Prof Jerry Green on Harvard's disaster cocktail

Greetings. Here is a crisp summary of the illogic of this move that I found on Harry Lewis's blog from Prof Jerry Green.  It elaborates on the notion which  others have raised that "financial planning" for healthcare costs is unavoidably stymied by the emotional stress of illness. Here is Prof. Green, in his remarks at a recent FAS faculty meeting:

"Everything that we have learned in recent years, in economics and the other social sciences, tells us that people do not choose wisely, even in very important matters. Start with wishful thinking, add an ounce of procrastination, stir in the anxieties due to illness, and you have a recipe for poor medical decision making by the patient. Add a dash of co-insurance, pour over financial stringency, and this potent cocktail will become dangerous, perhaps lethal.



"A few years ago, as everyone will recall, our retirement plans were simplified and investment choices were restricted. The rationale for these changes was beautifully explained on the floor of this meeting by my colleague David Laibson. Citing the same body of academic research I have mentioned above, Professor Laibson confirmed that people – even highly educated and intelligent people -- are not good judges of their own situations. We all are subject to irrationality: over-valuing the present relative to the future, inertia, cognitive biases, and especially over-optimism.



"If that is true in the financial realm it is doubly true in medicine. Medical decisions are more complicated, more uncertain, and more emotional. They are frequently made in times of stress, making us even more likely to err.



"Harvard acted wisely when it recognized the adverse effects of human psychology on retirement planning. It should now act wisely again. The administration should recognize that co-insurance creates unfair, unnecessary, random transfers of wealth, falling on exactly the wrong subset of our population. It will not reduce the long term cost of medical care, and will result in some avoidable, perhaps tragic, outcomes."

See the full post here:

harry-lewis.blogspot.com/2014/11/discussion-of-health-benefits-part-2.html