"The traditional insurance today will cover your health care costs -- most of your health care costs -- in exchange for a high premium payment up front. The costs are generally shared by you and your employer. You may also pay a small deductible and co-payment at the time of treatment. What's interesting about this system is that those payments cover only a fraction of the actual costs of health care, the rest of which are picked up by a third party, basically your insurance company.
It means most Americans have no idea what their actual cost of treatment is. You show up, you got a traditional plan, you got your down payment, you pay a little co-pay, but you have no idea what the cost is. Somebody else pays it for you. And so there's no reason at all to kind of worry about price. If somebody else is paying the bill, you just kind of -- hey, it seems like a pretty good deal. There's no pressure for an industry to lower price. And so what you're seeing is price going up. If you don't care what you're paying, and the provider doesn't have any incentive to lower, the natural inclination is for the cost to go up and the insurance companies, sure enough, pass on the costs -- the increase in cost to you and your employer. That's what's happening. (...)
For many routine medical needs, HSAs mean you can shop around until you get the best treatment for the best price. In other words, it's your money; you're responsible for routine medical expenses; the insurance pays for the catastrophic care. You're responsible for paying for the portion of your health care costs up to your deductible. And so you -- you talk to your doctor, you say, can't we find this drug at a little cheaper cost? Or you go to a specialist, maybe we can do this a little better -- old Joe does it for X, I'm going -- why don't you try it for Y? It allows you to choose treatment or tests that meet your needs in a way that you're comfortable with when it comes to paying the bills. In other words, decisions about routine medical treatments are made by you and the doc, not by third-party people that you never know. And all of a sudden, when you inject this type of thinking in the system, price starts to matter. You're aware of price. You begin to say, well, maybe there's a better way to do this, and more cost-effective way."
My sentiments exactly. Just the other day I was beset by a hollow, empty feeling, and I said to myself: Self, there's a void in my life -- a void that could only be filled by spending hours calling around, comparing prices for doctors' visits and pharmaceuticals, preferably while sick. Oh, if only I could say to my doctor: Maybe we can do this a little better -- old Joe does it for X, I'm going -- why don't you try it for Y?
You see, shopping for medical services isn't like ordinary shopping. When you go to the grocery store, for instance, they make it easy for you. There are the boxes of cereal all lined up, awaiting your inspection, and all you need to do is compare the price, the percentage of your daily vitamin needs provided by one carefully measured serving, and so on, and then make your selection. Where's the fun in that? Shopping for medical services is different: hours spent finding and tracking down the relevant physicians and getting through their daunting office staff; price discussions with hospital administrators who don't want to tell you exactly how much anaesthesia you'll need without an exam, and so forth. The thrill of the chase! The call of the wild! By comparison, ordinary shopping is a tame and pitiful facsimile, like shooting cage-raised quail when you could be hunting grizzlies.
You might be thinking: silly hilzoy! You can do this already! But that just shows how little you know about the thrills of shopping for medical services. It's just no fun without a little skin in the game: the sort of skin that you only have if your medical insurance won't cover your bills. And that's what Bush is offering us: the chance to have the shopping experience of a lifetime, and to have it under the most deliciously grueling conditions: with our own dollars on the line, when we're desperately ill. It's a vision as bold and rugged as America herself; and that's why we love our President.
Obviously, though, Bush wasn't designing this solely for our enjoyment. He claims to be motivated by a desire to cut health care costs. There's only one problem: HSAs would have a negligible impact on health care costs. To show you why, I'm going to reprint a graph I made up last time I wrote about HSAs. It's based on 2002 data from this Kaiser Family Foundation report (see exhibit 1.11.) It shows what percentage of our health care spending is done by those who spend the most.
HSAs cover medical expenses above a certain limit, often around $5,000. Pretty much everyone in the top 50% of spenders on health care will have reached that limit. (My health care spending hit five figures in the first five days of this year, and I'm not even especially sick.) That means that any reduction in health care spending will come from that tiny little blip on the right hand side of the graph: the 50% of the public that spends least on health care. Since that part of the public accounts for only a tiny part of health care spending (3.4% in 2002), most health economists don't think HSAs will actually save all that much.
They will, however, have other dreadful effects, which I wrote about here and here. The most important one is to gut the present system of health insurance. Moreover, a new study by Jonathan Gruber shows the following:
"I estimate that the President’s budget proposals will cost almost $12 billion dollars per year if fully phased in. I estimate that these proposals will on net raise the number of uninsured (by 600,000 persons), as those left uninsured through firm dropping of insurance exceed those who gain insurance through taking up tax-subsidized high-deductible plans attached to HSAs."
I can hear the nay-sayers among you grumbling that in a time of exploding budget deficits, twelve billion dollars seems like an awful lot of money to pay to strip health insurance away from six hundred thousand people, and leave many more underinsured, especially since anyone who wants to be uninsured can just cancel her insurance policy. But that just misses the point. In the immortal words of Rousseau, sometimes we must be "forced to be free" -- in this case, free of health insurance, which enslaves the mind, degrades the spirit, and deprives us of the ennobling experience of shopping for medical services without a safety net.
This, then, is the inspiring vision to which our President calls us: to expand the liberties our forefathers gave us beyond freedom of speech, freedom of religion, freedom of assembly, and freedom of the press, to one of the noblest freedoms of all: the freedom to confront medical bills alone, in fear and trembling, without the false comfort of medical insurance, with only our own wits standing between us and personal bankruptcy.
PS: Yes, of course I'm joking.