The answer, my friend, is in the feedback loop

I sometimes forget about my ToE (Theory of Everything): All problems can be traced back to a problem in the feedbacks.

I find this provides a useful lens to look at a lot of problems.

Walter Williams provides a good example in his column this week, Educational Sabotage. It turns out, if you don’t discipline (feedback loop) students for their bad behavior, you get more bad behavior. That shouldn’t be shocking. But, for some, it is. Sadly, the kids who want to get an education suffer the most because of this unwillingness to provide good feedback.

John Stossel provides another good example in his column, Free Market Care. He correctly points out that:

Someone else paying changes our behavior. We don’t shop around. We don’t ask, “Do I really need that test?” “Is there a place where it’s cheaper?”

Cost is a feedback that you and I use to determine if something is ‘worth it’.

When I changed from my previous ‘subscription’ health plan (what most people call insurance) to an HSA+insurance plan, about 10 years ago, I went from paying a flat monthly fee with small co-pays when I visited a doctor to paying for the first few thousand dollars of my medical expenses out of my HSA before the lower monthly fee insurance kicked in.

Shortly after that switch, I took my son to the ER because he wasn’t able to keep anything down. The docs suggested an X-ray to rule out an obstruction.

I asked what the chances were that it was an obstruction (less than 5%) and how much the X-ray would cost ( I was thinking $500, but they said less than $200, depending on insurance).

I decided to get have the X-ray. He was clear. I was pleasantly surprised when the bill was $74. As I was writing the check, I  thought, had this been a year earlier when I was still on the subscription plan where the X-ray would not have cost me anything extra, I would not have asked questions to evaluate whether it was worth it.

The total amount of what I saved each month in my HSA plus the cost of the insurance was the same as the what I used to pay for my subscription plan. In this case, about 75% went to my HSA and 25% went to insurance.

So, in this case, the feedback loop was improved by simply putting a portion of my medical expenses in my control.

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