Every time I pull out my credit card with the higher cardholder reward I fill a twinge of guilt that I am costing the retailer a bit more for the transaction — more than I benefit by the customer reward — and realizing also that I am doing my part to drive up retail prices for everyone. This article by Ron Lieber for the New York Times discusses some of the damaging effects of consumer rewards.
Health insurance is similar in the way that individuals optimizing their personal situation results in greater costs for all. Once someone or their employer has paid their premium, they have no incentive to economize their use of health services, and their doctor advising them has a strong economic incentive to over-prescribe procedures (both for revenue and tort-avoidance reasons). The foregoing is mitigated somewhat by co-pays and deductibles. The result, which we have observed over the last several decades, is that health services are over-consumed, insurance rates increase the next year, and the cycle starts over. There is nothing in Obama care that addresses this fundamental problem. In fact, it seems designed to acerbate it.