By Paul Hsieh, MD
What simple health care reform has reduced medical costs by up to 30%, while preserving quality of care? Hint: It’s not government price controls or mandatory health insurance. Rather, it’s letting patients decide how to spend their own health care dollars.
The RAND Corporation recently published a study of 360,000 families who used Health Savings Accounts (HSAs) to control their own spending on routine medical expenses. These HSAs were coupled with high-deductible insurance to cover unlikely-but-expensive serious accidents and illnesses.
According to health economist John Goodman: “Not only did spending go down by as much as 30 percent, there was no noticeable decrease in quality and no discernible difference in outcomes among various income groups.” Nor did patients with chronic conditions such as diabetes skimp on preventive care relative to healthier patients. The study authors estimate that widespread adoption of HSAs could reduce overall health costs by as much as $57 billion. Health economist Greg Scandlen thinks it could be much more.
This makes perfect sense. People are much more careful shoppers when their own money is on the line.
In my own practice, I’ve counseled many patients with HSAs deciding between, say, an ultrasound or a CT scan for their condition. We discuss the relative costs, accuracy, and disadvantages of each option, but the final decision is always theirs. I’ve been consistently impressed with my patients’ ability to make appropriate decisions about their medical spending. Patients can shop prudently for health care just as they do for cars or big-screen televisions.
Recently, it’s become fashionable for pundits to blame rising health costs on the “fee for service” system, where doctors and hospitals are paid for each service they provide. But as Greg Scandlen noted, we routinely pay “fee for service” for food, clothing, and electronics, and this hasn’t resulted in out-of-control inflation. This is because consumers directly control their own spending for these items. HSAs allow patients to similarly control their medical spending.
Scandlen notes that the real cause of rising health costs is not “fee for service” but rather a third-party payer system that encourages wasteful spending.
Suppose you received part of your salary in the form of a tax-exempt “food plan” which covered your meal expenses except for a nominal co-payment. If your out-of-pocket expense for a steak dinner was only 10% of the actual cost, you’d likely consume more steak than if you paid the full cost yourself. How many of us would be prudent diners if we ate out every night on the boss’s expense account? Similarly, it’s no surprise that patients covered by tax-exempt employer-based health insurance spend more than patients with HSAs. (The special tax exemption on employer-provided health plans explains why Americans typically receive health insurance through the workplace, but not their car or homeowners insurance.)
Even worse, because too many pundits and politicians wrongly blame rising health costs on “fee for service” rather than federal tax policy, their proposed “solutions” don’t address the underlying problem but will instead harm patients.
For example, the Massachusetts legislature is considering further restrictions on health spending to control the skyrocketing costs of RomneyCare. This includes outlawing “fee for service” and instead mandating “bundled payments” where hospitals and doctors receive a fixed fee for managing their patient’s medical problems. If providers can treat the patient for less than that amount, they keep the excess. If the patient’s care costs more, the providers must absorb the loss.
In theory, bundled payments will encourage “efficient” care. But in practice, they create perverse incentives for doctors to skimp on care, especially for the sickest patients. If you’re an otherwise healthy 25-year old with pneumonia, hospitals will gladly treat you because the standard pneumonia payment will exceed their expected costs. But if you’re a frail 60-year old diabetic who catches pneumonia, some hospitals may seek any semi-plausible pretext to transfer you to another facility. You’ll become an unwanted medical “hot potato.”
Likewise, if the bundled payment for your life-saving heart surgery is $40,000, some hospitals may be reluctant to accept you if they expect your care to cost more than that amount. Leftists typically argue that government-run health care is morally superior to market-based approaches because “you can’t put a price on human life.” But bundled payments literally set a price on your life. And ObamaCare legislation authorizes the government to begin bundled payment pilot projects nationally, not just in Massachusetts.
Our choice is simple: The marketplace or the bureaucrat? Do you want the freedom to spend your own money for your own best medical interest according to your best judgment? Or do you want the government deciding how much can be spent on your health care? Your life may hinge on your answer.
Paul Hsieh, MD, is a physician and co-founder of Freedom and Individual Rights in Medicine (FIRM). He practices in the Denver area.
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