Overindulgence ~ Buffets and Health Care

Economists have long argued about elementary psychology and the maximization of one’s happiness given the goods consumed are not inferior and that the consumer never gets enough of a good thing, would lead to ever higher consumption perhaps up to the point of getting sick. One would expect, therefore, that the behavior of the consumer standing before a buffet would be different from one in a restaurant looking at a menu to order a la carte. In the buffet case, the eyes will play a major role even to the point of forgetting the capacity of the stomach, and the greed factor will be very pronounced.

The same reasoning applies to health care if for one price or even no price, (the subsidized poor) the health care consumer is presented by the equivalent of a buffet instead of just one item (service or procedure).

Let us explore those connections between food and health care using basic knowledge and logic about human behavior while noting that differences across individuals may well exist if only in degrees.

We start with the basic reasoning and natural reactions of customers making choices in a buffet situation where there is a fixed price of entry:

• Once the customer pays the fixed price of admission, all items on the buffet becomes free good: the marginal cost of which is zero.
•  Although every item on the buffet now has zero cost, the customer is likely to consume those items that are typically the most expensive in a non-buffet (A La Carte) setting. One would choose lox or caviar and may likely down them with Champagne. The more expensive the champagne, the greater the indulgence.
• The customer is not alone before the buffet. He will have the opportunity to observe others making a choice (indulging). That may encourage him to outdo the others.  Soon he will be eating for the sake of eating: just another bite or one Chocolate Mousse. He will even forget that he is diabetic.
• The customer will drink more than normal if only to be able to down the excessive food consumption. Hell! It is only once in a long while that I get the chance to do this, so he tells himself. He is lying to himself as there is no natural limit to the number of times he will buy buffets. His will has already been bent.
• The actual cost of the food versus the perceived cost of the food rises with the amount he eats. The former is fixed and the other is variable and is a function of the quantity consumed. The more he eats, the more ‘value’ he will feel he is getting from the fixed price of admission.
• Despite the strong likelihood of excessive consumption, some may well hide some food items in their napkins in order to take them outside the restaurant. This is so even when the typical buffet has signs stating that this is forbidden. 

Now let us look at this situation from the restaurant owner’s (the supplier of the food and the architect of the environment and how the buffet table is decorated) perspective:

• The restaurant owner is never happy about those who eat excessively or fill up plates with most of their contents headed to the garbage can. But, this is all figured into the price. This is to say that the admission price is higher than normal when clients behave normally- no wasteful consumption because everyone is presumed to be rational and sensitive to the environment and the needs of those who may never get the opportunity to buy a buffet ticket unless subsidized by someone.

But, no matter the price adjustment, the restaurant owner is likely to take measure aimed at minimizing costs and waste. Here are some of them:

1-Reducing the offering of the buffet is an option, but the size of the offering will have to be reduced correspondingly and soon the buffet will look like a regular meal and the original business concept will have to be modified. That may well be the death nail of the restaurant.

2-Another option is to charge per trip to the buffet as some European restaurants do. Yet another is to reduce the size of the plate so you will carry less with you every time you go to the buffet. The plate could be handed to the customer at the restaurant entrance and everyone will pay according to the size of the plate. These modifications will invariably irritate the client. The consequences are that the lowest cost producer of buffets, with the greatest of diversity and the least of restrictions, will end up making the most money and charging more in the process. He will enjoy at least a local monopoly.  Soon he will raise prices.

The net results would, therefore be, a change in the market structure, less choices for the clients by rationing the food, or higher prices, or a combination thereof. 

Now let us assume that the restaurant owner is distributing free TUMS on the way out. Clients will take them whether they need them or not, just in case. Notice that the TUMS may be distributed on the way out, not in, as the latter will encourage even more indulgence.

It can be safely concluded from the above that a buffet will inevitably lead to adjustment on the supply and/or the demand side, or both.

So What Does This Have to do With Health Care?

