Regulation and Choice

If you want to really confuse someone, restate the minimum wage laws this way:

It is generally illegal in the US to accept a job for less than $7.25 an hour.  The minimum wage laws are therefore a substantial constraint on individual liberties

When I say this to most folks, they get confused because laws like minimum wages are usually stated in terms of empowerment of the common man.  The theory is that individuals don't have enough bargaining power to really get what the true clearing price should be for their labor, so the government steps in to prevent evil corporations (ie "the man") from exploiting this power imbalance and paying wages that are too low.

Tell that to my 15-year-old son who is looking for a job.  Sure, he would like to earn some good cash, but the wage scale of a job is way down the list of priorities.  What he really needs is a chance to build basic work skills and knowledge of how organizations function that you and I take for granted.  Further, he would like to get some direct experience with customer contact.  And finally, he wants to demonstrate to future college choices that he can function successfully in a work environment, and that he is motivated enough to keep and hold a job.

As a result, my son would likely gladly take the right job for, say, $3 an hour.  And an employer might jump at this deal, understanding the lower wage helps compensate for the costs of dealing with an inexperienced new employee and the risk of hiring a teenaged boy with distracting amounts of hormones running through his system.  This would be a perfectly rational, consensual, everybody-wins arrangement that is absolutely illegal.  So don't tell me or my family that minimum wage laws are empowering.

The health care analog

Many very similar liberty-reducing regulations exist in the health care world, and more appear to be on the way.  One great example that is entirely similar to the minimum wage issue is minimum coverage rules.  Many states have lengthy lists of conditions that must be covered in any health insurance plan sold in that state.  From acupuncture to mental health to massages to homeopathic treatments, you can find just about every care specialty with a lobbying organization getting its services embodied in state laws as minimum requirements.

Again, supporters of such laws argue that this is empowering for consumers.  Every health care plan you can buy will have a wide array of covered services.  But, they will also all be expensive.  What if I don't want mental health coverage or acupuncture?  Why do I have to pay extra for this stuff to be covered by my policy?  I go to the doctor very, very infrequently - basically only if the condition is critical - so why is it illegal to purchase a health insurance plan that matches my health care use preferences?

Currently I pay for my own health care plan and have insurance that I consider true insurance.  It has a high deductible, and does not cover a bunch of non-critical stuff.  I have no dental coverage, and pay dental all out of pocket, as I do most routine medical expenses   I have medical insurance solely to cover catastrophic medical events that would likely be financially disastrous for me  (I do the same thing with my house and car, paying for routine maintenance with insurance reserved for catastrophes).   Fortunately, Arizona allows me to buy such a policy, though it does have minimum coverage rules that make the policy more expensive than it might be.  In other states, like Massachusetts, my health plan with a high deductible is illegal.  It would also be illegal under the current House and Senate versions of Obamacare.

Medical Insurance and Windshields

I do a lot of back road and highway driving, so windshield repair and replacement are things I deal with fairly frequently.  I've generally always just paid for these repairs out of pocket.   It is a field where if one shops around, there are a lot of good deals.  However, for a while I lived in a state that had a law that said all auto insurance must have windshield replacement coverage.

The effect on my behavior was dramatic.  When living there, I didn't even think about shopping around for a windshield repair.  I just had the dealer do it (surely the high cost supplier) when I had the car in for regular service.  I didn't care what the cost was, it was covered in my policy.  (Ironically, it turns out in retrospect that I should have shopped around -- because no one else in the sate cared about cost, all the windshield suppliers jacked up their prices and then competed by offering kickbacks in various forms to consumers, basically competing on how much of the insurance money they would share with the car owner.  Truly dysfunctional).

I have seen the exact same change in my behavior, but in reverse, in switching to a high deductible medical policy.  Until about 3 years ago, like most Americans, we never even thought about the cost of our medical care.  We weren't paying for it.  But now, as I pay most of our routine expenses, I am amazed at the difference.  When my son needed a CT scan, three phone calls gave us a huge variation in quoted prices.  It turns out, shopping works, even in medical care.

