The Marginal Utility of Smart Phones, Cable TV...and Healthcare
Christopher Carter
I purchased a new smart phone yesterday. While I was waiting for the transaction to be completed which, as you are quite aware, is not like buying ice cream at the local Baskin Robbins, I couldn't help but notice the number of people who came up to the counter to pay their mobile phone bills. First, I didn't know one could pay their mobile phone bill at their local Verizon Wireless store, but what struck me more was the amount these people were paying given each person's age and/or physical condition. One elderly woman approached the counter with what looked to be her grandchildren. She hobbled to the associate and wanted to pay her mobile phone bill, which was somewhere in the neighborhood of $140. Hearing this made me think about how much we pay for things like mobile phones and cable TV service, and wondering, do we really need the plans for which we pay? The basic plan for my wife and I, this is the BASIC plan for a family of two with two smart phones, costs $130 per month and does not include unlimited text messaging, VCAST services, the Rhapsody music service and a host of other ad hoc services the Verizon associate rattled off. $130 per month for the privilege of sending and receiving megabits of information over the wireless spectrum all in an attempt to stay connected to friends, family and business contacts, read email and surf the web. Cable TV package prices begin anywhere from $50 - $75 per month for basic cable. Add a digital cable box for each TV set (average of 2.3 per home), subscription fees to premium channels and services (e.g. HBO) and the bill easily tops $100 per month. Add to that Cable Modem service (usually $45 - $55 per month) and one's Cable TV bill crosses the $150 per month plateau. Suffice it to say, the average household is probably paying between $250 and $350 per month for mobile phone and cable TV services. That leads me to to healthcare.
The cost of health insurance varies depending on family size, location, pre-existing medical conditions, lifestyle (i.e. smoking, excessive drinking, addictions, etc.), but how many of the 47 million people who do not have health insurance (as we are being told by government sources) pay between $250 and $350 per month for their mobile phone and Cable TV services? It would be interesting to see the results of a survey of this topic. Yet these people claim they can not find affordable health insurance? In this sense, affordable becomes a function of what disposable income is left after considering other household expenses and service decisions, or, in economic parlance, one's marginal utility for alternative spending choices. Household consumption behavior (Dr. Law would be so proud!) is predicated on the assumption that members of a household wish to maximize their total utility given their economic circumstances, but to do this must make choices between alternative spending options given finite resources. Consumers will continue to switch expenditures between alternatives based on which provides more utility, or satisfaction, at a given time. I couldn't help but think about this as the little elderly lady hobbled up to pay her $140 mobile phone bill. Statistics are available that show consumers will pay their Cable TV and mobile phone bills before they will pay their rent or mortgage - higher marginal utility for mobile phones versus the roof over their heads! My guess is the same is true of health insurance. Sure, there are many who simply can not afford health insurance and who also don't have the luxury of a mobile phone or Cable TV. But for those who do have the choice, are they making a wise one? If someone chooses "nice to have" services, like mobile phones or Cable TV, over healthcare services or health insurance, the debate for this segment of the population becomes one of personal choices, priorities and the value placed on the last dollar spent on each alternative - marginal utilities.
Affordable versions of mobile phones and Cable TV services exist, with the savings from selecting lower service options available for use by individuals to purchase affordable options for health insurance. For example, Verizon Wireless offers a plan for users over 65 years of age that costs only $29 per month. The PEG (Public, Education & Government) channels on a cable system, which includes the local broadcast stations, can be had for about $20 per month. No ESPN. No MTV. No CNN. But the local football and baseball games! Over the air digital channels are free now with the Government subsidized converter box. Affordable, albeit basic, service options exist.
Most people only think about healthcare and the cost of health insurance when they are sick or when they are doing the annual selection dance for their employer. We think about staying connected and entertained daily, if not hourly, or every minute. If healthcare and health insurance were viewed with the same or higher perceived value by individuals given the cost of each alternative, that is, with a higher marginal utility, as our need to stay connected via mobile phones or the need for Cable TV, would there be an effort in this country to find a solution for "affordable" personal connectivity and entertainment services using the limited disposable income available to consumers after paying for their health insurance and healthcare services? Would there be cries for "Government Options" for "affordable" mobile phone and Cable TV services? You can imagine who would be up in arms about this, and mobilizing lobbyists, to prevent Government run mobile phone and Cable TV services that currently exist in many other countries.
Early economists struggled with a concept called the Paradox of Value, including good old Adam Smith. This paradox posited that necessary commodities were observed to have prices that were lower compared to the prices of luxury commodities. Have we reached the point in society where mobile phones and Cable TV are viewed as necessities (although not cheap ones), and healthcare a luxury good, that one's marginal utility for staying connected has more value, or personal satisfaction, than staying healthy?