OP-ED

Dear Mr. Smith…..

John Smith of Chicago (not his real name) asked the following question in a recent letter to a local newspaper:

“Over the last several years my annual deductible has increased from $500 to $2000…With higher rates, I have had to limit key diagnostic services that my physician recommended at my physical.  Does health reform cap deductibles…?”

The paper’s response mentioned that many preventive services are covered under the new law and mentioned something about risk pools – a decent enough answer I suppose.  Here is what I would have written:

Dear Mr. Smith,

I understand that you are upset.  No one wants to spend money on something when someone else has been buying it for them.  Healthcare is no exception, and over the years we have gotten use to having our health insurance company buy everything our doctors ordered.  The upside of generous health insurance coverage is that we are better able to avoid the risk of financial ruin.  The downside is that we sometimes agree to receive medical services that we might not need.  The latter is really true – the research evidence is overwhelming – and this has contributed mightily to the cost crisis you have been reading about.

I am sure you will tell me that you really need the diagnostic services ordered by your physician.  Then you should find a way to pay for them.  I understand that these services can cost hundreds of dollars, but I would imagine that there are other things in your life that are equally costly – car payments, vacations, new clothing, and so forth.  Don’t you give equal or higher priority to your health?  If so, then perhaps by next year you will set aside the extra money you will will need for these tests.   If not, then how can you say that you really need them?  If you are unwilling to pay several hundred dollars for medical tests, then you must not hold your life dearly.  Why then should others pay for you?

I know that I sound excessively harsh, and if your financial situation is such that purchasing these services will push you over the financial brink, I apologize.  You are in a rough situation for sure.  But consider that if your employer offered a more generous health plan, the premiums would have been thousands of dollars higher.  Think of how this would have affected your job situation.  Many employers, perhaps most, have to hold the line on wages when health insurance costs increase, so you may well have seen a substantial wage cut.  If your employer could not reduce wages, then your very job might have been threatened.  I doubt you would have preferred either of these outcomes to the present situation.  The real problem isn’t that your deductibles increased; the problem is that healthcare is so darn expensive.

All of this rational economic analysis may leave you cold, and I understand that you cannot possible like the present situation.  There are alternatives that you might prefer.  Under a government-run system, you wouldn’t have to pay for many diagnostic services.  But to keep costs under control, the list of free services would be chosen by the government, not your doctor.  The new health law moves us in that direction and many Americans like the new direction we are taking.  Others would prefer to let market forces work to control costs.  Part of that solution would require us to face more of the financial consequences of our healthcare decisions while still having protection against financial ruin.

There is no going back to the old days.  Pick your poison.

Sincerely,

David Dranove

David Dranove is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg Graduate School of Management, where he is also Professor of Management and Strategy and Director of the Health Enterprise Management Program. He has published over 80 research articles and book chapters and written five books, including “The Economic Evolution of American Healthcare and Code Red”. He has a Ph.D. in Economics from Stanford University.

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CK SudEladRoss FranklinAlan Millerciphertext Recent comment authors
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CK Sud
Guest

Very valid analysis. it may sound cold, but this is precisely the problme afficting the US healthcare market – we think some one else if paying for our health care expenses but in realty, we as a society, are way over-paying for it. The reason is very simple – distorted financial incentives. untill we require every body to pay for their healthcare expenses (atleast partially), we will never get the rising costs under control. Healthcare cost has many components, some of which are directly under the control of the consumer himself (better diet, exercise, etc.). this is particularly driven home… Read more »

Elad
Guest
Elad

Lynn, As someone who just recently graduated with an undergrad degree in Econ, I wonder if this “simple” economic equation really shouldn’t be so simple. Lets say we do live in a world of unlimited wants (the marginal benefit of consumption never reaches 0). Is it not possible that spiritual/moral/social fulfillment also produces a marginal benefit as well? Under such a system, at some point (depending on the individual’s preferences), it may be more efficient for a person to fulfill the spiritual desires over the physical desires (the marginal benefit of consumption is less than the marginal benefit of spiritual… Read more »

Ross Franklin
Guest

I did not take a vow of poverty when I became a doctor. Love thy neighbor requires that one loves themself FIRST.

