Transaction Costs: The American Way

(Photo: shane_d_k)

(Photo: shane_d_k)

The rest of the world likes to say that everything in America is big: the cars, the CO2 emissions, the buildings, even the hamburgers. The farce at the U.S. government’s website for enrollment in health insurance under the so-called Affordable Care Act (ACA) shows that we also supersize our transaction costs.

In a news report from NPR, Alaska Public Radio Network, and Kaiser Health News, even a computer programmer who had also created websites needed many attempts over many weeks to use the site to enroll for health insurance. And she still awaits the enrollment confirmation (with luck in the new year, said the radio version of the report). If it arrives, she gets affordable health insurance ($110 instead of $1200 per month), but then still has the joy of dealing with an insurance company and the claim paperwork.

This waste is not inevitable. I lived for 12 years of my life in England. The first few years were as a baby, but during the 9 years that I remember, I spent 1 hour dealing with health forms — mostly to register myself at a local medical practice. Even my medical records from infancy were still on file two decades later (though a decade later they burned up in a warehouse fire).

The Alaskan in the news story probably spent that hour on her first attempt to register for health insurance. In contrast, the U.K.’s National Health Service, by insuring everyone under one roof, eliminates these issues.

In a 2010 comparison of health care in Australia, Canada, Germany, the Netherlands, New Zealand, the United Kingdom, and the United States, the U.K. system was rated as the most efficient, and the U.S. system the least efficient. Some of the gap lies in our absurd transaction costs.


If you have lots of choices, you are more likely to have transaction costs (since you have more and more complicated transactions). With only one choice for health care, you would not need a complex website that requires lots of input and then returns lots of options. If you are a member of a high-quality HMO, your medical records will be saved, you will rarely fill out forms, etc., but you also are limited to certain doctors and hospitals. Same goes for other fields - it is great to have all of your finances with one bank because you can easily move funds around, there are fewer fees for making moves, etc., but you are stuck with that bank. There are many other examples where we trade transaction costs for choice - it's the American way.


No question transaction costs are currently a muddle with the US health care financing system - but it's important to keep in mind that they have been a wreck for well over a generation. The happy note is we would be hard-pressed to get much worse.

And as for this:

"...even a computer programmer who had also created websites needed many attempts over many weeks to use the site to enroll for health insurance"

what exactly in blue Hell would being a computer programmer have to do with "being able to use the site"?

The energy field of the confusion concentrated in that formulation could lower the average IQ of everyone using the internet

Arthur Denzau

Efficiency involves outputs and inputs - our system may be great on outputs (world quality) but we spend more than any other country on medical care. But before we raise NHS in Britain to star category, you might look at British newspaper accounts of hospital patients starving to death, others denied water, others getting bed sores. The latest information about NHS suggests another problem - UK cancer rates have not been improving, and are now well below France and Germany, at the level of Eastern Europe.


The expression "transaction costs" is used in the way economists use it. The costs you describe are are mainly nonmonetary costs associated with certain activities.



Erratum: I should have written "The expression “transaction costs” is NOT used in the way economists use it"