At lunch today a friend of mine was talking about his healthcare and it reminded me I should do another post.
One of the biggest issues of our day is the ever climbing cost of healthcare. I could talk for days about this, but for this article I'd like to focus on my first issue: traditional insurance hides the cost of health care which causes health care prices to rise faster than inflation.
I have an exercise for you. Next time you go to the doctor ask them what it will cost. (Not the co-pay, the whole cost.) You can even wait until you're done. I'll bet 9 out of 10 doctors won't give you an answer. Why? Because the your doctor has contracts with your insurance company that basically say how much they can charge for every procedure. They have these with several different insurers, as well as medicaid/medicare. Your doctor doesn't actually know what they can collect. Instead, the doctor bills your insurance as much as they can possibly get away with and then the insurance adjusts the prices to be in line with the contract.
That means a couple of things: 1) You can't shop for a better rate, because nobody will tell you what it costs ahead of time, 2) You can't negotiate the rate because the doctor is going to work it out with your insurance.
When we were checking out of the hospital after our last child was born they told us they would give us a 20% discount if we paid upfront. We said, "Great! What do we owe you?" That was when they told me something that totally floored me. They said,"We don't know." They then showed us the projected numbers that they thought they would be able to get approved by our insurance. They admitted that they had a special consultant they use that knows all the right procedure codes to ring every last penny out of your insurance company. So at the time you left this hospital they hadn't finished preparing your invoice because they're going to tweak it for maximum billing effectiveness.
Another hospital gave us an itemized bill that showed $7 per pill for tylenol. We even had a hospital once tell us that my wife couldn't take her own medicine that she had brought with her because they wanted her to get it from their pharmacy. No wonder, if they charge 100x the street value of tylenol.
The health care provider's strategy is literally to bill your insurance as much as possible. If they had to tell you to your face then you could shop around and/or negotiate a fair price, instead they just submit it to your insurance.
The insurance acts as a buffer to your outrage over the product price. You go to the doctor, he pops in to talk to you for 5 minutes and then you get a statement that says, the doctor wanted $115, we knocked them down to $100, your 20% will be $20. All the consumer sees is $20 and says, I guess I can live with that. Nobody is asking, why a 5 minute office visit costed $100. But the truth is that your employer's group plan has an allowance for your routine care (which the fund with your premiums). If you go over the allowance then your premium will have to be adjusted next year to cover that $80 they paid out. Otherwise, they'd go out of business. We don't realize that when we get the bill. We think the $20 is the limit of what we'll pay. If we went to the doctor and got stuck with the whole bill you better believe we'd be asking for answers.
Here's another example. I'm told that the law of the land is now that well baby visits are free. Of course, they're not really free. The doctors and nurses have to be paid. The electric bill needs to be paid. The building lease needs to be paid. The shots need to be paid for. So what happens? What happens is that your doctor still submits a bill to your insurance, but your insurance doesn't send you a bill for the doctor visit. They pay 100% of that invoice. Next year, just like in the previous example, your health insurance premiums go up by enough to offset your "free" well baby visits. This is done at the group level, so it might be your baby visits or your coworker's that push the price up. There's no free lunches, friends. Once again by insurance merely becomes a vehicle for blurring our understanding of the costs of health care.
I like insurance, but only as a true "insurance", by which I mean something that we pay into over a period of time with no expectation of using it and if an unlikely event occurs, then it pays back out. Life insurance is for the unlikely event that a young person dies. Car insurance is for the unlikely event that you get into a car wreck. Home owner's insurance is for the unlikely event that your home is lost due to fire or similar circumstances. In all cases, the insurance is a statistical way to shield us from the risk of an unlikely event so that we don't have to be financially destroyed by it if we're the unlucky Joe it strikes. It works because it's unlikely. Lots of people pay in a little, very few large payments go out. It is similar to the way they raise such staggering amounts in the lottery. That's why I can pay $30 a month and have them pay Kamarie $100,000 if I die. Statistically it makes sense. When I'm 70, they won't be offering that same life insurance deal anymore, not because they're greedy bastards, but because it doesn't make sense.
You know what else doesn't make sense. Insuring something with your health care that is absolutely going to happen. Physicals, flu shots, well baby visits, office visits, x-rays, these are routine. These are the opposite of unlikely. They are--wait for it-- likely. When you insure things that are likely to happen you're just creating a financing mechanism. It's an escrow account. I'll pay you $x dollars per month and then you spread that out over the course of the year to pay my expenses. If my expenses are higher than $x*12 then next year you can raise my rates.
That's how comprehensive health insurance works. Well almost. With an escrow, I'm only responsible for my expenses, but with an insurance policies, even individual ones, you are escrowed as a group. So you and your fellow group members pay the same share of the escrow for everyone in your group. Those who use less health care pay an unfair share, those who use more benefit from an unfair share of other peoples money.
What I support insurance for is catastrophic care. Cancer, trama, organ transplants, severe burns, etc. These are all unlikely situations that we could safely insure against without driving costs through the roof. There is an approximation of these types of insurance that are becoming more common. They're called high-deductible insurance policies. By using a high deductible the consumer basically says, don't worry about the small stuff, I'll pay for all of it myself, but if I get cancer I want you to step in once I hit my deductible.
High deductible insurance is what my family is using right now. It was real nice for a while. We were able to pay our premiums and our office visits and still save money compared to a traditional plan. After Obamacare passed our premium went up 44% in one year. That's what happens when you force insurers to cover things that are likely to happen.
I hope that eventually we can get past thinking of insurance as the answer. It is, after all, just a financing mechanism, as our own Solicitor General argued at the Supreme Court recently. Let's talk about ways to drive down the cost of health care, not drive up the enrollment in a health escrow account. There are lots of great ideas out there that make us less dependent on expensive treatments. If we could all get behind those ideas, even if just to make them feasible for those that wanted to opt in to them, then we would actually be able to attack the health care cost problem, instead of the health insurance symptom.
