Having spent some time in the United States recently I have taken renewed interest in health insurance, health care markets, and how customers make treatment decisions. It turns out that conflicts of interest and asymmetrical information make buying health care treatments difficult for many customers. A result of this is that customers sometimes fall back on other signals, with perverse effects.
Healthcare providers suffer from conflicts of interest. I may get a deluge of mail from unhappy surgeons proclaiming their impeccable ethics, but it is a fact that you do not always need the procedure recommended, or that there are other management options, or you could happily delay the procedure. It's just that the surgeon who is expert in that procedure may have little knowledge or interest in those alternatives.
Customers who do not wish to become experts in their particular disorder - and that's a rational choice for many, many customers - have to work out whether to trust the advice they are receiving based on other clues. Unfortunately some of the skills they have learned to become a good customer in other sectors may be neglected when it comes to this kind of decision. Having a good health system clients may feel that shopping around for advice is not open to them, when in fact it is. With rarely-used services it is harder to find someone who can tell you what to expect. With some disorders repeated procedures are rare, so for example, it is rare to find a person who can contrast two different experiences - especially in a tiny market like ours.
There is almost no-one who provides a service to give advice to buyers of health care (there's an opportunity right there).
So customers fall back on other signals, and a big one is price. Only this time they equate 'costs more' with 'better' and while that's often true, it isn't always, and a big consequence of that is a feedback loop into health-care inflation.