STRONGBRANDS    Professor Tim Calkins, Kellogg School of Management

The more I learn about marketing the more impressed I am with how people make decisions.

We don’t just buy the best product, or the cheapest product, or the most convenient product. We weigh multiple factors; we are skeptical of information and use a wide range of cues to figure out the best course.

This makes marketing and behavioral economics fascinating fields. I am a big fan of Dan Ariely’s book, Predictably Irrational.

I believe that people generally make good decisions.

As a result, I think the best way to solve the healthcare situation is to let individuals make choices. It is also why the Affordable Care Act won’t work.

Yesterday, the Wall Street Journal ran a fascinating editorial by Andrew Puzder, CEO of CKE Restaurants (brands include Hardee’s and Carl’s Jr.). Puzder made a simple point: the Affordable Care Act counts on healthy people buying insurance. This revenue will offset the cost of providing healthcare to people with significant medical conditions. Healthy people will pay more than necessary and provide a subsidy.

But consumers are smart. Many young, healthy people won’t buy this insurance. They will save the money, pay the modest fine and purchase insurance only if they develop a major medical issue. This is now a viable approach because under the new legislation insurers cannot turn people away or adjust rates based on pre-existing conditions. Trying to convince healthy folks to buy insurance they don’t immediately need just won’t be successful. The plan isn’t going to work.

My view is that the best way to fix healthcare is to let consumers make the tough economic decisions.

– Is it better to have your CT scan at your local hospital? Or is it better to save a little money and have it done at a clinic across town?

– Is it worth spending $50,000 on a spinal surgery that has a 15% chance of success?

– Is a $60,000 oncology drug worth the money when it provides, on average, an extra three months of life?

– Do you want your hip replacement surgery next week or are you willing to wait three months to save $4,000? Would you travel to Germany for the surgery to save $10,000?

Consumers can make these decisions and should. We already ask people to make healthcare decisions; the idea of informed consent is well established in the industry. Why can’t people think about the price, too?

Of course, the only way consumers can make economic decisions is if pricing information is clear. This is certainly not the case today.

Perhaps we should spend less time hoping people make bad decisions and more time helping people and trusting people to make smart healthcare decisions. Forcing healthcare providers to provide simple and transparent prices would be a good place to start.

*  *  *

I am writing this on a flight to Boston. Last week I taught a class in New Mexico. Next week I will be in Colorado. I had hoped to start a new book this summer but I haven’t been in the office enough to get through the mail.

This fall I will again be teaching marketing strategy in the Kellogg full-time MBA program. I’m finishing up my course syllabus and case pack this week. It is amazing how fast the summer is flying by.

---