GOPideas... ideas done right

The fundamental disconnect in almost all health care spending is that the individual who receives the service is not the one that pays for it. Third party benefit providers (insurance companies and government) bear all the cost, giving the individual no direct incentive to ration care. While an optimal system would be driven by individual choice and behavior, Republicans should turn their efforts towards a faux-individualist health care scenario in which individuals pay for their care, but those costs are fully refundable. This will likely cause people to self-regulate their care due to internal perceptions of value while also setting the stage for a more individualist health care system in the future. Given the current options on the table, this is a far superior practical and strategic choice for Republicans.

Intellectual Basis of Refundable Health Care: Republican economic orthodoxy is built upon the Austrian School of economic thought in which government intervention is eschewed and individuals within the marketplace are left to make optimal decisions. As discussed earlier, free markets are a superior option to organize society --- but are incompatible with a desire for a social safety net because a redistributive policy is inherently inefficient from an individual perspective. (Essentially, if people thought it in their interest to redistribute money, they would do it without government intervention.)

Thus, our economy is a hybrid --- and Republican policymakers should treat it as such. The first step is to embrace behavioral economics, which shows that individuals do not make rational, utility-optimizing decisions at all times. In many cases, they are swayed by emotions of fear, greed, jealous, self-importance or infallibility. In turn, this distorts the market for goods and services, leading to suboptimal outcomes. (Think housing/internet bubble.)

One of the tenets of behavioral economics is that people when presented with substantially the same choice, but framed in different manners, will make drastically different decisions. (This runs counter to the rationale that individuals will make optimal choices.) In Predictably Irrational Dan Ariely explains an experiment in which he segmented students into three groups. The three groups were all given the same task: to answer basic quiz questions for a certain amount of money per question. The test was to determine how honest people would be: one group had their test scored by a proctor and was paid, another scored their own test and was paid and a third group scored their own test, received tokens and then was asked to walk a few feet to another table at which the tokens were exchanged for cash.

The results were startling: On average, the first group got 3.5 questions right, the second group got 6.2 questions right and the third group got 9.4 questions right. In other words, when people got cash for cheating, they cheated a little; when they got something in lieu of cash, they cheated a lot.

The Policy Solution: The finding that people are willing to provide themselves significantly more benefit when the benefit is in non-cash rewards. The converse of the study is also true: when people use a credit card, they are likely to spend more. This behavioral pattern can be employed in the drive to lower health care costs by forcing people to pay, in cash, up front for all of their medical services.

All of the costs would be fully refundable, but the important aspect of the program is that people would be forced to acknowledge the amount of their health care spending --- and this would then push individuals to make decisions with cost in mind, even though in the end they would not be bearing that cost. This addresses the fundamental issue that people are disconnected from their health care cost. Note that at no point are individuals denied care or actually left worse off economically (except for the short time of the float between payment and reimbursement). Thus, there is no decrease in the quality or availability of care --- the only change is that the individual will need to experience what it would be like to pay the entire bill.

If the behavior demonstrated in the other studies hold, once individuals are forced to experience paying the whole bill, they will self-ration care, which is both the most necessary step --- and the first step --- in getting our health care costs under control. 

(Note: As pointed out in another Ariely study, forcing people to pay for their health care could also improve health, as people get better if they pay more for health care, regardless of quality.)

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