In 2005, economist Steven Levitt and journalist Stephen Dubner published “Freakonomics: A Rogue Economist Explores the Hidden Side of Everything.” The book is a collection of Levitt’s musings about applying traditional economic theory to nontraditional subjects. For example, the first chapter starts by analyzing cheating and applying it to teachers, sumo wrestlers and a bagel store.
I had not thought about the book until a morning news commentator referred to it on a recent broadcast. Coincidentally, it was the same morning that newspapers around the United States ran headlines announcing that the number of uninsured has supposedly declined drastically since 2013, thanks to the Patient Protection and Affordable Care Act (PPACA).
On Aug. 12, the New York Times trumpeted the headline, “Number of Uninsured Has Declined by 15 Million Since 2013, Administration Says.” The article explained that this, “…decline occurred as major provisions of the Affordable Care Act took effect. The law expanded coverage through Medicaid and through subsidies for private insurance, starting in 2014.”
All of this reminded me of another quasi-economic theory with the homonymous name of “Freeconomics.” The example most often cited is that of master marketer King Gillette. Gillette was trying to shave with a straight razor that was so worn that it could not be sharpened. Frustrated, he conceived of the disposable razor blade. After failing (miserably) to market his new invention, he finally hit on a winning strategy of giving away the handles with a few sample blades. Once people tried it and liked it, he reasoned, they would have to come back to purchase the blades. The rest, as we now know, is history.
While you never want to credit brilliance for that which might just be dumb luck, the folks who conceived PPACA might have had King Gillette’s Freeconomic model on their mind.
Some of the decrease in uninsured may be attributable to small improvements in the economy; the vast majority of the change is likely due to the carrots and sticks written into the law.
The logic is pretty simple. Joe Public has never had health insurance in the past. Then, his wealthy uncle in Washington decrees that he will pay a penalty if he doesn’t purchase a plan. Joe still has zero interest in paying for health insurance, and the penalty is pretty modest. But his uncle goes further, and offers to subsidize Joe’s coverage. Joe reasons that if he gets it for free (or for a very modest price) and avoids the penalty, he will relent and take a plan.
See also: DaVinci on health care
As countless web entrepreneurs, musicians and perhaps PPACA architects have learned, Freeconomics is a viable strategy. Free music builds fans who will become purchasers. Free-to-try is a strategy that has built a huge portion of the online gaming industry. Even the “Freemium” variant of giving away a limited version of an app to induce users to purchase a fully featured app or program is changing behavior and ultimately driving sales. PPACA may represent the intersection of Freakonomics and Freeconomics. As the new outlets have reported, it is clear that “free” insurance creates a demand for insurance. But demand also creates strains on the system. Longer waits for doctor’s appointments, skinnier networks, and increased utilization resulting in increasing costs are all examples of strain.
See also: Have we learned our lesson yet?
Thinking in the longer term, as Richard Cloward and Frances Fox Piven suggested in 1966, strain on a system creates systemic failure. Systemic failure creates the need for a “solution.” And nothing would create an appetite for a political “solution” like a systemic failure in health care.
Those who thought “too big to fail” fit the banking “crisis” should gird themselves for a tsunami of hyperbole and grandiose government programs if and when that failure (or is it a Freeconomics success?) overtakes the nation’s health care system.
See also: A futurist’s view on healthcare