I really like this as an example of incentive misalignment, and I think it should be in the community’s core materials on that subject.
That said, the ideas about healthcare contracts to fix the alignment problem could use some fleshing out. So here’s my attempt at fleshing them out.
General properties of the problem:
We want an open market in healthcare ideas. Anybody should be able to invest in whatever idea they have.
Ideas which do not work should cost the investor, ideas which do work should reward the investor.
The ideas must be tried on some actual people. Those people, unavoidably, bear some risk, and must be incentivized to take that risk.
Solution:
First, the cost to incentivize people to try ideas must be paid by someone. The investors are a natural choice here. So imagine that the investors offer payment to people to try their ideas. To avoid selection issues, the investors may specify that people must fulfill certain criteria in order to be eligible. Anyone who meets the criteria can sign up for whatever the investors are pushing. This would be sort of like an open market for clinical trials, except that it can scale to any number of people and to long times.
For their investment, the investors would get a contract. Under that contract, they get some regular payments for as long as their participants see the benefits the investors claimed and don’t see serious problems. That payment ultimately needs to come from the participants; all participants pay to participate in the market as a whole. If the market is government-managed, then everyone is a participant and their payment comes from taxes.
As an example, consider a cure for prostate cancer. The investors put out their cure at some price, paying people to try their particular idea. Only those with prostate cancer are eligible. All participants get paid by the investors. As soon as a participant’s cancer clears, the investors get paid a big chunk of money.Whenever the participant has health issues later in life, the investors have to pay some money back, regardless of what those later issues are. Presumably, more serious issues would be more expensive, and the original contract might specify an extra payment if the prostate cancer returns. (There would be a secondary market for investors to insure against normal later-life health risks, but investors would still need to handle more-than-normal problems, and would get paid for less-than-normal problems).
Now an even more interesting example: a new diet. The problem with monetizing a new diet is that, once word gets out, anyone can just try it without having to pay. Thus the prevalence of pills: pills can be patented and monetized. But with this market structure, the investors are PAYING people to participate. Anyone who’s trying the diet will WANT to sign up, because they get paid. The investors can then reap the benefits (if any) over the person’s lifetime.
Finally, a preventative example. Once again, we have a prostate cancer treatment, but this time it is preventative rather than a cure. This time, prostate cancer is not required for participation. The investors pay the participants for their effort, and make money for every prostate-cancer-free year of every participant’s life. Again, there is more complexity around paying for any later problems, insuring those payments, etc… but that’s all standardized stuff and the associated costs are known in advance.
I really like this as an example of incentive misalignment, and I think it should be in the community’s core materials on that subject.
That said, the ideas about healthcare contracts to fix the alignment problem could use some fleshing out. So here’s my attempt at fleshing them out.
General properties of the problem:
We want an open market in healthcare ideas. Anybody should be able to invest in whatever idea they have.
Ideas which do not work should cost the investor, ideas which do work should reward the investor.
The ideas must be tried on some actual people. Those people, unavoidably, bear some risk, and must be incentivized to take that risk.
Solution: First, the cost to incentivize people to try ideas must be paid by someone. The investors are a natural choice here. So imagine that the investors offer payment to people to try their ideas. To avoid selection issues, the investors may specify that people must fulfill certain criteria in order to be eligible. Anyone who meets the criteria can sign up for whatever the investors are pushing. This would be sort of like an open market for clinical trials, except that it can scale to any number of people and to long times.
For their investment, the investors would get a contract. Under that contract, they get some regular payments for as long as their participants see the benefits the investors claimed and don’t see serious problems. That payment ultimately needs to come from the participants; all participants pay to participate in the market as a whole. If the market is government-managed, then everyone is a participant and their payment comes from taxes.
As an example, consider a cure for prostate cancer. The investors put out their cure at some price, paying people to try their particular idea. Only those with prostate cancer are eligible. All participants get paid by the investors. As soon as a participant’s cancer clears, the investors get paid a big chunk of money.Whenever the participant has health issues later in life, the investors have to pay some money back, regardless of what those later issues are. Presumably, more serious issues would be more expensive, and the original contract might specify an extra payment if the prostate cancer returns. (There would be a secondary market for investors to insure against normal later-life health risks, but investors would still need to handle more-than-normal problems, and would get paid for less-than-normal problems).
Now an even more interesting example: a new diet. The problem with monetizing a new diet is that, once word gets out, anyone can just try it without having to pay. Thus the prevalence of pills: pills can be patented and monetized. But with this market structure, the investors are PAYING people to participate. Anyone who’s trying the diet will WANT to sign up, because they get paid. The investors can then reap the benefits (if any) over the person’s lifetime.
Finally, a preventative example. Once again, we have a prostate cancer treatment, but this time it is preventative rather than a cure. This time, prostate cancer is not required for participation. The investors pay the participants for their effort, and make money for every prostate-cancer-free year of every participant’s life. Again, there is more complexity around paying for any later problems, insuring those payments, etc… but that’s all standardized stuff and the associated costs are known in advance.