Grey-area Medicine and Non-monetary Costs
By Arnold Kling
Another installment in my continuing attempt to fight Gladwellian nonsense and to defend the use of economics in health care policy:
Most people do not like to go to the doctor, undergo medical procedures, or stay in the hospital. Medical services are time-consuming, inconvenient, and uncomfortable to patients. An economist would call these the non-monetary costs of obtaining health care services.
It is true that non-monetary costs of health care act as a restraint on demand. Non-monetary costs would be sufficient to keep us from going berserk and rushing to get colonoscopies just because they are “on sale.”
However, the fact that people face non-monetary costs does nothing to alleviate the inefficiency that arises when we are insulated from the direct monetary costs of health care services. The cost-benefit analysis that people perform is still distorted by incorrect incentives…
Suppose that the fee for a procedure is $500, and the non-monetary cost amounts to the equivalent of another $500. If the health benefits from the service are only $750, then the service is a bad deal for the patient. The fact that the health benefits exceed the fee is interesting, but it does not justify having the patient suffer through the service.