Alan Miller
Guest

I’ll also note that I at least would be much more willing to pay out-of-pocket for tests if I was getting the same pricing the insurance companies are. How is it that I should pay $500 for a test that if covered by insurance would be reimbursed at $75? Am I to believe that my physician is taking a loss on every patient covered by insurance? If his business savvy is that poor, how good a doctor can he be? But perhaps he’s not taking a loss but is really just marking some things up by 500%. In that case,… Read more »

ciphertext
Guest
ciphertext

Another solution, of course, would be to use the power of government and other major payers to reform supply-side incentives and lower payments for things that are less valuable. Using the “power of government” should not be considered as an option when your government is by-and-large a bureaucratic entity in practice, and only superficially “representative”. It is the overuse of the “power of government” that gave rise to the thinking that the colonies should be self-representative, and free from the perceived abuses of the “power of government”. Failure to heed the lessons of history will doom you to their repetition,… Read more »

jonathan (jd)
Guest

Since no one else has said it, I will: The somewhat snide criticism of the patient assumes the patient knows, or can easily find out, the value of the various tests. There is massive disinformation out there about what tests are “needed” or even particularly helpful. How is a lay person to sort it out? Doctors get it wrong often enough. Yes, having skin in the game helps people not to spend frivolously. But they need information to spend wisely. Also, as others noted, if as most Americans you have relatively little discretionary income, you may well end up foregoing… Read more »

Anon
Guest
Anon

However, THIS should be illegal: Last year we signed up as always for our employer based group health insurance in which we pay 80% of the family annual premium of $13,000 per year. Up until now, our healthcare needs have been modest. This year, however, we had a child with a congenital condition that we knew prenatally would require several major surgeries in her first year of life. After quickly paying her annual deductible of $3000 within 2 weeks of her birth, we were informed in June that the health plan would be changing in July. We had to sign… Read more »

Lynn
Guest
Lynn

What is it that people are puzzled about? The economic equation is quite simple: Your money or your life! The uninsured understand this, I guess the insured are finally clued in. In the US we allocate the scarce resource of health care based on market principles–you get what you can afford (or your employer’s insurance plan says you can afford) not what you need or deserve. Economics is about trade-offs between scarce resource and unlimited wants. An economic system can be efficient or it can be equitable but it can’t simultaneously be both. We (society) must choose. My introductory economics… Read more »

Peter
Guest
Peter

“All while completely failing to even try to bend the cost curve? Even worse, failing to at least identify the cost curve or attempting to convince us that it’s the best option.”
The cost curve is because the prices are too high. I agree that this legislation will not bend the cost curve, but try to get lower prices past the well lobbied and financed providers. The present system hasn’t even been willing to bend the cost curve, even with “evil” insurance companies.

Edwin
Guest

177 million
Number of Americans covered by employer-based health care.

Che
Guest
Che

“the government paid for them, through taxes.”
– And the federal government doesn’t expect a fight when they propose a veiled taxation, through the AHCA. Trying to convince us that it will function effectively. All while completely failing to even try to bend the cost curve? Even worse, failing to at least identify the cost curve or attempting to convince us that it’s the best option.
Not going past the argument of “those evil insurance companies”, won’t convince rational decision makers.

MG
Guest
MG

Welcome to thbe Age of Austerity. Be happy with what you still have and pay up.

Peter
Guest
Peter

“Under a government-run system, you wouldn’t have to pay for many diagnostic services. But to keep costs under control, the list of free services would be chosen by the government, not your doctor.” Interesting that you say a government-run system does not allow docs to choose the free services, but where in this private system do docs get to choose the free services? Doesn’t the insurance industry choose those services? Actually in the Canadian system I lived with, the docs chose the services, based on medical need not financial need, and the government paid for them, through taxes. “I understand… Read more »

steve
Guest
steve

Or, he could simply defer the preventive care until he needs the costlier care that will be covered by insurance. A clever provider might offer these services at a lower cost, but jack up costs for the insured procedure that might come from the aforesaid tests.
Steve

Devon Herrick, PhD National Center for Policy Analysis
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Devon Herrick, PhD National Center for Policy Analysis

A few years ago I wrote an opinion piece titled… “Other People’s Money.” I referenced a lady who called my office to ask if it was legal that her individual health insurance policy did not include maternity benefits – after all, she and her husband wanted to start a family. There ought to be a law, she thought, requiring insurance companies to sell individual policies (with $12,000 in maternity benefits) to any couple willing to pay $2,000 in premiums. In other words, she wasn’t willing to pay the price for having a baby; She wanted that paid with other people’s… Read more »