ObamaCare effectively reduces all to an offer of a health care buffet. If you put everything on it and do not restrain the demand in any way, patients will over-consume, including those who are healthy and do not really need medical care. Some remember stories about elderly folks who go frequently to doctors simply because they are bored and have the time to do so.  

The inevitable alternative is to restrict access, especially to the most expensive items on the buffet. This translates into less surgeries approved even for those who really need them, increased co-payments, and definitely increased taxes on those who consume responsibly, or have the necessary wealth to keep them away from the buffet altogether.

Also likely are restrictions on prescription drugs. Many patients buy medicine like cough medicine because they like the taste, or it can be used for a HIGH. The government in all cases simply pays the bills. It can only keep its hands in the pockets of the taxpayers for so long, however. 

The new health care legislation will move us into a socialized health insurance: government paying for all care delivered by the private sectors; and may well lead us to Socialized medicine where doctors and hospitals work and draw salaries form the government. Very restrictive buffets will result, and access will be restricted as the government will need to do so in order to maintain and open a buffet lest it possesses an unlimited capacity to tax. 

Let us now examine the Massachusetts health care plan which shares many similarities with the Obama model.

The Wall Street Journal editorialized about the latest developments in Massachusetts on April 9, 2010. Health care premiums in Massachusetts have been rising at a much higher rate than the national average since 2004 when the Mass. Universal Care was signed into law by then Governor Mitt Romney. Yet, three of the largest health plans providers in Massachusetts, all not for profit, had $100 million in collective losses. The answer from the current governor is to make the situation worse: premium (price) control.  This economic anomaly never works even in wartime. What led to it is the elimination of ‘health status and preexisting conditions’ as bases for buying insurance. The net results are that everyone who can and needs is gaming the system: buy insurance only when you need, e.g., a surgery or a child delivery, and walk away shortly thereafter. The cost to insurance companies in relation to the premium will rise enormously as a consequence. 

The insurance companies are now in court trying to reverse the Governor’s decision. Meanwhile no one can buy insurance. This is a scenario that is likely to play to on the national scene providing the perfect pretext for government to take over health care insurance companies thereby nationalizing health care delivery in the United States. As a consequence, Obama’s new law that tilts the balance “from liberty to equality” in health care access becomes complete. Sadly, this is all happening in a democratic society. 

The resulting pressures on the US health care system are enormous: excluded people from expensive care, long lines for surgeries, age limits for certain type of surgeries, etc. The safety valves to such an outcome may well lie outside the national boundaries as the Canadians and the British have discovered. The US health care system will have to outsource the expensive surgeries and procedures thus opening the doors for medical tourism companies that look everywhere in the world for the best care at the lowest price.

About the Author

Dr. Khoury holds a Ph.D. in International Finance from the Wharton School, University of Pennsylvania. He is currently a Professor of Finance and International Finance at the University of California. He also serves as the Executive Director of International Programs at the Anderson Graduate School of Business, and has been a Board Member for the Philadelphia Stock Exchange. Dr. Khoury has authored or edited 23 books and monographs on a wide variety of financial and economic issues and written numerous articles for leading journals in the United States. He has been a regular commentator and had extended appearances on television dealing with investment and economic issues. He has been an organizer of numerous conferences on international banking and finance for academics and professionals. Speaker on many political issues in the US and abroad. Taught or gave presentations in over 30 universities all over the world. He has done extensive research on the economics of medicine and medical tourism as it relates to the Obama Health Care Bill. He can be reached at sarkis.khoury@gme-surgical.com.

Global Medical Excellence, (GME) is a US-based limited liability company (LLC) organized under the laws of the State of California with offices in California, India and Lebanon. It is dedicated to providing access to the finest medical and cosmetic care to patients from the United States (initially) seeking the best medical care possible in internationally accredited medical centers around the globe (starting in Lebanon and India). This is delivered at prices that fit their budgets with service and care quality that exceeds their expectations. GME will focus on major surgeries such as open-heart surgeries and joint replacement surgeries, and on cosmetic surgeries. Setting a new trend in medical tourism, the major surgeries will be performed overseas by a local doctor or a US-based doctor.