Fletcher: A better way for health insurance

Two local doctors asked that I write about the health care mess. I will, but fair warning – this isn’t going to turn out the way you might imagine.

From an economic perspective, there is a huge disconnect with the consumer regarding health care. This is because today, most of us aren’t responsible for paying for health care. The majority (and perhaps a very large majority) of all U.S. citizens who use the system don’t pay their own health care bills. I’m not talking about the co-pays or deductibles, I’m just addressing the major portion of the cost which is paid by an insurance company – Medicaid or Medicare.

In my case, I’m covered by Blue Cross/Blue Shield under a company policy because I am still working. I neither know nor care what the hospital or physician charges because I only pay the co-pay or deductible. I do care what I have to pay for my premium and I try to minimize that number, with zero being the optimal target. The fact of the matter is I can’t get a better deal than BC/BS.

It’s pretty well known that BC/BS pays about 50 percent of the published rate for hospital and physician charges and it acts as a proxy for policy holders. We can’t go to the providers with cash and get a better deal because BC/BS has a contract with the providers that states it won’t discount for anyone else. This is a very important part of its contract.

That clause allows it to sell insurance to companies with the sales pitch able to provide services for one-half of what a company can obtain the coverage. That’s a great sales point. It sold me as a decision maker at my company. It also creates a huge market distortion.

First, since the beneficiary of the service does not have control over the price, we don’t shop for the lowest price for a physical or procedure. Second, since providers have budgets within which to work, there must be some of them who simply come up with a budget figure and then double it because their largest customer (BC/BS) will only pay one-half of the charge. The doubling reduced by one-half just gets the provider back to their budget. Frankly, the Affordable Health Care Act doesn’t solve this dislocation nor even address it.

The problem is the ultimate customer doesn’t bargain. That’s you and me. For almost everything else we purchase, we look at the price and decide whether it’s the right number for us. It’s the way economics settle the price point. If the price is too high we don’t buy, ff it’s right we purchase. That’s a pretty simple concept and one that is absolutely basic to having an economic system operate efficiently. If you want to have the price of health care come down, then you have to participate in the critical part of the buying decision – the price you are willing to pay.

It’s very easy to design a more efficient system. Instead of a direct pay system, set up a competitive bid system where you and I pay the doctors and the hospital. It would work just like other insurance coverage.

We would obtain bids just as we do when we purchase a car. We would figure out what kind of coverage would best serve our families and then would look for the cheapest providers. We would pay the charges from our own pockets and apply for reimbursement from the insurance companies.

With the ultimate consumer paying the bill, each patient would carry the costs for a short period of time. These costs can be enormous but usually aren’t. Most of the charges are for routine items and aren’t the financial horror stories of experimental cancer drugs and the like.

I don’t know about you, but I don’t shop for medical services. Why should I ? It’s all taken care of by somebody else. I’m not responsible for my own health care costs.

If we start to pay our own costs, we will start to shop around for the best price and become more responsible. If we pay our own way we probably will listen to the doctor more closely and follow his instructions better, as not heeding that advice might cost you more. When the doctor tells us now to change our lifestyle, to some extent, we blow him off. If it’s our cash as skin in the game, we might pay closer attention.

That’s one example where a change in the system to allow it to operate within economic principles would lower costs.