There has been a lot of talk about healthcare in the news recently, especially in regards to its reform. For the most part, these discussions center around coverage: who pays for it, who will get it and what that means for those who do? What seems to be missing from the discussion is an acknowledgment that a system that doesn’t hold the recipient at least partially responsible for the financial burden of their medical expenses is likely to fail.
The problem with America’s current system is evident with one look at its global performance. Though life expectancy is about the same in France, Sweden, the United Kingdom and the United States, the price of healthcare (as a percentage of Gross Domestic Products) varies greatly. According to the World Health Organization’s 2009 report, the U.S. pays over 15%, whereas France pays 11.2%, Sweden 9.2% and the United Kingdom 8.2%. We are paying more for what is essentially the same level of healthcare because our system encourages inflated costs.
In order for the system to succeed in keeping healthcare costs down, the recipient needs to be discouraged from frivolous medical procedures, and from frequenting expensive medical practitioners when equally competent and cheaper practitioners are available. The success of a free market depends upon its ability to reward the medical providers who offer the best services for the lowest prices. Under the current system, the majority of patients are not incented to find the best medical provider at the best price, as long as the insurance company is picking up the tab. Moreover, doctors are also not incented to keep the costs at a minimum, given that their patients do not care as long as their insurance company pays.
While the insurance companies negotiate lower rates from the doctors in their networks, they are not nearly as well positioned to drive down costs as consumers would be. For starters, insurance companies are interested in keeping costs down – but only up to a point. Then they make up their increased expenses by increasing customer premiums. Moreover, insurance companies cannot incite doctors within their network to compete against each other in making their practices more efficient. A consumer actively seeking out the best deal would naturally force healthcare providers, even in the same network, into the state of competition upon which free market principals depend. Lastly, comparison shopping can more efficiently control prices for medical treatment than can an insurance company, which must deal with large unified national groups of healthcare providers. By being hands on, the individual seeking healthcare necessarily avoids the problems of collective bargaining. In fact, consumers involved in medical price comparison, acting en masse, will create a workforce that will place constant and organic downward pressure on medical costs.
In a recent interview, Ken Schachmut, Senior VP at Saf eway, describes how Safeway overhauled its healthcare system and reduced per capita spending by 13 percent. His method relied on the foolproof free market notion that between two similar alternatives, consumers will purchase the least expensive. His company offered to pay an amount equal to what it considered an average cost for procedures as a reimbursement, leaving the patient responsible for the remaining costs. According to Ken “We found the cost for a colonoscopy within a 30 mile radius of our headquarters building ranged from under $1,000 to almost $6,000 – without, as far as we can discern, any difference in outcomes or quality.” What the limited reimbursement did, in this case, was to encourage Safeway workers to shop around.
At Wallet Blog we strongly believe that a similar consumer incentive will be a necessary component for success, no matter which healthcare plan arises out of the current discussions. We also realize that there are those who will bristle at the idea of out of pocket expenses when it comes to universal healthcare, especially for those who live below the poverty line. We accept that exceptions will need to be made, but certainly believe that without free market incentives, the system is in danger of not working at all. One possible solution might be for the government to offer zero percent interest medical loans to cover expenses past a deductible – these loans would need to be repaid once and if the patient’s income becomes higher in the future.
However you spin it, the system that exists now under which the insured are never asked to shop around for their healthcare causes costs to rise. In the end, consumers pay for these costs through increased insurance premiums and limitations to coverage. We do not believe that the way to keep costs low is through a government run health insurance plan, through the insurance companies, nor through the ”commitments” that healthcare providers have made to President Obama. We believe that patients are in the best position to perform comparison shopping, and as a result reign in the excesses of healthcare costs.