Fix The Silent Hand

I've been thinking about the problem and solution as stated by health insurance apologists. The benefit of health insurance, they say, is that it guards against unnecessary treatments by health care providers who are padding their bills.

The silent hand of the free market is a fine thing. It doesn't work particularly efficiently in health care, as anyone who has taken first year price theory can show you with a simple chart(*), but let's assume for the sake of argument that it is the best option we have.

The way it works is when something is unnecessary or too expensive, the customer chooses not to buy the thing. As if by magic, the seller is left with excess inventory and reduced revenue, they learn their lesson and lower their price or stop hawking unnecessary products.

But the problem is health insurance isn't the customer, and the customer doesn't have an informed consent opportunity for the purchase. Even if they have a chance to consent (which they may not, like if they're unconscious at the time), the are not as informed as the doctor and they're generally not supposed to override the doctor's advice. Getting a second opinion is also typically not an easy or free option (it has "barriers" to use the economics term).

So how would we fix that? How would we make the silent hand of the free market work? How do we fix the problem that the insurer can refuse to pay, while the provider still gets paid?

Simple; close the loop between the insurer and the provider. If the insurance company denies a claim, the customer is not liable to pay. If the pro

• "For inelastic goods, an increase in unit price will tend to increase revenue": https://en.wikipedia.org/wiki/Price_elasticity_of_demand#Effect_on_entire_revenue

This comment makes a joke about it, but gets the solution wrong:

https://old.reddit.com/r/MurderedByWords/comments/1hgy1xk/here_for_my_speedboat_prescription/