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Cut Costs Without Rationing Care By Putting Patient Back In Charge

By TEVI D. TROY AND JEFFREY H. ANDERSON
08/31/2009 07:28 PM ET


Decades of data confirm a simple truth: If we want to lower health costs, we need to put consumers back in charge.

Many people now feel like second-class citizens when they enter the doctor's office. That's because everyone in the office knows that the patient isn't really the payer — that the patient doesn't hold the purse strings.

The greater the percentage of medical costs that patients pay to their insurance company in premiums, the more insurers are in charge.

The greater the percentage that patients instead pay directly to their doctor out-of-pocket, the more patients are in charge.

Whether it's televisions, computers or Lasik eye surgery, when consumers are in charge, prices stay in check. In 1970, consumers paid for 62% of all privately purchased health care out-of-pocket. Today that percentage is just 26%.

Meanwhile, per-patient health costs have nearly quadrupled — even after accounting for inflation.

Consumers are paying less directly to doctors, but they're paying four times as much overall — to insurers or the IRS.

Where consumers have had the least control, costs have risen the most. As a study by one of the authors (Anderson) for the Pacific Research Institute study has shown, since 1970 the per-patient costs of Medicare and Medicaid have each risen one-third more than the combined per-patient costs of all other health care in America — the vast majority of which is purchased privately. And that's even without the Medicare prescription drug benefit.

Yet President Obama and most congressional Democrats insist that a dramatic expansion of government-run health care is necessary to cut costs.

Only two basic ways exist to cut costs: putting consumers in charge and letting them pursue value; putting the government in charge and letting it ration care.

So, how do we put consumers back in charge? First, we need to reject the current bills in Congress, which would restrict consumer choice substantially. Then we need to empower consumers in three key ways:

1. End the unfair tax on the uninsured. We should give tax credits to individuals and families who are uninsured or self-insured, thereby putting them on the same ground as those with employer-sponsored insurance.

This would reduce the number of people who are uninsured, increase fairness and inject needed life into the insurance marketplace. Those with self-purchased insurance shouldn't have to pay higher taxes than those covered by their employer.

2. Make it easier for consumers to see prices. When then-Secretary of Health and Human Services Michael Leavitt was in China a couple of years ago, he posed for a picture in front of a giant fast-food-style menu board.

Instead of cheeseburgers and fries, the board listed medical services and prices. If Chinese consumers can see prices and respond accordingly, American consumers should certainly have the same freedom.

3. Encourage consumer-driven insurance models to give consumers skin in the game. Intel offers a plan in which it pays all insurance premiums, while its employees pay all health costs up to an annual deductible of about $2,500 for families — with certain preventive care provided for free.

Intel employees deposit part of their income into a health savings account tax-free, just like any income that's used to pay for insurance premiums is tax-free.

These consumers have a stronger incentive to shop for value — as everything they spend up to $2,500 comes from their own pockets, and everything they save is theirs to keep. Whole Foods offers a comparable plan.

Similarly, Safeway has an employee-incentive program rewarding healthier lifestyles. If you exercise, watch what you eat and don't smoke, you get charged lower premiums. This has cut costs by almost 40%, and 76% of Safeway's employees are asking for more cost-cutting financial incentives.

Unfortunately, the federal government currently limits the use of such incentives.

Even more unfortunately, the bills being debated in Congress would greatly undermine consumer-driven plans by capping by law the percentage of payments that patients could make directly to their doctor — thereby entrenching insurers' control and denying consumer control.

Furthermore, the Senate bill would make it illegal to charge lower premiums to those who stay in better shape. Instead of making the tax code fairer, prices more transparent and consumers freer to shop for value, the Democratic bills offer a combination of mandates and restrictions, subsidies to families making up to $88,000 a year, and government-run care.

Yes, some can't afford insurance or suffer from prohibitively expensive pre-existing conditions, and they should receive needed financial assistance.

But the core of our system should be built around common sense, market-based principles, not the government-centric ones espoused by the president and the Democratic Congress.

Any system that cannot control costs won't have much left over for the needy.

Across nearly 40 years, the costs of government-run medical care have risen far more, per patient, than the costs of privately purchased care. As consumers' opportunities and incentives to pursue value have diminished, costs have skyrocketed.

Even President Obama has talked about the hidden costs of unnecessary care: "You may not see it because if you have health insurance right now (the money is) just being sent to the insurance company."

His solution is to redirect that money to the federal government. This would cement a still more cumbersome middleman in place, consolidate power in Washington and reduce consumer freedom — while increasing taxes, deficits and costs.

The only proven pursuer of value in American medical care is the American consumer. By basing policy on this principle, we can bring our costs under control while maintaining — and improving — our high quality of care. If consumers are encouraged to control their own resources and shop for value, they'll find a way to do what they've done in nearly every other economic sector: pay less for higher quality.

Experience has shown us what works. The only way to cut costs without rationing care is to put the American consumer in the driver's seat — and to put Washington in the rearview mirror.



http://www.investors.com/NewsAndAnalysis/Article.aspx?id=504860

and to put Washington in the rearview mirror.

I'm going to be doing this at the polls in consideration of all issues, not just health care. All incumbents will get no vote from me, I don't care what party the opposition is.

Thanks for the article,...good idea. The question I have is, why is health care and what the insurance companies 'think' they have to reimburse so high anyway ?? It -- like everything else -- isn't about doing the right thing(s); it's about the money, the greed, the profit. Period.

Somehow I can't picture myself in the middle of an medical emergency surfing the web or pulling out an issue of Consumer Reports to educate myself about my sorry condition, and then evaluating differing (and perhaps conflicting) medical opinions, and formulating a plan of action to take as a consumer in need of urgent health care.

