Price Discrimination for Health Insurance

Mrs. Spivonomist is eligible for open enrollment at her new place of employment. She has expressed some... well, let's call it consternation at the baroque processes by which one now signs up for medical insurance with the provider her company uses.

The most irritating part? It's kind of laughable if you've taken a principles of microeconomics course. They offer discounts on the order of five or ten bucks a month if you take two out of four offered courses: 

1. Smoking cessation (we both quit in 2002)
2. Weight management 
3. I can't recall the other two, but they were also inapplicable to our situation.

Point is, these courses would have been entirely orthogonal to our interests. A waste of time, if you will. But they allow for some price discrimination. Folks whose time is valuable because of high opportunity cost also tend to be those folks who would have a high willingness to pay to avoid nonsense courses offered by insurance companies. They can then extract some of this consumer surplus. Straightforward relative price economics.

Here's the curious thing for me: as tech improves and these firms are legislatively barred from price discrimination along certain margins, should we expect to see more of this sorts of skulduggery? Is this even dirty pool? 

And now that medical coverage is coercive, how will folks adjust their attitudes towards insurance firms? My gut tells me that it'll become more adversarial than it already is. I'm with the GTM. I'd bet even odds that the US will be single-payer by the time my daughter is old enough to have her own coverage.

Price Discrimination, Surprise, Stealth Assassination

Ever get the feeling you're being ripped off, even when you know you're not being ripped off?

Every so often, a popular online video game service offers deep discounts on popular titles. It's usually a great opportunity to grab some of the year's sleeper hits or games that were just a little bit too expensive the first time round. Among this year's offerings, there was a particular game with a stealth assassination mechanic set in a steampunk-inspired world. I had been putting off buying it in favor of some of the year's other, more compelling titles, including a run-and-gun, loot heavy FPS and a space opera cover-based shooter. Still, given the right price, I could justify picking it up as a Christmas present to myself.

So that's just what I did. I'd had my eye out for a sale, and when the price dropped from $60 to $45, I grabbed it lickety-split (there's an idiom not seen much these days--I wonder why it fell out of fashion). Well, Christmas season and all, what to my wondering eyes did appear the very next day? The retailer had deepened the discount by another 25%. The game is selling for $30 at the time I type this.

Imagine my mental anguish. Here I am, squire to Sir Munger in the Kingdom of Euvoluntaria, defender of the morality of voluntary trade and I'm all bent out of shape because I learned that if I'd have waited a day, I could have saved another 15 bucks? Come on.

Look, at the time I made my purchase, I did so with all the knowledge I had available to me. I felt I was getting positive consumer surplus. I had no way of knowing the price would be dropped the next day. In econ jargon, the future, unobservable market is irrelevant at the time of purchase. The transaction was euvoluntary when I made it.

Did it suddenly cease to be euvoluntary the following day? If so, I presume it's because of the regret condition? If so, which cell of my regret matrix would it be in? High search costs and high information asymmetry? If you agree with me that this is the bad box to be in, do you think it would be appropriate for government agents to interfere with the terms of the sale?

I will offer this: very often in brick and mortar stores, if a customer shows up ex post with a coupon and a valid receipt, they can claim an adjustment. Bed Bath and Beyond does this, at least. I'm not sure if I can haggle down the purchase price of my game another 15 bucks, nor am I sure if it's worth the time and hassle, but boy-howdy, despite my economics training and my sensitivity to the principles of euvoluntary exchange, I sure am smarting over this. It's kind of soured my enthusiasm for the game itself, which is an innocent bystander in all this.

Are Bargains Coercive?

So, I got this in a fortune cookie, having dinner with Geoff Sayre-McCord and some folks from UNC Philosophy.

Leading us to discuss this question:  are bargains coercive?  Do people actually buy things they don't want or need because it's a "good deal?"  I have heard people say things like, "Sure, I didn't have the money, but I at THAT price I couldn't afford NOT to buy it!"  Um...what?

UPDATE:  Senor Zorro notes that there is some documentation.  Here is a video of people fighting for phones at WalMart...


There are analogous actions in nature...

The Rain in Spain

Maryland is wrestling with efforts to pass The Paycheck Fairness Act (here's a version put before the US Senate in 2009), a bit of follow-up legislation to the Equal Pay Act of 1963. It's what you'd expect: legislation intended to eliminate pay differences between men and women.

The economics of this are unambiguous. If you increase the relative price of female labor, you should expect to see fewer women being hired. The ones that do get hired will probably be overqualified for their positions. Maybe that's an adequate tradeoff, maybe not. I imagine that if it was, there would be no need for legislation.

To to euvoluntarity of things then. A contract to work is, at the risk of sounding like a simpleton, a contract. Two parties agree to an exchange of value. That tricky word "value" is a foil for a rather impressive array of elements. The clearest of these elements are salaries and productivity and this is what distresses folks who look at uncontrolled (or only weakly controlled) statistics. Less visible elements in the boodle o' value might be an implicit exit option, flex hours, work environment, lunch taxes or compromises on career ambition. These aren't captured in the terms of the written labor contract; they're part of the initial, invisible decision calculus made by both the employer and the employee. So I wonder on what basis this decision is not euvoluntary.

I point to the argument I made yesterday: in the minds of most people, employers (especially large employers) enjoy a BATNA disparity. If, in your capacity as a job seeker, fail to make the cut, it's no big deal for Westinghouse, since you're just another resume in a huge stack on HR's desk. For you however, you've trained as an electrical engineer for the last six years, and there are basically two firms, Westinghouse and GE that hire people with your particular skill set. Your alternatives are to lower your price point or to take an inferior job.

Which, like I said, will happen if this bill is passed. Sure, some women will transfer some of the hidden value from their boodle and turn it into salary (though I have a strong suspicion that many already do so), but some will simply take a rung or two down the ladder and live with it. The glass ceiling will drop even further.

Anyhoo, discussion point time:

• Why isn't the public more aggressive about holding politicians' feet to the fire when they present a big ball of benefits without so much as peeking at the costs?
• Because of the BATNA disparity problem, is transaction made between any corporation and any private individual ever euvoluntary? 
• Why aren't sensible economists making arguments grounded in both folk morality and sound economic analysis? There's pretty clearly fairness and care heuristics at work here. That's all we've got to say; policies like this cause untold damage to women entering the workforce: they won't be able to get the jobs they want and they'll have wasted years on degrees that will turn out to be worthless to them in the workforce. 

Demand curves still slope down, contrary to the desperate wishes of elite interests.