iPhone vs Medical Status Quo

This article shows how expensive and messed up the health care system is.  It talks about computer communication devises for people who cannot speak:

But acquiring such a computer is not as easy as walking into a store and purchasing one. An extensive evaluation and trial must be conducted to assess the user's needs. Then, it can take many months to gain insurance approval, if coverage is available at all. A device sophisticated enough to produce full sentences usually costs upwards of $7,000.

Traditional AAC devices — the acronym refers to "augmentative and alternative communication" — have a few more knocks against them. They're much heavier than a laptop, can take a long time to boot up and have a short battery life. Accessories, like protective cases or extra batteries, must be purchased through the company, aren't covered by insurance and are pricey.

And for a young child (or even an adult), they can be stigmatizing — most of them lack any sort of "cool factor." They scream, "I'm different." What's more, insurance won't pay for a device that's "open" — one that connects to the Internet for browsing and e-mail or runs other applications, even a word processor. The user can run only the communication software on the device. With the online world as integrated into life it is these days, this limitation has become positively absurd.

Thankfully, consumer electronics and open platforms come to the rescue: 

With an iPod Touch, iPhone or iPad and Proloquo2Go, available to download for $189.99 from the iTunes store, someone who needs augmentative communication can have a functional voice for well under $1,000. That's cheap enough to avoid the labyrinthine process of dealing with insurance, plus the user can access e-mail, browse the Internet, visit social networking sites and do anything an application can do — manage a to-do list, use a daily schedule or text a friend. 

If the insurance companies had any sense, they would have made something like this on their own.  Any functioning organization would love to pay $1000 instead of $7000 for something that their customers like a lot more.  But the health care system is riddled with perverse incentives and institutional problems that prevent these kinds of efficiencies.

In this case, if the company started giving out iPhones to people with speech problems, then there would probably be a large number of people mysteriously developing communication disorders.  They would have to test people and turn them away suspected cheaters.  There would be mistakes and people would get mad.  By only offering an undesirable product after extensive testing, they screen out people who do not really need it.  Now that the thing exists, it might be cheaper to give away more of them and accept the cheating, but it would not have made much sense to invest in the research and development to make a customer-pleasing product.  

In a normal business, making something that people like means getting more money.  But with medicine that is provided for free or at a tiny fraction of costs, making something that people like means losing money.  More people will come in, and you lose money on every one.  If people chose their insurance company and things were not so heavily regulated, the desire to gain customers would give them an incentive to lower costs and improve service.  But most people are stuck with a government system or whoever their employer chooses, so they have no choice.  If you have a captive pool of customers who are all forced to pay you a fixed amount each year, and you are forced to serve anyone who wants it, then the only way to boost profits, or even stay in business, is by making your product as unpleasant as possible so they don't want to come in.

There may be another issue.  Government regulatory agencies are often 'captured' by people who want to protect their salaries.  A system intended to protect consumers ends up stifling competition to protect a vested interest.  Insurance companies are so regulated that it may make sense to treat them as government agencies.  Doctors will end up setting the rules, and their goal is to raise the incomes of doctors.  Most of that $7000 goes to speech therapists and medical technicians.  If people start solving their problems by downloading iPhone apps, the therapists are out of a job.  They will have an incentive to write insurance reimbursement rules so that anyone with a speech problem is forced to go through them. The current system is bad for insurance companies and bad for patients, but it is good for the doctors and they will fight to keep it in place.