Health care is a top domestic issue in this year’s presidential campaign. No wonder. No one is happy with the current system. Patients and doctors view it as bloated, unnecessarily complex, restrictive, and increasingly costly. Employers view rising costs as a major deterrent to expanding their job pool. The question is how to best remedy the problem. There are two competing approaches advanced in the presidential debate. Only one, I believe, represents a cure.
There has been a serious misdiagnosis of the problem of rising costs. Advanced medical technologies are often blamed, but that is not correct. The main problem is our third-party payer system. The absence of direct payment from patient to doctor for most medical expenses has shielded Americans from considerations of cost. It creates the illusion that “someone else is paying” and fosters the idea that patients are entitled to all medical care, regardless of cost. That is a costly illusion. It is also the heart of our problem.
Consideration of price is an essential component of a free market economy, and health care is no exception. Third parties now pay an unprecedented 85 percent of health-care costs. This encourages patients to neglect cost and overspend.
How do major party candidates say they’ll fix the problem?
Senator John Kerry wants to shift more costs to taxpayers, which would in fact expand third-party coverage. His plan will add $895 billion to the cost of the system over 10 years, according to the Commonwealth Fund.
The Bush administration’s Medicare Act of 2003 offers a much different approach. It offers high-deductible health plans to cover unanticipated and significant expenditures but not the vast array of routine expenditures now covered by most health plans. This makes enormous sense. After all, we do not expect our homeowner’s insurance to reimburse us when light bulbs need replacing or when the kitchen sink gets clogged or when the gutters need to be cleaned.
Under this change, patients will pay directly for most medical expenses. This shifts power to the patient, not cost. Incentives for value-consciousness thus enter the decision process. That alone should significantly reduce expenditures.
Raising deductibles will also make health insurance more affordable. The high cost of coverage is the major cause of the rising number of uninsured, as many employers have withdrawn health insurance from benefits packages. Health services researchers Jason Lee and and Laura Tollen report that a combination of 30 percent coinsurance with a $1,000 deductible would reduce premiums 44 percent. According to their study, savings in health insurance premiums would approach 50 percent by raising deductibles to $2,000.
High deductibles will eliminate small claims and thereby reduce administrative costs, projected to exceed $200 billion yearly by 2012 and rising faster than any other health-care cost, aside from prescription drugs.
I understand concerns about people adjusting to a system in which they pay for previously covered care. First, the Medicare Act of 2003 established tax-favored Health Savings Accounts, or HSAs, which allow us to deposit money targeted for health care up to $2,600 for individuals or $5,250 for families.
These accounts are a vast improvement over previous health-care savings plans. Higher caps on contributions are allowed, so high deductibles can be covered, and HSAs are allowed to accumulate, tax-free, without being subject to “use it or lose it” rules. Also, these accounts are owned by the individual rather than the employer and are fully portable. Deposits to the accounts would come from cost savings of lower premiums for the new high-deductible plan.
These accounts are right in step with our shift toward self-directed health care. According to a recent study, the percentage of consumers who unquestioningly follow their doctors’ recommendations fell from 53 percent in 2000 to 36 percent in 2002. Moreover, physicians—at 27 percent—rank as the second-most important source of information for patients, far behind the Internet, with 37 percent of consumers using the latter to research hospitals, physicians, medical conditions, and insurance plans.
Can consumers make appropriate decisions about health care? The answer is a resounding yes. Arguments against empowering the patient for health-care decisions beg comparisons to the automobile industry and to self-directed retirement accounts, industries where consumer decision making is the status quo.
The next president simply needs to trust the people with their own money. That is the cure, plain and simple.
