The Myth Has No Clothes

by Don Boudreaux on November 10, 2009

in Competition, Health, Myths and Fallacies

Here’s a letter that I sent yesterday to the New York Times:

Arguing that “economic incentives in health care” are perverse, David Leonhardt asserts that “As long as doctors and hospitals are paid for each extra test and treatment, they will err on the side of more care and not always better care.  No doctor or no single hospital can change that.  It requires action by the government” (“Making Health Care Better,” Nov. 4).

Hogwash.  To see why, change just a few words in the above quotation: “As long as sales people and clothing stores are paid for each extra necktie and nightie that they sell, they will err on the side of more selling and not always better customer service.  No salesperson or single clothing store can change that.  It requires action by the government.”

Make sense?  Of course not.

The problem isn’t fee for service; it’s subsidized payments by third-parties.  The result for medical treatments is no different than it would be for clothes if clothing retailers were paid not by each customer but instead by heavily subsidized third-parties.

Sincerely,
Donald J. Boudreaux

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