I took off work early last week to catch a movie (alone - pathetic, but neither mad or my church friends were that into Drag Me to Hell).  Said theater sold me a bowl of ice cream (two scoops) for $3.75.  My first scoop of tart honey yogurt was really about three or four scoops - my server just kept packing it in.  By the time she started the second scoop the bowl was already overflowing.  Our conversation went something like this:

SD:  "Those sure are generous scoops"
Theater Employee:  "Well, I figured for $3.75 you could pretty much buy a half gallon of ice cream, and these scoops are really small"  (starts on third "second scoop")
SD:  "No, seriously, that's enough."

I won't fault generosity, but she was giving something that wasn't hers to give.  Said theater employee collects the same paycheck every week whether she scoops big scoops or small scoops.  And while her indulgence with the customers presumably impacts the bottom line of her employer, she's far enough removed from the financial consequences not to care.

The average American health care consumer is in the same boat as this theater employee.  Those with private insurance rarely pay anything beyond a small copay for prescriptions and doctor visits - their monthly premium (if any) is a fixed cost and often heavily subsidized by their employer.  Public insurance operates the same way, although usually without the premium or co-pay.  And even among the uninsured, many bills are forgiven or drastically reduced - with the attending doctor or hospital writing off much of the cost.

This detachment from the actual cost of health care leads to some bizarre economics.  A couple of stories:

#1:  Several years ago I was at the Target pharmacy.  The woman in front of me was uninsured and filling a prescription for Amoxicillin for her child.  The "pink stuff" that we get around here for routine ear infections costs about six or seven bucks, less than the average copay.  But this woman's doctor had filled a prescription for some new-fangled time release Amoxicillin that you take once a day instead of three times a day.    Cost of the prescription:  $77.  To their credit, the Target pharmacists tried several times to call her doctor to rewrite the prescription for garden variety Amoxicillin, to no end.  Finally, she sighed and muttered "I guess it will make her better" and plopped down the eighty bucks for the prescription. 

How do pharmaceutical companies get away with charging $77 for a drug that's therapeutically equivalent (yet slightly more convenient) than a $7 drug?  12-hour Tylenol don't cost no eighty bucks.  Easy:  the health care consumers don't usually pay $77.  They pay a co-pay (often not much more than $7) and are wowed by the convenience.  Easy to do when you're spending someone else's money.

#2:  Oregon was one of several states to pilot an "in-pharmacy nurse" program at a major chain pharmacy.  The premise of the program was simple : instead of spending big bucks to go to a doctor's office for routine prescriptions, the pharmacy had an RN on staff to write them for you.  The scope was limited to basic antibiotics, steroids, and maybe allergy medicines.  The cost of the service was covered by some insurance.  The cost to the uninsured was about $25 (vs $80+ for a doctor visit).  This program was ultimately discontinued in Oregon for lack of interest, the conclusion being (in part) that the public and private health insurance was "too good".  Why spend $25 for a visit when you can spend $80 of someone else's money? 

#3:  While I was a grad student we swapped one of Mad's prescriptions from a local discount store to a major chain pharmacy.  At the time, our insurance required us to pay for pharmaceuticals out of pocket and submit receipts for reimbursement.  The generic drug that cost $30 for 30 days at the discount store cost nearly $90 for 30 days at the chain pharmacy.  Same drug.  Same dose.  Same pills.  Why the premium?  Hard to say, but in general you'll find that retail pharmacies charge exorbitant prices relative to their discount store counterparts.  In any sort of sane economy the discount stores would drive the retail chains out of business or corner them in a niche after-hours pharmacy market.  But if you're spending someone else's money, there's no point in comparison shopping.

#4:  My first couple of years in Oregon I was miserable for allergies.  I considered buying Claritin over the counter but my starving grad student family couldn't stomach the $30/month for OTC pills.  My insurance, however, would provide me with 90 days of Allegra for a more manageable ~$25.  Never mind that the total cost to my insurer was closer to $200.  It was someone else's money.

The trick is that "someone else's money" is only applies to the very poor, who pay nothing because they have nothing, or the very sick, who pay for only a small fraction of what they consume.  For the rest of us, someone else's money comes back to haunt us as higher premiums or reduced benefits or, in the case of public insurance, higher taxes or cuts to existing services. 

To rein in costs, therefore, it's important that the consumer feel the (financial) pain of reckless spending or overconsumption of health care services.  Insurers already have some safeguards in place for this sort of thing, with tiered copays for brand name vs. generic drugs, emergency services vs. routine office visits, and specialists vs. primary care physicians.   But there are more novel approaches taking hold in the world of private insurance.