ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Wednesday, December 07, 2005

Market Forces in Healthcare

This Op-Ed in the Wall Street Journal regarding Healthcare Savings Accounts (and how to improve them) is great.

HSAs allow people to purchase a relatively inexpensive, high-deductible insurance and deposit money into a tax-free account. Thus, they combine real insurance (i.e., coverage for high and unpredictable costs) with contributions to a savings account that can be used to pay for smaller health expenses and rolled over from year to year. HSAs are a significant departure from the last four decades of health reform, which have been dominated by paternalist programs like Medicare, Medicaid and managed care. HSAs seek to give Americans more control of their own health care. Of course, insurance executives and employers are hardly known for their eagerness to embrace change, especially change this sweeping. Yet, despite its youth, the HSA enjoys a significant birthday:
  • In March 2005, America's Health Insurance Plans, a trade group, released a survey of its membership showing that enrollment in HSAs had doubled over the previous six months, and exceeded a million Americans. About half are in the individual insurance market.
  • In a survey, Blue Cross found high levels of satisfaction among HSA holders: 65% would recommend the plan to a friend.
  • More and more insurance companies offer the plans. Blue Cross Blue Shield promises HSA products in 49 states by 2006. Even Kaiser Permanente -- the company that invented managed care -- now markets HSAs.
  • Large employers are increasingly looking at the option. A Mercer study found that 5% of employers with over 500 employees and 22% of companies with over 20,000 employees were offering these consumer-driven plans in 2005. Next year, 11% of all employers will offer such plans, including Wal-Mart.
But HSAs are quietly gaining popularity. Perhaps most importantly, they are changing the way Americans think about their health care; empowered with health dollars, people are becoming more cost conscious. As a result, many insurance companies aren't just selling HSAs -- they're offering companion services, like information Web sites. At the Cigna site, members can estimate annual costs, compare drug prices and access comparisons of hospitals (showing quality ratings for certain procedures, as well as cost and length of stay). Others offer "health coaches," so that a health professional can help patients navigate health care's choppy waters.
A remedy is readily available: Congress should pass Rep. John Shadegg's Health Care Choice Act, which would allow out-of-state purchase of health insurance. Modeled after interstate banking laws, this legislation would create a national market for health insurance. Critics suggest that consumers would be stripped of basic protection since local regulations could be circumvented. But that simply isn't the case. Nothing would stop a New Yorker from buying a New York policy; there simply would be the option of going out-of-state as well. Governments can also take a leadership role in popularizing HSAs by making them available to public employees. Despite the dire financial condition of most public plans, only the federal government and Arkansas offer HSAs. Imagine the impact on the marketplace if hundreds of thousands of state employees had them.

It was 2 years ago that HSAs were introduced and they may be the last best hope to fend off the forces of socialism when it comes to healthcare. Why is that?

Ask your average healthcare customer how much their doctor charges for a visit. 95% of the time, the answer you'll get will be the copay or the fee that the individual pays, not the actual charge. This is a classic example of the costs of a good or service being hidden from the actual consumer of that good or service - which usually results in overconsumption. When someone does not understand the true cost of a service and think that someone else is paying for it (whether that someone else is the insurance company or the government), the person will inevitably use that service more than if they realized the true costs.

HSAs attempt to fix this problem by making it obvious how much healthcare actually costs. Employers and employees contribute to a HSA each month (in many cases employers make a one-time depoosit to establish the fund each year). These contributions are tax free, thanks to the 2003 law. As healthcare services are used, funds from the HSA are used to pay for those services (and thus, the actual costs of the services become quite apparent to the consumer). As patients begin to realize the costs of healthcare, they will likely discuss the charges with their doctor or seek out less expensive physicians - introducing market forces which are not at work today. (No one talks to their doctor about the fee they're paying when they make the appointment for a visit, do they?) Most importantly, the funds that are used for healthcare costs are taxfree and if a person does not use the entire amount in their HSA within a year, it rolls over to the next year.

While HSAs might not be a great idea for those that consume a large amount of healthcare services, the whole concept is that young (and typically healthy) workers will be investing in the HSAs for future healthcare costs and only using their HSAs for preventive care. Many ask, but what if something serious happened? Well, that's the beauty of the HSA. It's paired with a high deductible insurance policy. If you get in a car accident or required extended hospital stays, once your HSA is depleted and you've paid the deductible, you receive 100% coverage from the insurance policy. The other, often unmentioned, benefit from HSAs is that they're portable and thus health insurance does not become a factor when deciding to make a career change.

Now, some CEOs are blaming healthcare costs for their poor business strategies. It's important to note that the Left seizes on these claims to push their socialist agenda (and force all of us, especially the poor, into long lines like those experienced in Canada). Let's trust the market on healthcare - if for no other reason than the market is us, all of us.


Your Co-Conspirator,
ARC: St Wendeler

Comments (1)
Blue Cross of California said...

Great blog I hope we can work to build a better health care system. Health insurance is a major aspect to many.