Clarification on my Punk'd Episode
By Bryan Caplan
I finished my Punk’d post with this:
Question for Krugman: If our insurer wasn’t extremely concerned about
its reputation, why would they let a low-level functionary fix a $5k
error in the company’s favor after a single phone call?
In the comments, Steve Waldman wrote:
whole question is moot here, because the insurer had nothing to gain
(even though you may have had something to lose) by letting
double-billed hospital charges stand.
Steve’s right about my own case: The company was refusing to pay $5k that no one but the company thought it owed. I should have spoken more carefully.
But I stand by my interpretation of the episode. My insurer could just as easily have sent out this letter for the actual bill. It could make a habit of sending such letters. In the short-run, each letter would save the insurer $5k. So why not send these letters out all the time – or at least any time the insurer had a semi-plausible excuse – and make them a giant pain to resolve?
If the reason isn’t the power of reputation, what is it?