Sunday, March 28, 2010

Moral Hazard from Refusing to Price Life-Saving Treatments

Regarding my last post, I thought of another factor to consider.

If we are allowed to spend as much of other peoples' money as we need provided that the justification is life or death, that also causes costs to go through the roof. Again, this is a problem of allocation. And what I am considering is the question of what happens if you don't put a price on potentially life-saving treatments.

As a sort of case-study, let us consider the example of people who spend thousands of dollars on their pets just to watch them die over a slightly longer period of time. Similar to a human medical crisis, this is a horrible situation. People typically don't buy pet insurance but they don't blame the vet for killing their pet if things don't work out.

Because they are directly paying the cost, pet owners tend to be very engaged during this process. They consider questions such as:
- What kind of treatment or diagnostic is the vet recommending?
- What are the chances of long term survival and what will quality of life be like during that time?

Some diagnostics and attempted treatments at this point can turn out to be quite expensive. If someone else were footing the bill, these questions would not be considered.

What is my point? Moral Hazard. If you are permitted to spend other peoples' money in life or death situations, you no longer have to consider how much it costs or what it buys.  There is no concept of value in proportion to cost. The only requirement is that every last possible treatment option was considered and implemented. In business, we would call this "throwing money at the problem".  The irony is that this type of behavior entails a callous and inhuman disregard for the people who are footing the bill.

It seems to me that attempting to eliminate pricing from the consideration of life-saving methods does have the effect of implementing and institutionalizing the immoral.  Why is that?  Because inevitably, you come down to the fact that pricing is a medium of exchange for human production, which is human thought and effort.  If price is no object, then neither are the lives and effort of the people you take from to fund your "life-saving" crusade.