Thats nonsense, be serious.

Okay seriously:

I thought it was a well written article but there are a few things that give me pause. The first is the comparision made between buying medical service to shopping for a television. That's a notion I can't take seriously.

The second is the whole underlying premise. If capitalism hasn't brought into check insurance costs, why do the authors believe it is the answer for controlling medical costs? That there seems to me as a big hole in their argument.

I think they are saying that if we allowed the people to have more of an contribution to their medical needs, the prices would self adjust.

If you paid for your doctor visit out of pocket, it would probably cost $30-50, vs the $20-30 co-pay currently.

Sure it sounds like your paying $20 more, but your not, because your insurance would be less, because currently the doctor takes your co-pay then sends a bill for $120 to the insurance company, hoping they get half of that approved and paid.

Most doctors would be happy to accept a $50 visit charge versus collecting $80 total but having to fiddle with the insurance company over and over to collect.

Your bigger expenses such as ER visits, surgery and specialist referrals would be where your insurance kicks in.

But as the system works today, the insurance is the main contributor to the payment of your health services, and the system is so confusing, frustrating, and screwed up that the costs of billing & collecting through insurance companies has driven costs up.

Now the problem I see is that now that people have gotten used to the lower co-pay system, they won't see that they are saving in the long run by paying for their own visits, and just assume they are paying more. But if my insurance dropped from $160/mo to $80/mo I'd be ecstatic. Especially since I go to the doctor 1-2x a year if that. I would spend $100 out of pocket but be saving 960/yr from my payroll deduct.

I really hope my company adds a high deductible plan this year... 16k in premiums paid out between the company and myself for this past year, and even with the birth of my son, didn't come close to breaking even...

Well as you describe it, that's nothing different than what I have now. I've always selected the insurance option with the highest deductible and the lowest premiums. And regardless if I'm paying or my insurance company is paying, my doctor charges the same fees. However that fee it is adjusted downward based on what the insurance company has set as their schedule - sort of like fleet pricing in the auto business.

The premise is actually a good one.

There was an article in the New Yorker magazine a couple of months ago about health costs.

The highest per capita health costs in the US are in McAllen, Texas, it has nothing to do with population or location, but the number of tests perscribed by doctors.

I would love to see pricing. The calculation of pricing versus reimburesements is the biggest game of all. Doctors and hospitals inflate prices, and insurance companies lowball claims. Medical coding is a art, and the people who are very good at it can make a doctor or hospital wealthy.

I don't buy into the ration care argurement, it is just a talking point and not worthy of discussion. Insurance companies ration care all the time by denying claims. People ignore this fact.

I would love an expansion of wellness care. I would also love periodic qualification for reduction/credits in health cost based on stress tests and results of physicals and past history. We can't prescreen other than age, and that is not right.

Dumb question.. when were patients ever in charge...

The price gouging is a big part of my definiton of 'the problem.' I don't think that's what The President is trying to fix though.

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The consumer isn't controlling the costs of insurance or medical care, the providers are right now. If the consumer decided when money was spent, less would be spent.

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As you stated before, buying a service is different than buying a product. When buying a product, you can price shop, you can ask questions, do research on the exact thing you are looking at. Like a television or a car, you can compare, hold them check out the specs, etc... you can't do that with a service like a doctor or an engineer or a lawyer. In those cases you can check into the reputation of the person (or firm) and do your research and monitor them but in the end, the "product" or the results aren't known until the end. Essentially you have to put SOME TRUST in these professionals that they know what they are doing and will act in your YOUR best interest... and the vast majority of professionals do...

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Remember, in Washington being able to say you did something carries more weight than actually having done something.

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An all too sad truth.

I'm sure you do also, but I trust my doctors,, Good guys to be sure.

I tend to listen very closely to what they tell me. As I'm sure most of that trust our doctors do.

but I get your drift. Still to me, the Dr. is in charge of what he tells me knowing that I don't know what he knows about mediciine.. or the practice of medicine.

And, ftr, this thread isn't about medical care as much as it's about putting the patient back in charge of price gouging and medical care costs. If Doctor Bob two blocks over is just as competent as Dr. Sue (who charges twice the amount for the same services), why should my insurance company force me to go to Doctor Sue?

I think this argument is getting turned around a bit. It's not about not trusting your doctor. It is about a third party, paid for by another third party stepping in and telling you AND your doctor what to do. The decision should be between you and you doctor period. If you are too shy to question, so be it. If you want to debate every decision with your doctor, so be it. But there shouldn't be a financially motivated entity, with no loyalty to you, deciding what is and isn't qualified treatment.

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If Doctor Bob two blocks over is just as competent as Dr. Sue (who charges twice the amount for the same services), why should my insurance company force me to go to Doctor Sue?

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But But But,,, insurance companies are our friends They'd never to anything to harm us just in the name of profit.... would they?

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If Doctor Bob two blocks over is just as competent as Dr. Sue (who charges twice the amount for the same services), why should my insurance company force me to go to Doctor Sue?

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Perhaps Dr. Sue is affiliated with and will refer her patients to specialists that cost 3 times as less as the ones that Dr. Bob will. For example... Dr. Sue is affiliated with Hospital System A which keeps its costs much lower than Hospital System B who Dr. Bob is associated with. So the Insurance Companies are willing to put up with a higher Office visit rates to save on the the money that would go out for tests and outside references.

I understand the question and frustration...and I absolutely agree to a point. But I just wanted to show that it is not as cut and dried nor as simple as it we would like it to be...Nor is it always about money grubbing profiteering as others would like to make it out to be...