I’m struggling with the headline since I know health care has not been destroyed by low co-pays, but those gold-plated plans with $15 co-pays to go see a doctor and $25 for an emergency room visit have destroyed our perception of value when it comes to health care.
My perception of value theory evolved in high school when I signed up for classes and had to buy the books at the school store. I can’t remember how much those books cost, but I paid part of the tab, and the books – some used – were mine. If I lost or destroyed the book, I was expected to buy a replacement.
If you compared the condition of my books to the books public school kids had, the difference was clear. Public school students were provided books free of charge and many of those books were a mess. If a student lost a book, he or she would just grab another off the classroom bookshelf. There was no perception of value.
You can use this comparison with public education, government subsidized housing, the treatment of rental cars, government subsidized retraining programs, and yes, the health care system.
When you are invested in something – in other words you own it – you tend to treat it better because your own money is at work. When you buy a product you pay what you determine is a fair price for that product. If you buy a new iPhone for $199, both you and Apple got something out of the deal. If you want an iPhone but are not willing to pay $199, you have determined it’s not worth it.
Now let’s move to health care. First, remember the demand for a free (or virtually free) product or service is unlimited. Oprah found that out when she provided free chicken coupons last spring, and when it only costs $10 to go see your doctor the price (virtually free) increases demand for the service.
Since most Americans are on, or have once been on a health insurance plan that offered dirt cheap co-payments for doctor visits and prescription medication, our perception of value of the service has been completely warped. Most people have no idea what it really costs to go see their physician when they have a cold, to them, it costs $15 or whatever the dirt cheap co-pay is.
You don’t really think it only costs $15 to go see your doctor do you? So, who is picking up the rest of the tab? As it turns out, our own out-of-pocket payments, as a share of total health care spending, has dropped considerably in the past 50 years. The government and insurance companies are paying a much higher share. From Investor’s Business Daily.
The accompanying chart [click to enlarge] shows why we have a health care cost problem. Patients have little direct connection in paying for their care. Their role has fallen significantly. Meanwhile, the government’s involvement has grown, as has that of the insurance industry.
Because so many Americans rely on an insurance policy or a government program to pay their health care bills, the internal governors that temper the rest of their purchases are turned off. When a visit to the doctor’s office or a diagnostic test costs them a mere $10 or $20 co-payment out of pocket — or there is no charge at all — cost has little impact on their decision to see a doctor.
So what’s the solution? First, you know I’m convinced the federal involvement will – and currently does – make the problem much worse so let’s get the federal government completely out of health care. (Yes, I know … it will take years).
Second, the introduction of health savings accounts (HSAs) and flexible spending accounts (FSAs) was a step in the right direction. Although not perfect, these programs bring the consumer closer to the transaction side of the equation and put health care dollars directly into the hands of the consumer. You make the decision as to where you will spend that money and how much you are willing to pay.
These programs even feature free (no co-pay) annual check-ups which in no way helps the perception of value, but the idea was used to help sell the idea.
So how good can a HSA or FSA be? A good example is cataract surgery. If you were able to shop around and get pricing for cataract surgery, and easily find out the quality ratings of the doctors who provide the service in your area, do you think the cost of cataract surgery would go up or come down? The price would come down of course, because the end consumer – you – are taking an active interest in the service, quality and cost!
Unfortunately, the proposed legislation in Congress puts more distance between you and the true cost for medical services. This fact alone – more dependence on the federal government – will guarantee Americans will line up in droves for their free chicken.