Hoover Daily Report

When Patients Pay, Costs Come Down

Monday, November 3, 2003

The past several years have seen dramatic attempts to control costs in the U.S. health care marketplace. These attempts have given rise to unprecedented dissatisfaction and widespread skepticism about managed care among patients, doctors, and insurers. Moreover, health care costs keep rising. Despite the recognized failure of managed care to control costs, and the failure of Canadian-style health care to deliver timely access to high-level medical care, there is now a call for even more bureaucracy: government-directed nationalized health care, the opposite of what we need. What we need in the United States is an infusion of free market exposure, giving patients authority for decisions about health care and responsibility for spending their health care dollars.

What would be the effect of such remedies on health care costs? Since medical technology is considered a prime cause of the high costs of medical care, let's look at one such case in point—whole-body computed tomography (CT) screening centers, which use sophisticated and expensive imaging technologies. Over the past decade, hundreds of these centers have opened, primarily in affluent population centers in California and the Northeast. Patients are self-directed to these centers—there is no need for physician referral or input. And patients pay directly out of pocket, with no insulation from the price of their medical care by insurance agencies. When given the authority and financial responsibility for these tests, patients have exercised value-conscious purchasing. The costs have dramatically lowered over time; what was once a $1,500 scan is now often advertised at one-third of that price!

Similar free market-driven price reductions have been seen with other advances in medicine. Laser surgery for vision correction was initially not a covered surgical procedure; thus people desiring this treatment paid for it directly. Charges for this surgery came down by more than half over the first several years. A number of cosmetic plastic surgery procedures are also not covered by traditional insurance; again, prices diminish over time as consumers factor cost into their decision-making process. Out-of-pocket expenses for health care are important to consumers—consideration of price is an essential component of a free market economy, and health care is no exception.

Cost controls have been attempted numerous times in a variety of other markets in the past, and the consequences have been disastrous. We do not need more insurance coverage with increases in benefits. In fact, the opposite—exposing medical care to free market economics—is essential. More-direct spending of money by patients will increase competition and drive down costs. Our world leadership in advanced medical care and access to it are in jeopardy if a nationalized health care system, with more governmental controls and isolation of patients from value considerations in spending their health care dollars, is put into place.