Perverse Incentives: Health Care

Rachael Garcia- Honorbound

Incentives motivate or encourage people; they provide a reasons to do something according to the person’s self-interest. Since we benefit directly from our work, we have a tendency to work harder because “individuals act to make themselves as well off as possible.”[1] The most powerful and most persuasive incentive to most people is money. Occupations are a prime example of how people work harder and put in more effort for the incentive of making more money by receiving a higher salary for their work. At a grocery store, one person may have the incentive to work harder to receive more money. This person may end up as a store manager, while a grocery bagger may only work for minimum wage. “Economists believe that people respond to incentives” because it gives people a reason to try.[2] An incentive can affect how much effort a person puts forth.
“Good intentions led to a bad outcome” in the case of a perverse incentive that occurs when an action results in something unintended and undesirable that contradicts the original purpose of the action to begin with.[3] This can happen whenever the incentives are not fully anticipated. Mexico City experienced a perverse incentive that ended up causing more harm than good. Trying to decrease pollution in the air, Mexico City hoped that by having less cars driving on the road in the city, the issue could be reduced. The law passed required “that all cars remain off the street only one day during the week” according to license plate numbers on a rotating schedule.[4] People either kept their old cars when buying a new one so that they would always have a vehicle to drive each day. Older cars polluted more and worsened the problem. Mexico City made a law to try to reduce pollution, but ended up not improving air quality and even increasing overall gas consumption. This policy failed and was ultimately dropped because of the perverse incentive resulting in an undesirable effect.
Perverse incentives happen all the time in life when actions with good intentions end up backfiring. In the United States today, healthcare was created to ensure that everyone, including the poor, can receive medical assistance. The healthcare providers have the incentive to make profit as they get money for each service they provide because “medical care is provided not solely by need…but… by our methods of financing healthcare.”[5] This system offers providers the incentive to make profit by focusing on quantity over quality of care. The value of healthcare has become corrupted as physicians “are incentivized to offer those services providing the greatest reimbursement for the least time required.”[6] By not thinking about the incentives that this system offers service providers, medical care fails to achieve its purpose. Healthcare meant to guarantee medical aid, but ended up resulting in more inconvenience for people trying to receive good quality of care. The healthcare system needs to readdress their goals of protecting health appropriately and efficiently instead of just paying people to do services that sometimes fail to benefit the patient.

Citation (Image):
“Single-Payer Health Care–Now Is The Time.” OpEdNews. Accessed June 12, 2016. http://www.opednews.com/articles/Single-Payer-Health-Care–by-Arlen-Grossman-121128-577.html.

Endnotes:
[1] Charles Wheelan, Naked Economics: Undressing the Dismal Science (New York: W. W. Norton & Company, 2010), 6.
[2] “Perverse Incentives in the U.S. Health Care System.” The American Prospect. Accessed June 12, 2016. http://prospect.org/article/perverse-incentives-us-health-care-system.
[3] Charles Wheelan, Naked Economics: Undressing the Dismal Science (New York: W. W. Norton & Company, 2010), 37.
[4] Charles Wheelan, Naked Economics: Undressing the Dismal Science (New York: W. W. Norton & Company, 2010), 37.
[5] Krinsky, Alan. “Perverse Incentives in Healthcare.” The Huffington Post. May 25, 2011. Accessed June 12, 2016. http://www.huffingtonpost.com/alan-krinsky/perverse-incentives-in-he_b_505260.html.
[6] Krinsky, Alan. “Perverse Incentives in Healthcare.” The Huffington Post. May 25, 2011. Accessed June 12, 2016. http://www.huffingtonpost.com/alan-krinsky/perverse-incentives-in-he_b_505260.html.

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