What if I told you that there’s a way to reduce some healthcare costs in America by as much as 75% without the need for Congress to pass politically hazardous policies like Medicare for All? While I have advocated Tort Reform in the past, Tort Reform would not go far enough to solve the problem of unaffordable healthcare in America. No, we need to engage another tool in the toolkit: transparent pricing coupled with Health Savings Accounts.
One of the core problems with medical insurance in the United States is that we don’t utilize insurance in the way it’s intended. Insurance is a product that one purchases to manage risk, in this case, the risk that they might have a heart attack, a serious injury, or serious illness. But increasingly, we find insurance used for preventative care, including routine check-ups, and procedures that otherwise shouldn’t require dipping into an insurance safety net.
Case in point: You use your auto insurance for repairs after a collision, you wouldn’t use auto insurance to pay for an oil change or a tire rotation. Yet this is exactly what is happening in healthcare.
In the past, I have been critical of right-wing politicians who argue that if the government simply stepped out of healthcare entirely and left it to the “free” market, that prices would decline and quality would improve. Healthcare, in my view, is not subject to market forces in the same way that most other industries are. I stand by this assertion. The “consumers” of healthcare in America are often not rational, informed, and often do not have the freedom of choice upon which markets depend (i.e. a man lying in an ambulance having a heart attack doesn’t have time to shop around for the cheapest ER).
But then, as now, I am commenting on the blind ideological naïveté of the American Right, the false notion that markets are some magical panacea. But my prior commentary does not mean that some healthcare costs cannot be reduced by utilizing market forces where they are applicable. In fact, this all serves to reinforce the need to draw a better distinction between the catastrophic illnesses and injuries that insurance is intended for, and those routine procedures that it is not.
There are a great number of medical services, especially dental services, that could be improved in cost and quality, if subjected to the powerful forces of the market. But none of this can happen until medical procedures and services have transparent pricing that makes comparison shopping possible. At this time, however, it is simply impossible to know what the price of a medical procedure or product really is until AFTER they are complete or purchased.
Recently, I needed a dental procedure, that, for whatever reason, is only covered 50% by my insurance and too expensive for me to afford. I tried to see if other dental offices would do the procedure more cheaply, but after much googling and multiple phone calls, I hit a brick wall: dentists don’t share pricing information. This fact makes it impossible to shop around, and forces you and your insurance company to pay just about whatever the dentist requests for the procedure. In other words, the deck is stacked against the consumer when it doesn’t have to be.
Imagine if you wanted to buy a loaf of bread at your local supermarket, but you wouldn’t know the loaf’s price until after you had bought it, brought it home, and got a bill a few weeks later. As a consumer in such a scenario, you have zero negotiation power. That loaf of bread is going to be far more expensive than it would be otherwise, and there is quite literally nothing that you could do about it.
Prices for goods and services are not useful when they are hidden in charge-masters and accessible only to insurance companies. In fact, these list prices are not “prices” at all, but fanciful anchors for complex negotiations with insurance companies. In order for markets to work their magic, America needs to mandate that all medical providers publicly list the cost of basic procedures for those choosing to pay without insurance. This is a prerequisite for helping consumers make informed choices and helps tilt the balance of power back in their favor.
To get a sense of how this plays out in practice, look at LASIK eye surgery, which is typically not covered by insurance and therefore is a medical procedure that forces direct competition between providers Since the debut of LASIK in the 90s, the inflation-adjusted cost per eye has dropped from about $4000, to as little at $1000 today.
Skin in The Game
Transparent pricing, however, will not matter if consumers aren’t spending their own money. It needs to be coupled with another policy: mandatory Health Saving Accounts (HSAs). Assigned to each person living in the United States, the government or an employer would automatically make tax-free contributions into the HSA. Consumers would then use said accounts when purchasing healthcare goods and services.
Since it is the consumers’ own money that gets used when they go to the doctor, they have proper “skin in the game” and incentive to most efficiently use those funds.
In Indiana, which has already set up a similar system for many residents, the behavioral changes have been stunning. Residents enrolled in HSAs are 67% less likely to go directly to expensive and overburdened ERs for treatment, instead opting for cheaper urgent care facilities. In others words, ERs are being utilized as they are intended…for emergencies only. They also opt for cheaper generic drugs compared to name brands. In total, residents spend about 35% less on healthcare compared with those on traditional insurance plans.
Only when an individual’s HSA account is exhausted would their insurance be triggered. High deductibles and mindful spending would greatly reduce the monthly premium for health insurance. This all ensures that people have the proper incentive to minimize costs, it forces competition between healthcare providers to drive down costs, and limits insurance for those catastrophic instances where it was intended.
Indeed, Singapore serves as a model to emulate. The government of Singapore gives every person a Medisave account, where they require mandatory contributions and combine it with transparent medical pricing and a compulsory catastrophic insurance plan.
Together, these measures achieves amazing results. Singapore provides healthcare coverage for everyone, including foreigners, it does so at a 77% lower cost per-person than the United States, and the people of Singapore are healthier and outlive their American counterparts. It just works.
Not a Panacea
To be clear, transparent pricing and health savings accounts are just another tool in the toolkit for solving America’s healthcare crisis. When combined with Tort reform, it would be possible to meaningfully reduce costs and improve healthcare outcomes. These steps are no silver bullet, but they are simple and affordable measures to help ease the pain of millions of struggling Americans who have seen their paychecks steadily gobbled up by the rising cost of healthcare.
We mustn’t fall victim to ideological rigidity, the American Right assumes that the “free” market is a cure for all ills, while the American Left sees Medicare for All as our only savior. While American politicians would have you believe that the choice is binary: total worship of the free market or total repression of it, the truth lies in between. No, the best path forward is to utilize the market where it works, and accept that the free market also has limitations…the best path forward is the middle way.
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