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.


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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