Postscript: I have always wondered why insurance companies didn't create some incentive for shopping.  If I were running such a company, I would be tempted to tell customers - "our reimbursement rate for CT scans in your area is X.  If you get it done for less than X, we will split the savings with you 50/50."  Though I suppose the danger is tht this could morph into a variation of the windshield kickback system.


  1. Charlie Bratten:

    Hasn't the insurance carrier already shopped around when it established the network of providers?

    Most employer insurance is self-insured so the carrier better find quality and cheap providers or the carrier will lose the business.

  2. richard:

    “our reimbursement rate for CT scans in your area is X. If you get it done for less than X, we will split the savings with you 50/50.”

    I'm not sure if this is a good idea. If you get paid to take a (cheap) CT scan, boy I would have one for breakfast, lunch and dinner. Maybe also one just before bedtime.

    What the heck: I would make sure all my family would get one too! And how about the neighbors?


  3. LoneSnark:

    Question: I always wondered if the easiest solution to the principle agent problem would be for the insurance provider to team up with various local healthcare providers to offer cheap insurance because the doctors would be working for the insurance company with an eye towards spending as little as possible. I realize the incentive would also be upon doctors to say there is nothing wrong with you, but you can always get a second opinion elsewhere and come back.

    That is how I currently get my coverage, through my university health clinic. Whatever they can do there is free for students, it only costs if you need to be referred to other hospitals.

  4. ed:

    Of course, it IS legal to take a job for $0.00 per's called an "unpaid internship," and it's an increasingly popular option for upper-middle class kids these days.

  5. DrTorch:

    "When my son needed a CT scan, three phone calls gave us a huge variation in quoted prices. It turns out, shopping works, even in medical care."

    I suppose one argument is that in an emergency or stressful health crisis, you can't necessarily shop around, nor do you want to be coerced, or get into a contract w/ hidden costs, etc.

    Reality doesn't always allow time for a systematic rational analysis.

    And we as a society largely feel that people should be protected when they are vulnerable like this.

    Does that raise costs? Maybe. But it's part of our social contract.

    That's not to say that consumer protection laws don't go overboard. Occasionally you'll read a story where a gas station doubles its prices after some world event. Then people flock in, fearing a gas shortage. Then the station gets punished.


    Caveat emptor. There are obvious and easy ways to check if this is the going rate for gas...and if you're too lazy to do this, then you pay what you pay.

  6. bobby b:

    Ah, windshields! Fun from my early litigation days.

    Florida mandated full coverage. Then, Florida mandated no restrictions by insurer on who can replace them. Then, Florida decided that "prompt payment" by an insurer upon presentation of a bill meant, within a few days, or the insurer was in Bad Faith, and thus deserving of some rather onerous penalties.

    Soon, the insured would go to ZZZZ Auto Glass, get his windshield and a crate of steaks, and leave. The insurer would get a bill for $3500 or more. For a simple $200 windshield.

    If you didn't pay - if you thought it was outrageous - you immediately got sued. Then, your lawyer would explain that it would cost about $15,000 to defend the lawsuit, and you would win if you could convince this Dade County elected judge to rule that the windshield was shockingly overpriced, and the trial might be two years away or more because the judge was moving his calendar slowly because he was spending so much time trying to defend himself from ethics complaints . . . . and then, if you did make it to trial and lost, you were out your own defense fees, the windshield bill, usually the attorney fees for the shop, and maybe some huge "bad faith" penalty.

    In so many ways, Florida lines its borders with implicit billboards saying "come here, do business, we'd love to steal from you!"

  7. Dr. T:

    "I have always wondered why insurance companies didn’t create some incentive for shopping."

    The insurers don't shop around, they write contracts. Many health insurers have a preferred provider list. These providers have agreed to charge lower rates in the hopes that they will gain more patients. Of course, this option only works for insurers with a big slice of the local market. In PPO (preferred provider organization) plans, patients have lower deductables and copays if they use a preferred provider.

