b" Wordw w w. w m i m u t u a l . c o mThe Price is the Price . except When it's NotBy David Leo, I Your boss asks you to run a gift card to a huge $10,000 self-pay cash discount, President ofWMI Mutual Insurance Company Imagine this. quick errand. You go to the store, hunt down thebut regardless of the dollar amount at stake, they & WMI TPA $50 item your boss requested, and head to theillustrate three things: (1) consumer discounted checkout counter to pay for it. When you pullpricing undermines equilibrium price which is your bosss corporate credit card out of yourcritical in a free market economy; (2) when one pocket, however, the cashier tells you youreparty purchases health care or prescription drugs at not allowed to use someone elses card, so youa price that is lower than what is paid by another use your personal credit card instead. For someparty, the party paying the higher price actually unexplained reason, when you switch from yoursubsidizes the lower price; and (3) lowering the bosss credit card to your personal credit card,price to the insured (only) but not the true price of the price of the item automatically drops fromthe good or service actually props up an artificially $50 to $25. In other words, when your bosshigh price because it circumvents the cost sharing was the purchaser, the price was $50, but whenbalance between the parties, it frustrates the delicate you became the purchaser, the price magicallyutilization tools that help control claim costs, and dropped to $25. it encourages more frequent usage of higher-priced products. Ultimately, these three facts artificially In the scenario above, Im sure youd be happy toprop up excessive costs and higher sustained pricing receive a $25 discount for the minor inconveniencebecause insured members save money on claims of paying with your personal credit card and gettingwhile insurance companies spend more. Invariably, reimbursed from your boss. Im also sure your bossthis results in higher premiums to the very individu-would be happy to receive a 50% discount on anals who are ostensibly saving money on the claims item that was originally priced at $50 in exchangein the first place.for the inconvenience of cutting you a reimburse-ment check. If we dig a bit deeper, however, itExample 1: Last October, I dropped by Walmart to becomes clear that inconsistent pricing that isget a flu shot. I asked the pharmacist how much flu simply based on who is paying the bill is not onlyshots cost, and she told me $40. She asked me for unfair and discriminatory, but its destructive to freemy insurance card, but when I told her I would self-market principles that keep prices in check. This ispay, she smiled and said, Oh, in that case, I can particularly problematic when insurance companieslower the price to $20. Similarly, some stores like pay higher-than-market prices for health care andPublix Pharmacy offer a $10 gift card to customers medications incurred by their insureds because inwho get a flu shot while shopping. This gift is the end, the money insurance companies pay forusually at the expense of a health insurance com-claims directly drives the premiums insureds paypany that ends up paying an inflated price for the for coverage. vaccinations.To illustrate how this works in the health insuranceExample 2: In December, a close friend decided industry, lets take a look at some simple examples.she would undergo cosmetic rhinoplasty. The nor-These real-life examples range from a nominal $10mal cost for this particular cosmetic surgery when 20www.wpma.com / Spring 2019WN19 Spring 17-48.indd 20 3/27/19 10:40 AM"