Health Care Cost Control – It’s Hard But Can Be Done

There’s a commercial that has been running recently that shows someone considering the purchase of a consumer item and they ask question after question about the product.  In the next scene they are in the doctor’s office and when the doctor asks if they have any questions they hesitate and then say, “No.”  The message is that you should ask as many questions of your doctor as you would of the salesman selling you a flat screen TV.

What if the flat screen TV were free?  Or what if it was limited to a $20 co-pay?  Would the consumer ask as many questions?  The consumer is probably asking the questions because he or she is about to lay out $1,000 of their own money.  If the TV costs you only $20 do you bother with the questions?  If the TV doesn’t work, you can go buy another for $20, no?

For most of our health care plans we have what is called 3^rd party payer.  We go see the doctor and except for a nominal co-pay, someone else picks up the tab. But what if the health care consumer was put front and center in the process? How would that look?

Insurance as Insurance

We call it health care insurance, but it doesn’t look like any other insurance we may own.  We buy insurance to protect ourselves from financial catastrophe, not to cover everyday expenses.  If our house needs a paint job, we don’t file a claim on our homeowner’s insurance.  If we need gas for our car, we don’t ring up the gecko at Geico.  When we need food we don’t submit the grocery receipt to our life insurance company.  So why is virtually every expenditure related to health submitted to our insurance company?

I was once covered by a health insurance plan, through my company, that cost around $10,000 per year.  I was healthy and didn’t often need a doctor, but that didn’t affect my insurance premium.  I found a plan that was a “high deductable” plan with a Health Spending Account.  It worked like this.  My insurance premium was cut from $10,000 to $5,000.  In addition I opened a Heath Spending Account (HSA) that I could fund with up to $5,000 per year, tax deductable.  So overall, if I fully funded HSA, the cost was still $10,000.  So why do this?

The plan came with a high deductable of $4,000 per year, in other words, the first $4,000 were paid by me, not the insurance company.  I could use the money in my HSA to cover that.  But the kicker is that the money in an HSA rolled over from year to year and if I never used it, I could roll it into an IRA later.  Do you think there is a strong incentive there for me to be involved in my medical care?  Do you think I would ask more questions, before going to the doctor and when I met with him?  You bet I would.

The Broken Health Care System

But how does our government screw this up?  Easy.  When I left that company and was out on my own and tried to buy the same type of policy I found that many plans were available until I told them where I lived.  “You live in New York?  Sorry, that plan is not available in New York for an individual.  It is only available through companies.”  I checked with my state insurance regulator and they said, “Sure, we have a plan like that for individuals.  Do you make over $27,000?  Oh, you do?  Then it’s not available.”

So a plan that involves the consumer in making informed health care choices, which is the only way market forces can truly come into play, was not available for me by government dictate.  But the federal government wants to take over health care and give it to everyone on the model of 3^rd party payer where the consumer doesn’t care a whit what it costs.

Informed Health Care in Action

Fortunately, my experience being involved in health care choices didn’t evaporate with my ability to get the insurance plan of my choice.  I was advised by my doctor that I was of the age to start screening for colon cancer.  The most effective way to do this is through a procedure known as a colonoscopy.  I will spare you the details of the procedure. 

As an informed consumer I looked up the risk factors for colon cancer:

1. A personal or family history of colorectal cancer or polyps.
2. A diet high in fat and low in fiber.
3. Inflammatory bowel disease (Crohn’s disease or ulcerative colitis).
4. Obesity.
5. Smoking

Okay, I have none of the above.  What is the chance of dying of colon cancer?  In the U.S. the chances are 0.017% and that is based on the whole population, regardless of whether or not you have any of the behaviors listed about, or about the same chance as being killed in a car crash.  I decide to have the procedure.

The procedure gives me a clean bill of health and the recommendation is to repeat the procedure every 5-10 years.  In processing my insurance claims, to be paid by a 3^rd party, I noticed that the procedure cost $3,000 about evenly divided between the doctor performing the procedure, the anesthesiologist, and the hospital.  So if I have the procedure as recommended, it would cost $10,000 – $20,000 to screen for an illness for which I had low risk, no history, none of the bad behaviors, a current clean bill of health.  No thanks.  If I had the plan that I wanted that could be $10,000 – $20,000 in my retirement plan.  How many other possible diseases should I screen for and pay similar sums?  As a consumer I am making a risk/reward judgment and in doing so, I have reduced health care expenses in the United States by $10,000 – $20,000. 

In the ObamaCare plan, that money will be spent because the typical consumer doesn’t care if the procedure is done every year because it has no financial impact on them.  Do you think that is why health care costs continue to rise?  What doctor is going to take a chance that he did not recommend that procedure and find out that you and your trial lawyer are asking him why he didn’t because you contracted colon cancer?

The counter argument will be, “Well what if you get colon cancer and you could have prevented it if you had screened for it?  What is that going to cost and who is going to pay for it?”  Well, with my liberty still intact, I can make some further decisions.  I still have that money, and more of it, in my HSA that I can use.  If the cost of treatment exceeds $4,000 then my insurance company can use that premium money that I have been paying them for years without them having laid out one dime over that period due to my good health and good choices, to help with my treatment.  Or I can make the personal decision, if I am say 80 years old, that I had a pretty good run and I would rather leave my wealth to my family, if the government isn’t salivating to grab that, than to spend it all to eke out another few years.  I can choose to go quietly into that good night.

Liberty and Tyranny

I want to have the liberty to make those choices.  Everyone having the liberty to make those choices will bend the cost curve down.  The medical community, which is a business, will have the incentive to find a way to drive down the cost of a $3,000 procedure to say $300.  If they did so, I just might show up every 5 – 10 years at that price.  That’s how markets work.  If your flat screen TV set, or your medical procedure is too expense the demand drops.  If you find a way to keep lowering (get that?  lowering) the cost the demand will rise.  But if you don’t pay the bill, if you don’t see the bill, you don’t care about the bill.  If you don’t care about the bill and no one else does, then the government gets involved and the problem doesn’t get solved.  Your liberty gets taken away along with your money and the government tells all their stupid citizens what to do, because, after all, government knows best.  Right?

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