Irrationality in Health Care: What Behavioral Economics Reveals about What We Do and Why

Irrationality in Health Care: What Behavioral Economics Reveals about What We Do and Why

Irrationality in Health Care: What Behavioral Economics Reveals about What We Do and Why

Irrationality in Health Care: What Behavioral Economics Reveals about What We Do and Why

Synopsis

The health care industry in the U.S. is peculiar. We spend close to 18% of our GDP on health care, yet other countries get better results-and we don't know why. To date, we still lack widely accepted answers to simple questions, such as "Would requiring everyone to buy health insurance make us better off?" Drawing on behavioral economics as an alternative to the standard tools of health economics, author Douglas E. Hough seeks to more clearly diagnose the ills of health care today.

A behavioral perspective makes sense of key contradictions-from the seemingly irrational choices that we sometimes make as patients, to the incongruous behavior of physicians, to the morass of the long-lived debate surrounding reform. With the new health care law in effect, it is more important than ever that consumers, health care industry leaders, and the policymakers who are governing change reckon with the power and sources of our behavior when it comes to health.

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Excerpt

It is time, therefore, for a fundamental change in our approach.
It is time to take account—and not merely as a residual category—
of the empirical limits of human rationality, of its finiteness in
comparison with the complexities of the world with which it must cope.

—Herbert Simon (1957)

The health care industry in the United States is peculiar. We spend close to 18 percent of our gross domestic product on health care, yet other countries seem to get better results—and we really don’t know why. Most health care products and services are produced by private organizations, yet federal and state governments pay for about half of these services. More starkly, those who consume health care do not pay for it, and those who do pay for that care do not consume it. That is, patients pay less than 15 percent of their care at the point of purchase, the rest being picked up by their employers, private insurance companies, Medicare, or Medicaid (which have no need for physician visits, medications, or surgeries themselves). Health care is also peculiar on the supply side. Unlike in every other industry, the people who fundamentally determine how resources are allocated—that is, the physicians—rarely have any financial stake (as owners or employees) in the resources that they control in hospitals, nursing homes, or other facilities.

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