Wednesday, February 18, 2015

It's a Trap!

The Pareto Trap (or Principle) is also known as the 80/20 Rule:

"[F]or many events, roughly 80% of the effects come from 20% of the causes"

In business, it's an aphorism that 20% of one's customers account for 80% of one's headaches.

Another way to look at it is that attempts to improve one thing (eg gas mileage) will also incur negative consequences (eg safety). And so it is with health care:

"A Pareto improvement was promised by the president at the launch of his signature reform. “If you like your doctor, you can keep your doctor” ... To lower costs, i.e. make health insurance more affordable, insurers limit the physicians in their network."

This is the trade-off for access to insurance versus access to care. It precisely exemplifies our longstanding meme here at IB: health care is not health insurance. I would add the following codicil:

"Making health insurance more available will, of necessity, make it more expensive."

The proof of this, of course, are the subsidy and cost-sharing schemes: if guaranteed issue insurance which immediately covered pre-existing conditions was "affordable" (as in PP"A"CA), then there would be no need for them.

Common sense, really.
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