NCPA - National Center for Policy Analysis


March 22, 2007

Medical insurance, whether private or government, is always going to be faced with a fundamental problem: patients and doctors will try to get the most out of any system. When they aren't paying directly, patients will seek extra care and doctors will be happy to oblige. To deal with that problem, health care systems can offer services indiscriminately and write off the resulting losses, spend money on monitoring, or limit services and prices, says Tyler Cowen, a professor of economics at George Mason University.

Some medical services are less prone to overuse, says Cowen:

  • European systems are relatively good at providing prenatal care or mending someone hit by a car; few people would try to get these services unless they were really needed.
  • No one but an expectant mother, for instance, will show up for a prenatal checkup; nor would excess prenatal checkups cost a great deal.
  • The unwillingness of European systems to spend on overhead means they will do best specializing in these kinds of services.

Health insurers cannot just offer expensive tests, technologies, hospital rooms and surgeries for older patients for the taking.  Doctors will too often recommend these services and receive reimbursement, even to the point of financial abuse.  Medicare has this problem to some extent:

  • When it comes to these discretionary benefits, European systems are more likely to make people wait for them, more likely to make the service inconvenient or uncomfortable, or simply not make the services available in the first place.
  • All of these features discourage those who don't really need care, and, of course, some people simply go elsewhere and pay out of their own pockets.

Either way, the overhead costs have been shifted onto patients and their families, says Cowen.

Source: Tyler Cowen, "Abolishing the Middlemen Won't Make Health Care a Free Lunch," New York Times, March 22, 2007.

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