My wife and I have a “high-deductible”
health plan. And we credit this type of
plan for saving us money on healthcare expenses. “Why”, you ask? Because incentives matter.
Here’s how it
works. In January of each year, United
Healthcare deposits $2,400 into our health savings account. We may use the funds for any medical-related expenditure,
including some qualifying dental expenses.
As an additional benefit, we aren’t required to establish a primary care
physician and then waste time and money searching for referrals. Instead we may visit the specialist of our
choice without the hassle of first asking for permission.
Costs for office
visits and procedures are paid directly out of our HSA account. And filing is similar to other kinds of
insurance. We just hand the doctor our
insurance card and the funds are deducted from our account. We can save money by using in-network
doctors, but we can also venture out if we want. Sure, we’ll pay a little more, but the choice
is ours, and we believe more choice is good.
Now, here’s the
best feature: any unused funds from the prior year are automatically carried
forward into the next year – up to a maximum of $10,000 per family. This allows us to “save” up for an emergency. The ability to roll over unused funds also
creates a neat incentive – it makes us smarter consumers of our healthcare
dollars. We routinely shop around and are
quick to question doctors about procedures. And our efforts pay off. Our dermatologist sent tissue samples to two
different labs. One lab charged $495 and
the other $125 – for the same tests! With a regular health plan, there is
exactly zero incentive (once the small co-pay has been paid) to forego any additional
test, procedure, or lab work because the cost to do so is hidden.
Americans overspend
on healthcare because we don’t know how much we're spending. While this may sound crazy, it follows the economic
axiom that people tend to over-consume when not faced with the full cost of consumption. With traditional insurance coverage, most
costs over and above the co-pay are paid directly by the insurance company, not
the consumer. This “third party” payer
system has had the unintended consequence of masking the true cost of
healthcare. When friends ask about how
much a particular procedure costs, we simply respond that it was covered by
insurance. And since we don’t know how much
something costs, we can’t really know if we should forego its purchase. We’ve abandoned one of the most essential
elements of free market economics: the price system.
The price system
works because we respond to incentives. Absent
this remarkable feature of the market system, our ability to weigh tradeoffs is
severely diminished. Our so-called solution has been to shift this responsibility
to third parties like insurance companies.
But this is problematic. We routinely
complain and lament insurance companies for denying claims. On the other hand, insurance firm owners
probably complain that their customers are routinely trying to abuse their
services by constantly ordering wasteful tests and unneeded procedures. And this awful arrangement will continue as
long as we as health consumers are denied access to prices.
Consumer-driven
high-deductible health plans save money because they capitalize on the economic
theory that people are more cautious when spending their own money. Insurance plans that allow consumers to
accumulate unused healthcare dollars for future healthcare expenditures create
additional incentives for healthcare consumers to comparison shop. This would help create true healthcare competition
– something that is badly needed.
Obamacare does
little to advance this money-saving potential.
In fact, Obamacare discourages high-deductible plans in favor of more
traditional insurance arrangements. This
is unfortunate and almost guarantees that we’ll continue to spend ever more on healthcare
while denying folks the opportunity to be in control of their healthcare
choices and dollars.
