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Thursday, May 1, 2008

The real problem of health care costs in America

The real problem with health care today is that it is free (or nearly so) for most of us. I'll say it another way: the major fix for health care costs is to make us start paying for it. I know a major issue in this political season is trying to get  everyone coverage, but bear with me for a moment.

We don't currently pay for our own health care. We have health insurance. The health insurance pays for the majority of our bills. They negotiate prices with the doctors and ask us to pay some nominal fees. Then we pay them (or our employer does) whatever they claim is required.

Any time you have one group of people consuming a product and another group paying for the product, you eliminate the pressures on price controls. If you and I chose our own doctors and hospitals and paid for it out of pocket then we would be much more careful about it. That would also make the suppliers (doctors and hospitals and pharmaceutical companies) more careful about it.

Maybe you are careful about it, but if the current price to visit the doctor makes you pause the decision is not "Do I go to this doctor or find another just as good?" because the price for you is identical. The decision becomes "Do I go to the doctor?"

If you have good insurance you don't even question it at all. You may even go more than necessary or the doctor may prescribe additional tests or medicines. For you its free, it doesn't matter how much it actually costs because the insurance is picking up the majority of the bill.

Because health insurance is an employment benefit or a government program for most people, there is no market for it. Look at auto, fire, life or any other type of insurance and you will see price & benefit comparisons constantly made to each other because you can just up and switch to another company if they offer you a better deal.

The health insurance company doesn't have the same incentive you do to keep the costs down because they are getting reimbursed by you (or your employer) and just pass the cost on to you. sure they may want to keep costs down to increase profits, but ultimately they are just a retailer selling you packaged goods with a profit margin. The main difference is that you are only allowed to go to their store.

In addition, if you are not involved in the decision around payment then you are also not involved in the decisions about your own care. You are at the mercy of the particular health plan you have - or should I say the plan you are given. You probably didn't even pick the plan you have. It is either a government program or was provided by your employer as a benefit. Either way, you didn't choose it.

So you have a plan you didn't choose, making your medical decisions for you, and forcing you to pay rates you have no control over. Is that where you want to be?

The big problem is that health care is primarily a benefit package instead of a paid for service. This really stems from tax incentives to corporations. The law allows them to pay you in the form of health care instead of dollars. What this ends up doing though is locking you into a system where you have no choice and therefore cannot affect the outcome of your own health!

The first step to solving the health care problems in the country is to remove health care as a benefit given to employees. If businesses were taxed on this just as any other compensation they grant, the practice would stop and the health insurance providers would instead start marketing their goods directly to the people who want them, the people who need them, and the people who care about what the quality is and what the price is - you!

This may sound radical, but I say this as someone who has an excellent health care plan provided through my employer. It is really in my own interests to maintain the system because of my own situation with regard to minimal out of pocket expenses, but ultimately it also becomes a chain to the corporation that provides it. I cannot change jobs, even if I wanted to, and maintain the level of health care that I have now without severely limiting my job prospects.

If the health insurance industry were run in the same way as the other types of insurance then it would not be tied to your employer, you would then have the choice to pick your plan and company you wanted, and your direct involvement with your own costs would force the behavior that would ultimately cause price pressures on the providers to compete for you own business the same way an auto body shop should when you have a car accident.

The problem is not that we need someone to take care of our health care decisions. We already have that. We need to see the real costs. We need to care about those costs. We need to start making our own decisions for ourselves!

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