The major trend in the past fifteen years in health insurance has been an embrace of high deductible health plans (HDHPs) under the guise of “consumerism”. The theory is that if people are on the hook for the first $1,000, $1,500, $2,500 or $5,000 of medical expenses, they’ll aggressively shop for care as well as take the necessary preventative steps. The preventative steps are no longer just moral nagging (dropping 40 pounds might help your knee) but financial cost avoidance (dropping 40 pounds will help avoid/delay a knee replacement and a $5,000 bill you don’t want to pay).
This is an analysis and a solution set that comes out of the assumption that most people consume too much care, and furthermore most people are fully rational consumers of everything. It is very much an Econ 101 problem where the assumption of low information costs, and low confusion costs can lead to optimization behaviors.
Two interesting pieces on decision making popped up at the Incidental Economist today that highlights the basic fact that there are significant decision, search and processing costs as well as strong social pressures that move people out of the rational man realm.