Forcing Middle Men to Make Sense

Dr. Jeffrey Singer, a physician and Cato Institute scholar, has a must-read piece on the Wall Street Journal’s Web site relaying the experience of one of his patients, who has indemnity coverage for emergencies, but not a full-fledged healthcare plan:

The insurance policy, the clerk said, would pay up to $2,500 for the surgeon—more than enough—and up to $2,500 for the hospital’s charges for the operating room, nursing, recovery room, etc. The estimated hospital charge was $23,000. She asked him to pay roughly $20,000 upfront to cover the estimated balance. …

So we canceled the surgery and started the scheduling process all over again, this time classifying my patient as a “self-pay” (or uninsured) patient. I quoted him a reasonable upfront cash price, as did the anesthesiologist. We contacted a different hospital and they quoted him a reasonable upfront cash price for the outpatient surgical/nursing services. He underwent his operation the very next day, with a total bill of just a little over $3,000, including doctor and hospital fees. He ended up saving $17,000 by not using insurance.

The price structure of health care in America is highly distorted.  As Carroll Andrew Morse has been endeavoring to explain for years, it was government policy that created the incentives that led to employer-based health insurance.  Government policy has also imposed mandates on insurance as one means of pushing an ostensible insurance product to perform the duties of a whole-health coverage plan.  Imagine if you had to go through your homeowner’s insurance to have a faucet fixed, or your auto insurance for an oil change.

As government policies have helped to create the environment for skyrocketing prices, which are now dramatically disconnected from the person actually making the decision to go forward with a purchase, it has also increased public tolerance for its hand in the scheme.  Rhode Island continues to lead the nation in health insurance mandates.  The state even has a Health Insurance Commissioner, who imposes a degree of price fixing.

The effects of ObamaCare are not as dramatic here as elsewhere, because the state was already imposing much that the federal government is now seeking to impose nationally.  The result in Rhode Island was that only three insurers would offer products in our state.  What might the effect be of Rhode Islandizing the entire country?

And what might be the effect of ratcheting up the government’s hand in insurance yet again, in the Ocean State?  Structurally, doing so amplifies, rather than reverses, the trends that turned what should have been a $3,000 procedure into a $25,000 procedure.

Deciding What Should Be of Value to You

Fresh out of the University of Rhode Island, I took a job with a text-book design company in Massachusetts. With my multiple interests, the executives created an entry-level job that straddled departments, both editing and design, and by the chance of everybody’s task lists, I wound up writing review questions and redrawing the maps used for an entire series of geography workbooks.

I recall the staff meeting at which the executives announced with great excitement that they had just hired another entry-level employee; she had just graduated from Harvard.  Hiring somebody from Harvard was apparently the mark of an organization on the rise.

The new hire took on the role of assistant to the woman who was reworking an entire big-time text book on something or other, and among her first tasks was to cut all of the pages out of an earlier edition, as a starting point for shuffling them around and replacing some.  So, the young lady from Harvard set out for several days of work with a ruler and an Exacto knife, because each page had to be cut just big enough to capture all the text, but small enough to fit whatever was in their future. (Whether a scanner or a binder sheet, I don’t recall.)

Finding myself between my own projects, I offered to help.  She walked me through her process and then went off to a meeting or something.  After cutting a couple of pages out with the knife, I decided I lacked the necessary patience.  So, I broke the binding of the book, ripped out the folios (or groups of pages), and used a good old teacher’s room paper cutter to trim them in bulk.  By the time the Harvard graduate returned, her task was done.

As this anecdote (and my italics) may convey, I’m not one who’s much impressed by degrees from prestigious schools.  But I bring it up, now, in a mildly paradoxical defense of them and argument against David Wilezole on National Review’s The Corner:

[President Obama’s higher education reform] idea is laudable. The president sees the merits of getting colleges to start competing on the basis of price and quality, not on a perception of prestige. In the past half-century, schools have pumped hundreds of millions of dollars into building lavish student centers, recruiting star faculty, and expanding sports programs, all to make their campuses attractive to students who can pay full price. For everyone else, there’s a student loan. Linking aid to academic outcomes and affordability will help tighten the money spigot that federal student loans opened decades ago.

The relevant part of my textbook story isn’t the fact that work experience with practical tedium (in my case, selling fish off a truck and washing and fixing crates) was likely undervalued by the publishing company.  Rather, it’s the clear value that the “educated at Harvard” label had for my coworker.

Prestige has value.  “Went to Brown.”  “A Yale man.”  “Attended Cornell.”  These are shorthand ways of expressing an assumption of competence.

How the value of prestige compares with the values of “price and quality” — or, more specifically, how much one’s own abilities, circumstances, and interests require of each — is something that each person should determine for him or her self.  The government should not be leveraging its ability to spend taxpayer dollars in unfathomable amounts in order to implicitly shape the marketplace.