Responsible Health Care
While life has certainly changed for everyone over the past few decades, the economics of health care has seen one of the most dramatic transformations. Though some aspects have been for the better, all the changes have not been good… especially the expense. To make matters worse, it has become a politically charged issue that sparks a lot of emotional discussion.
The public debate has somehow evolved to the point that many people have come to view health care services as a RIGHT… something that the government should provide to every citizen. These people put it into the same category as the freedom of speech, the right to vote, and the choice of religion. I think this is absurd. The Constitution never made any promises anywhere close to this nor do I believe the Founding Fathers would take such a socialistic view if they were alive today.
At the root of the problem, in my opinion, is a disconnect between the consumer and provider of health care services. Most often, an insurance provider is a middleman, which introduces confusion with regard to the true cost of services. Consumers (also known as patients) have been conditioned to look at the co-pay amount (known in automobile insurance as a deductible) when visiting the doctor or hospital and think of that as the cost of services. Of course, we all understand the insurance company is paying for part of it, but that is often hidden and, as they say: out of sight, out of mind. So, a $200 doctor visit becomes a $20 co-pay.
A brief aside - not to get bogged down in this aspect, but we all know some portion of that $200 visit goes to pay for the administrative overhead imposed on the doctor by the insurance and regulatory aspect of doing business. They accept your insurance coverage but don’t get paid for some period of time, must provide certain information about the services, and must comply with other requirements of the insurance companies. As a business, these costs are built into the prices they charge… and these non-medical costs are rising, too.
Here’s a fundamental part of the problem. Since the “out of pocket” cost to the consumer is relatively low, the consumption of the services increases. It’s more affordable to go to the doctor for every little sniffle whereas, if it cost more… or we paid the full cost… we might tough out a cold and forego the doctor visit except in cases of true need.
What do you suppose the situation would be like if it cost NOTHING to go to the doctor? Truly needy people would be competing with those with trivial (or non-existent) illnesses. This would be the case if socialized healthcare were the norm.
While it’s been great business for the health insurance industry, the trend has not necessarily been good for consumers. We, of course, pay the that “hidden” balance of the doctor visit that the insurance company pays… but we usually pay it in the form of monthly premiums. And those are generally deducted, just like income taxes, so we don’t really see those costs.
Here’s the other basic part of the problem. As consumers, we’re making some poor economic choices when it comes to health care insurance. Many, if not most, people do the same thing when purchase automobile insurance. We are being “sold” by the insurance companies rather than making a good purchasing decision based on OUR needs. Let me make the point by first asking a question:
What is the purpose of insurance?
Is it to provide coverage for everything? Or is it to provide coverage for some circumstance I couldn’t handle on my own? You probably see where I’m going, but let’s look at a few scenarios just to drive the point home:
- Life insurance - what happens if I get run over by a bus and killed?
- If I have obligations, like a home mortgage and a family to care for - it’s a good idea to have life insurance. I would like for them to be able to keep our home, pay any debts, pay living expenses, put the kids through college, etc. So I buy an adequate amount of life insurance. This is good, responsible behavior. Having life insurance is a good thing.
- If I have that same family but the house is paid for (no mortgage) - I should have life insurance, but LESS since the need is reduced. Right?
- If I’m single, my home is paid for, I don’t have any debt, and no family at all - I don’t need insurance. What would be the point? Sure, I might have a policy and name my favorite charity, but that’s a different kind of discussion. Insurance is not a necessity.
- Car insurance - should I have insurance and, if so, what coverage and what deductible?
- If I buy a new car and took out a loan to do so, you can bet the bank will want full coverage on their collateral, and rightfully so. I’ll have liability and collision coverage and a “reasonable” deductible (as defined by the bank… usually no more than $1,000).
- If I buy a “beater” car (an older one not worth much) for my new teenage driver, I’ll certainly have liability insurance to cover any damage done if it’s his/her fault, but I won’t have collision coverage at all since it would probably cost more to insure the old car than it is worth. If the car gets totaled, I incur the whole loss…. but I can afford that situation.
- If I buy a new car and paid cash from my savings, I’ll probably still want good collision coverage since it would hurt to handle replacing the car if it was totaled. But, I would choose a high deductible to reduce the cost. While a $250 deductible would be easier to pay, the premium (cost) is quite a bit higher. If the car gets totaled, I can afford to pay a $2,500 deductible and the premium is much lower.
- The rule of insurance: The lower the deductible, the higher the cost. Most people don’t even think about this. Unless they have a responsible adviser who explains how this works and makes a recommendation based on their specific situation, most consumers fall into the “lower deductible” is better mentality… since they translate that to the amount of money they would be out of pocket in an accident. The problem with that is… you only pay the deductible when you use the insurance while you pay the premium all the time. If you never have an accident, you will never pay the deductible… but you will be paying the higher rate the whole time.
- You should choose the highest deductible you can comfortably pay out of pocket, which will give you the cost to be paid on a regular basis. A good approach would be to put the amount of the deductible in savings. It will still be yours if never needed and will be there if is is needed… and you will be paying lower rates the whole time.
- Health insurance -just like car insurance…
- Unless you are wealthy, it’s a good idea to have coverage for medical disasters. The classic story of people having to declare bankruptcy because of a million dollar health disaster is a good example. Indeed, the real purpose of insurance is to handle “the big stuff” that doesn’t happen all the time, if at all, and not the little things… or the “regular” things.
- Select coverage with as high a deductible as you can afford since you will pay less in the long run. While many people like the $20 co-pay at the doctor, they don’t like the hundreds of dollars being taken from their checks. What would the cost of that coverage be if the deductible was, say, $100? $1,000?
The bottom line is this:
We’ve become conditioned by the insurance advocates (who work in THEIR best interests) and politicians (since it SOUNDS so good to the masses) to think of health care as a right or as something that government should provide. Government involvement, as in most things, will just compound the problem.
The problem is that people, generally speaking, are not making good purchasing decisions. We have fallen into the trap of allowing others to drive our health care decisions… and that is costing us dearly. We have not been responsible buyers and have gotten what we bargained for. We deserve better, and can readily get better, but it requires a rational choice and some personal responsiblity/accountability. In many other areas, we are good shoppers… finding the best value available and supporting that with good purchasing decisions. In health care, I don’t think there’s much “personal shopping” going on… we have become sheep.
