Spending Other People’s Money
Most of us have use-it-or-lose it health insurance. The only way we can benefit is by spending money. We get no reward for not spending. Further, once we exceed our deductible and coinsurance limits, our incentive is to consume medical care until its value to us approaches zero. We will never solve the problem of uncontrollable health care spending until we abolish this type of insurance.
Two examples in the news are reminders of this fact.The first example is the cancer drug Avastin. It can cost up to $100,000 a year. Yet, studies show it prolongs life by only a few months. Patients and doctors say the drug can improve the quality of life-although patients do not avoid the effects of chemotherapy. See NYT article.
Is a few more months of life (and perhaps some improvement in its quality) worth $100,000? Most patients and their families will never have to ask that question. The reason: the money they spend will not be their own.
The second case involved a woman who had heart surgery (with a specialized pacemaker and defibrillator implant) just shy of her 100th birthday. See NYT story. Turns out, this case is not all that unique. It is now commonplace for people in their 90's to get hip and knee replacements, pacemakers, bypass operations, etc. Is this care worth the social cost? To the patient, the out-of-pocket cost is zero.
If we want people to make socially optimal decisions, insurance arrangements must be structured in a different way. Either people must pay the cost of questionable procedures from their own resources, or they must have the opportunity to receive health insurance benefits as cash rather than in the form of medical care.
If you spend all your time focused on health policy, I'm fairly certain this is the most radical idea you've heard all day.
John –
You never fail to provoke us to worthwhile discussion and a closer look at tough issues.
John
Not radical to me! I have thought that individuals need to control a much higher percentage of their earned health care dollars for many years. McCain’s present health care platform will be a net loser with the voting public. He needs to change it and quick. All the opposition needs to say is: “He wants to TAX all of your health care benefits”.
Working men and women do not want to pay more in taxes and see the approach as a direct threat to their present coverage. The 180 Degree Approach can be justified by saying that we are simply granting the same opportunity and amount of government help to all working men and women that those with the best jobs have enjoyed for decades. By not mandating the purchase of insurance, a market will be created for critical illness or table of allowances products that are a good fit for a universal health care account. People will spend those benefit dollars prudently because the costs are higher and they will be responsible for any surcharges incurred. This will permit direct payment for all routine preventive and diagnostic services. Cash will once again be able to command the best price because a cost effective competitive market will exist once again.
Roger
It’s certainly easier to put all of this on the patient and beneficiary, as you suggest, than to try to do it rationally. Make no mistake: This is implicit rationing… but a foolish way to do it, since many in our society will be unable to make informed & rational resource allocation decisions about the health care we need when we’re very ill, very old or very (fill in the blank). Instead, it will turn into: I can’t afford it, so I won’t do it – whether the care is beneficial or not. Someone with serious chronic illness will likely hit their deductible early in a plan year – after which there is little or no cost share. A more rational approach to rationing is to make it evidence-based and explicit, tied to private sector implementation, not to government payment (as in the UK and elsewhere in the EU). This is a conversation that we in the US will need to have, because shifting heavy cost burden and decision responsibility to the patient/beneficiary will not work.
Unless a system is put in place where seniors ration their own care, it will, ultimately, be rationed for them.
Ask the seniors in Holland, who are afraid to go to the hospital — they don’t come out.
We must avoid age-based rationing by giving patients more control of their health care dollars.
You state that you must use the insurance to receive any benefit from having it. Then why not burn your house and barn down to capture the benefit of homeowners insurance. Sounds crazy and it is. Americans have simply gotten spoiled in the comfort of the benefit design they receive through their employer. Sharing responsibility in cost (deductible and coinsurance) up to limits of like $7,500 is a reasonable approach to containing costs and consumer awareness.
Here are my off the cuff thoughts on spending other people's money.
First: I believe that if the money is tax favored for the purpose of health care, it should be spent for that need.
However, I can envision a way to make the approach you suggest viable. Critical illness policy designs usually have a cap for each illness category covered. I would say that once a definitive diagnosis has been made for a condition that has no known cure, the individual should be able to decide whether they want to utilize the funds for treatment that offers very little benefit or have the funds paid to them so they can pay for home care and palliative treatment. One concern I would have is the submission of an inaccurate diagnosis to get the funds released and then experiencing a "miracle cure". I would rather have those funds available to help my grandchildren get a college education, then spending a huge amount for very little reward.
Roger
I’ve decided if & when I’m diagnosed with Cancer.. I’m NOT going to do anything about it.. Just Keep OUT me of PAIN !! I lost my Mother at 15 (I’m 65).. Four years ago I lost my Husband..ALL to CANCER….. They aren’t doing anything about it… Just squandering money its a Giant HOAX !!!
Damn, Right I’m BITTER !!!
In Canada the government decides who gets treated and in most cases once they are drawing Canada Pension (Social Security), they are refused expensive treatment.
Actually, the very expensive insurance that I have is just the opposite. They give me $250 a quarter to spend or not – it accumulates if I don’t use it. So … as a result … I wait until there is more than one reason to visit the physician. So far, this has worked out fine but who knows it I will ignore something until it is too late. I have to risk it. By the way, my health insurance payment is now larger than the one for my house. As a business broker, the #1 reason for people staying in a dead-end job rather than start a business is health insurance. The least little thing in their medical record gets them rejected.
It should be self-evident that we cannot all consume $1 million worth of health care during our lifetime without reducing our standard of living by an equal amount. If I’m the one who is dying of cancer, I may well place a value of $100,000 on an additional month of life (especially if it’s paid for with other people’s money). But most 25-year old couples, starting a family, would gladly trade a month of life (suffering from terminal cancer 60 years in the future) in order to fund pressing needs – including housing, transportation, etc. The current system prevents them from make this trade-off.