Perverse Incentives

There’s been a debate in Sacramento for the last 50 years concerning water that is purchased on the basis of the size of the pipe carrying it to your house. It was relatively inexpensive for a ¾ inch pipe that would easily take care of everyone’s water needs. The T-S-R (tax-spend-regulate) folks wanted everyone to have meters. The costs seemed astronomical. But the T-S-Rs did not think the cost was important.  The law-and- order party fought this as another form of taxation. They knew that once a tax is imposed, there is no limit as to how high the tax can rise. Co-incidentally, that’s how the T-S-Rs looked at it. There has never been a tax that the T-S-Rs didn’t like. They do not believe in limits. Limits will always be exceeded.

I was having a debate with one of the Tax-Spend-Regulate folks and the income tax issue came up which reached about 90% under President Jimmy Carter. When President Reagan took over, he was able to reduce this to about half. My friend saw this as taking money from the poor and allowing the rich to keep it. So I suggested that perhaps he would like to see a 100% income tax. He said, “Yes, Absolutely. The rich can well afford it.” I thought I had a basic T-S-R fallacy going, so I asked, “Perhaps you would like to see the income tax go higher, maybe to 150 or even 200 percent?” He again responded, “Certainly. The rich can well afford that.” This suggested he did not comprehend basic high school economics. I didn’t want to pursue this any further.

The water meters are being installed and ours was installed about three years ago. The total conversion will take another seven years. Our cost of water tripled immediately. We have some majestic red woods, deodars, oak, pines, cedars, camphor, as well as Monterey pines lining our redwood fences that we’ve had for 35 years. They were starting to die in midsummer. So we had to soak a number of trees several times this summer until they started greening again. Our water bill in Sept was $555. Extremely high. But the cost was allocated on the bases of use and we’re in the second year of a major drought. Without the water meters, our water district would have had to pump the Carmichael wells dry. The previous socialized water program, like socialized medicine, allows unlimited use without regard to costs.  But there was a 30% drop in water usage in September indicating that free enterprise is the most efficient conservation mechanism with everyone allowing their trees to be drier, but still keeping them alive.

Please note that this was a voluntary reduction in use without further regulation or policing.

The same thing happens with socialized medicine. Healthcare is touted as being much more important than water care. With such a valuable product being free at the point of use or service, it makes essentially all patients gluttonous users of healthcare which increases much faster than the price of water.

Health insurance companies still give totally free access to many types of procedures to increase sales of the product. Even when preventive care, such as immunizations, papaniculau cancer smears, mammograms, are fully covered, the patient never understands the cost. Therefore the value of these procedures approach zero over time. We see this every day in the number of people that have not had a flu shot, a pap smear, or mammogram in 10 years. Many see this only as an inconvenience and not as a cost or health item.

We also see many patients who demand expensive but unneeded tests such as yearly lipid panels, chest x-rays, electrocardiograms, when the last two have been normal and screening every five is more than adequate. In the current hostile health care environment, the patient evaluates the doctors, and a complaint can go up to the level of state review. Just the time to review the record and write a report to the HMO and insurance company can be up to 5 or 10 hours of the physician’s time. This is a cost that is not reimbursable. There is a similar cost in loss of income during the same 5 to 10 hours of patient appointment time given up with an equal loss of income.  If this includes a Quality of Care (QOC) or a possible legal issue, the cost of each complaint will require an attorney review and cost can be an extra $2,000 to $5,000 per complaint even if they are without substance as 90% of them are.

Hence much of medical gluttony is allowed by physicians since the alternative can be very expensive for the physician in the current hostile health care environment.

We have done studies on our patients which indicate that welfare patients paying $5 an office call and $10 per day on hospital admissions, reduced costs by more than 80%. We found many cases were a $10,000 hospital stay would have been avoided with a $10 per day copay. They would have come to the office to avoid that $10 a day copayment for a $5 office one time copayment.

Why don’t the T-S-R folks want to save such significant healthcare costs, with a rather small copay? They say that some folks can’t afford the $5 or $10. But they are seen with a smart phone or are smoking a $4 pack of cigarettes per day ($120 per month). Hence the $5 or $10 copays are really affordable which would reduce healthcare costs by more than half. This is a very simple and workable solution to health care costs and doesn’t require any further regulation or oversight

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Medical Gluttony thrives in Government and Health Insurance Programs.

It Disappears with Appropriate Deductibles and Co-payments on Every Service.