Rational loss aversion explains why healthcare spending is so high

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2024-11-24 23:30:05

It’s not news that Americans spend a lot on healthcare. Nothing has seemed to work at changing this. Preventive care and technology, such has AI, has not put a dent in this spending. Same for the push for healthier lifestyles. There is much blame to go around–from drug companies, to insurance companies, or people being overbilled. Pessimistically, however, I propose that high healthcare spending is an inevitable consequence of people acting rationally, which makes the problem much more intractable and less amenable to technology or policy-based approaches.

2 years ago, a Reddit user describes going to the ER due to severe stomach pains. She felt dumb because nothing was found, wasting her time and the doctor’s time. A doctor who replied reassured her that she was justified in going to the ER despite being a false alarm and not appendicitis as originally feared:

This exchange explains why healthcare spending cannot be reformed with policy or technology. The patient spent no money, yet the doctor had to be compensated for his time to try to diagnose her. The hospital had to also accommodate her. If emergency room treatment is assumed to be a public good, then raising prices in an attempt to dissuade non-emergency visits won’t work. So the usual economic models of inelasticity vs elasticity or supply vs. demand go out the window.