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BREAKING! Ken Arrow Still Right!

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female-doctor

There’s not actually any reason to believe that market mechanisms will do a good job of health care costs in theory.  And it doesn’t work in practice:

To health economists, this sounded like good news; they’ve long theorized that higher deductibles would force down health-care costs. The idea was that higher deductibles would make patients become smarter shoppers: If they had to pay more of the cost, they’d likely choose something closer to the $1,529 appendectomy than the $186,955 appendectomy (yes, some hospitals really do charge that much). This would push the really expensive doctors to lower their prices so cheaper physicians didn’t steal their business.

This was, however, just a theory. And a massive new study suggests it might have been all wrong.

Economists Zarek Brot-Goldberg, Amitabh Chandra, Benjamin Handel, and Jonathan Kolstad studied a firm that, in 2013, shifted tens of thousands of workers into high-deductible insurance plans. This was a perfect moment to look at how their patterns of care changed — whether they did, in fact, use the new shopping tools their employer gave them to compare prices.

Turns out they didn’t. The new paper shows that when faced with a higher deductible, patients did not price shop for a better deal. Instead, both healthy and sick patients simply used way less health care.

“I am a little bit surprised at just how poorly patients were able to do when looking at very similar products, like MRI scans, and with a shopping tool,” says Kolstad, an economist at University of California Berkeley and one of the study’s co-author. “Two years in, and there’s still no evidence they’re price shopping.”

This raises a scary possibility: Perhaps higher deductibles don’t lead to smarter shoppers but rather, in the long run, sicker patients.

Giving consumers “more skin in the game” is not a solution to the ludicrous amounts of money spent on the inequitable American health care system. Government price controls are the solution, as every other major liberal democracy demonstrates. It’s only a mysterious policy puzzle if your ideological priors prevent you from seeing the answer.

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