Almost everyone involved in health care will tell you that the greatest problem in our system is that we pay on a fee-for-service basis. Almost everyone is wrong.
The logic is obvious – paying a fee for a service encourages providers to get more fees by providing more services. Ergo, we consume too much and spend too much. Ipso facto, getting rid of fee-for-service would result in fewer services and less spending. Case closed.
Well, maybe not.
In fact, almost everything we do in the course of our economic lives, we do on a fee-for-service basis. When we go to the movies, get our oil changed, have our roof replaced, buy a computer, get a haircut, hire a baby sitter, buy a steak dinner, get someone to do our taxes or defend us in a suit, we do it on a fee-for-service basis. None of it is particularly inflationary.
The graph below shows the CPI broken into components. Food, housing transportation, apparel – all are paid fee-for-service and all have a lower rate of inflation than health care.