  8. ilovebenefits:

    This is an excellent set of comments on a very real issue, that I suspect few have really focused on. We know that there are only three sources of ‘revenue’ for health care expenditures. These are what plan sponsors (employers), taxpayers, or consumers (patients) pay for each health care service.
    However, while these are three different pockets, they are three pockets of the same suit. In the end it is the consumer who pays either directly at the time of service, in otherwise lower wages or higher prices for goods or in taxes. The last two are ‘hidden’ taxes on the consumer/patient.
    So the citizens of this country should be rightly concerned. When costs are hidden (taxes or prices/wages) there is little, frankly no, incentive to conserve scarce medical resources.(And I am not even talking about end of life decisions here – that’s another topic). As we have seen several times before, prices will rise much faster than general inflation making health care financing unaffordable (Medicare in the mid 60’s, Part D earlier this decade to name two instances.)
    There is no reason to believe that with a large government entitlement program the same will happen again, with no control on rising costs. CBO estimates, as far as they go (ten years) are more than likely correct if not understated AND the post ten year trajectory is likely much much worse.
    They will need to control the federal deficits sooner rather than later and the tax base will exhaust its ability to pay for these programs. Unless we drastically improve industrial production, innovation and capital creation we will essentially bankrupt the country, its people and our future.
    Follow this debate and other important health care issues at

  9. steep:

    I know a young man who is working for neighbor for $6/hr cash. I'm quite proud of him. I did the same when I was a teenager. It feels good to stick it to Big-Brother with a envelope full of cash.

  10. steep:

    I know a young man who is working for a neighbor for $6/hr cash. I'm quite proud of him. I did the same when I was a teenager. It feels good to stick it to Big-Brother with a envelope full of cash.

  11. Doc:

    I worked at a place where the health plan covered "ear candling." Google that, if you're in the mood for a laugh.

  12. Jeff:

    I also have a high-deductible health insurance plan, and I'm constantly amazed at how hard it is to get a price out of health care providers. Hospital, clinic, lab, doctor, they all look at you as if you stopped speaking English when you ask for a price. The sad part is, most of them can't find out. I usually have to wait a few days to get a price.

    It's obvious why we spend too much on health care, name another product you purchase/use where a price or estimate is not readily available.

  13. Jerry:

    I just wrote to our two Senators expressing my opposition to the current emerging health care bills and my desire for the opportunity to buy health insurance tailored to my needs, likely a high deductible catastrophic plan and the ability to shop interstate. Of the 1300 or so insurance companies in the country surely one would fit my bill if I could shop outside of WA state.

    Is it ok to ask what insurance company you have in AZ? I have a son there with similar needs.

  14. Sotosoroto:

    Thankfully my teenager has skipped the can't-get-a-job-for-minimum-wage debacle by earning a lifeguarding certificate and turning that skill into a first job with double the minimum wage. True, it's not a full-time job, but. . .

  15. John David Galt:

    Under the Uniform Insurance Code, insurance agents are forbidden to give rebates. The rationale taught in licensing class is that if the practice were allowed, it would drive agents' commission down to zero. Certainly it's not a rule made for the good of the public.

  16. jhc:

    More windshields. When I worked in Minneapolis in 2000, the local press was making a big deal of the steaks-for-windshield replacement "scam."

    Minnesota law required insurance companies to cover replacing windshields. So some enterprising auto glaziers started offering boxes of steaks to induce people to bring their business to them. I remember seeing their ads on billboards.

    It was claimed (I don't know how justly) that people and glaziers were gaming the system. The driver got the steaks, the glazier sold a windshield and the insurance company got the bill.

    Naturally, some state legislator decided new legislation was needed to fix this problem.

  17. Bart:

    My first summer job (McDonald's) was one of the most formative experiences in my life. Not because it was easy, by any means, and not because I was a model employee by any stretch of the imagination. The managers were two Navy ROTC guys who ran a tight ship. They made a sort of good cop/bad cop pair which was very effective. The "bad cop" bored down on me relentlessly, and did more to shape my character than any save one or two others in my life. That's the way it is. You may hate and fear the people who demand the most of you at the time, but you look back on them and thank them for doing so. The "good cop" was Rob, and the "bad cop" was nicknamed "Monk". If there is any surely insignificant chance you guys are out there reading this, thanks from the bottom of my heart.