This is making the rounds on Twitter:
Just went to Seattle’s UW Medical Center to ask how much patients are being charged for a coronavirus test. $100-$500 if they have insurance. $1,600 if they don’t.
Put your emotions aside and ask the logical question: since the number of tests falls short of current demand, how should we ration those tests? I would think we most wish to test potential super-spreaders, so they can self-quarantine or otherwise be isolated or avoided. A priori, I would expect potential super-spreaders to be those who work in service jobs connected to many other people. Individuals who suspect they already have the disease are also more likely to be super-spreaders, if only because there is a decent chance they actually do carry the disease.
Now at a price say of $500, you will rule out some of the poor, some of the “frivolous testers” (there are people who will try anything that is new), but you don’t rule out many of the middle class people — or wealthier people — who think they might have the coronavirus.
You end up targeting potential superspreaders by “those who think they have it,” but not by “those who work in service jobs where they come in contact with a lot of people.”
An imperfect solution, but not an entirely bad one either. It is probably better than random allocation. And still all of the available tests get used.
How about a government price of zero, combined with rationing? Of course it depends what the principle of rationing would be. From other countries, “I came into contact with a traced person” seems to be one standard, noting that the United States has nothing close to Singapore’s surveillance mechanism in this regard. So you would get a very loose version of that standard, with many flu-laden nervous nellies taking the test, claiming they came in contact with a sick person.
That could perform either better or worse than the market solution. In Singapore it is probably better than the market solution, but I am not sure for the United States. My intuition would opt for the market prices, but I admit that is not verified by either model or data.
A separate issue, hard to judge from current information, is whether there is any positive supply elasticity at the higher price. Of course if there is, that will make the higher price look better, but perhaps other regulatory and pipeline restrictions on testing will mean the higher price won’t matter.
And note that as the supply of tests becomes much greater, as is happening right now, the case for those high market prices becomes much, much weaker. Zero price and no rationing is where we would like to end up, and I think we will.
I find that this problem, and how you tackle it, is a good test for whether or not you think like an economist consistently.