14 April 2011

Irrational decision making in healthcare

Paul Ryan's budget plan as sparked a widespread conversation about the nature of Medicare benefits (and to a lesser degree, Medicaid). I want to focus on an issue that seems incredibly obvious to me, yet seemingly eludes clever economists like Tyler Cowen, Matt Yglesias, and Paul Krugman.

One of the biggest problems regarding the provision of health care, and the design of a system to do so in a "cost effective" fashion is the cognitive and temporal disconnect between decision making and the consequences thereof. The trio of economists I mentioned above have all, at various times, reflected on the moral hazard of bailing out banks that are too big to fail. For the most part they regard this as a Bad Thing.