Written by John Goodman
To people in what I call the health policy establishment, the riddle of modern health care is: Why are health costs rising at twice the rate of growth of income all over the developed world? To me the riddle is: Why isn’t health spending rising even faster?
Any time you offer people discretionary benefits that are free at the point of consumption, they are likely to exercise discretion and enjoy the benefits. Yet that’s what first-dollar health insurance coverage does. It encourages us to think that everything is free, even though we all end up paying through higher premiums and higher taxes.
As a practical matter, once we pay insurance premiums, that money is combined with everyone else’s premiums in a pool. Once the money is in the pool it is no longer “ours.” In fact when we draw from the pool, we are spending everybody’s money. Moreover, the only way to get benefits from the health insurance pool is to spend money on medical care.
I was musing the other day on how many opportunities I have to spend your money:
Note that I’ve already spent as much as the cost of a luxury car and I haven’t even gotten around to the normal screenings — general checkup, PSA test, colonoscopy, and a hundred other things. Those will cost you as well.
Then there is the piÃ¨ce de rÃ©sistance. All of the above costs and benefits are more or less contemporaneous. But let’s say that over time I abuse my body with alcohol, tobacco, drugs, fatty foods, lack of exercise, etc. I know that you will pay all my medical costs — mainly from first dollar — once I get old enough to qualify for Medicare.
Oh and did I forget to thank you for all this? Sorry. There are so many demands on one’s time.
I know what you are thinking. Some of these choices require doctors to fill out the right forms with the right answers. But that’s a no brainer. One of the most important thing doctors do is exploit reimbursement formulas so that someone else will pay our medical bills.
Not only are all these options discretionary, the benefits are use-it-or-lose-it. Frankly, I would rather have a new car. But that’s not an option. The only way I can get benefits out of my health plan is by spending money on medical care. The only way seniors can get benefits out of Medicare is by spending money on medical care.
Even though these observations are mainly just common sense, they are resisted mightily by the orthodox health policy community.
Isn’t technology supposed to cause higher health care spending? In markets where there are no third-party payers, technology reduces costs (cosmetic surgery, Lasik surgery, etc.). In the third-party payer system, technology increases costs primarily by creating and facilitating new discretionary benefits.
What about greedy doctors? Greedy hospitals? Greedy drug companies? As Adam Smith taught us 200 years ago, the self-interest of producers and sellers generally works to our benefit — unless of course, they are creating and facilitating access to discretionary benefits.
Now if we want to “bend the cost curve,” as the policy wonks are apt to say, there is another role for common sense. Don’t let people draw from a common insurance pool to pay for their purely discretionary choices. Instead, let them save in special accounts from which they can purchase discretionary care.
For contemporaneous decisions, the mechanism is the Health Savings Account. These accounts should be used for all of the items I listed above plus almost all primary care and almost all diagnostic testing. (The exceptions are those few instances where “the test pays for itself.”)
What about long term. Is there a way to compel people to save while they are young in order to pay for medical expenses in old age that are directly related to their own life-style choices?
It’s an intriguing thought. But I don’t know quite how to do it. I invite your suggestions.
John C. Goodman is president and founder of the National Center for Policy Analysis, a free-market think tank located in Dallas, Texas. The Wall Street Journal and the National Journal, among other media, have called him the “Father of Health Savings Accounts.” Dr. Goodman’s health policy blog is the premier right-of-center health care blog on the Internet. It is the only place where pro-free enterprise, private sector solutions to health care problems are routinely examined and debated by top health policy experts across the ideological spectrum.