated into social policies, free lunch from “universal” health insurance translates to massive demand for health resources. This would lead to rationing and resource allocation determined by the bureaucracy and subsequent skyrocketing prices in health related resources, aside from having less quality treatments.

2. Treating symptoms than the root of the disease.

I thought that I was conversing with an Austrian economist as one of the main attending doctors of my wife gave us a marvelous, or what I would deem as a medical, but economically sound insight: the importance of establishing the relevant causality in diagnosing health problems.

The veteran doctor said that symptom based treatment is a commonplace approach of typical doctors (for many reasons). From that approach, the risk could be one of misdiagnosis or a multitude of intake of prescribed medicines, from different doctors, that may lead to internal conflicts and or side effects which may be perceived by patients as serious ailment.

This very much reminds me of how mainstream economists and politicians recommend solutions to economic problems: they are mostly short term ‘symptom’ based whose solutions are predicated on the throwing money at the problem, changing the figurehead, or regulate or tax the problem—what I call the “Three Monkey Solution”.

So unforeseen consequences can be applied to individual health problems, in as much it is with social policies.

3. Murphy’s Law: Anything you try to fix will take longer and cost you more than you thought.

The fixation on ‘free lunch’ via third party financing was supposedly cost free on our part. At the end of the day, aside from the costs of dislocation, shuttling to and from the hospital to the house plus other petty cash items, a non-accredited doctor had to be paid with professional fees not covered by my wife’s policy—Murphy’s law applied.

4. Agency problem.

I don’t know how this applies with health industry participants (such as doctors) employed or enrolled with third party or financial intermediaries providing health care (in the case of my wife’s weekend experience).

While (principal) doctors aim to nobly serve the interests of their patients (agents), doctors are economic agents as well, who seek to be compensated for their efforts or through their services.

And I would suspect that as economic agents, there would be the underlying incentive to seek asymmetric gains from applying treatments; such as from having more procedures, or through confinement or through more consultations. Again, I can’t say how this applies to my wife’s case. But I am speaking in the general sense.

Aside from medical diagnostics, a lot of the professional fees also depends on the degree of social or interpersonal relationship with patients. In our case, the financial intermediary has built in fees covered with the policy which has not been reflected on the bill. Only the non-accredited doctor had to be paid for, but this is understandable.

This is not to disparage anyone, but the point is that individual incentives are very much in place even for the people in the health industry. (Incidentally, my wife had two great doctors)

And this could be one reason why many doctors, allegedly, resort to symptom based treatment (see #2).

The moral here is that we should be circumspect about dealing with free lunches (in anything), examine health problems via relevant causality (in cognition of the different incentives underpining the principal-agent relationship) and to judiciously weigh on cost-benefits of treatments.

After all, doctors like everyone else are just human beings.

And I thank the Lord that my wife is safe.