Healthcare

Countering patient apathy towards healthcare cost

Over the course of the last year, I have had many, many conversations with people about the idea of making medical cost information more transparent.   For example, there is information available through the State of Massachusetts’ ‘My Healthcare Options’ site (www.mass.gov/myhealthcareoptions) where citizens of MA can compare cost and quality of a variety of medical procedures at different Massachusetts hospitals.  One theme in these conversations recurs again and again: “Why do I care what my knee surgery/heart surgery/hip surgery costs?  I’m not paying for it.”

It’s evident that the average person doesn’t feel like they pay for the difference between a medical procedure that costs $15,000 at one hospital versus the same procedure that costs $7,500 at another hospital.  In fact, when faced with price information, many healthcare consumers actually trend towards the higher cost option.  The predominant mindset is that higher cost means higher quality.   That, combined with the idea that “the insurance company is paying for it, not [the patient]”, then why take the risk that the lower cost option might be lower quality?

How did we get here?

One contributor to this mindset clearly is that the employer-sponsored health plans have bred all the cost-consciousness out of the healthcare consumer.  The reason for this is because the cost of healthcare is virtually invisible to employee subscribers.  If you ask anyone who has employer-sponsored health coverage what they pay for health insurance, a minority may be able to quote how much of the money comes out of their paycheck each month (e.g. their out of pocket contribution for healthcare premiums), but virtually no one knows how much their company is paying for insurance on their behalf.  The thing no employees seem to think about is the fact that employers would be happier to take the money that they currently contribute to subsidize employees’ healthcare premiums and instead put it into the employees’ paychecks.   Since most companies subsidize at least half of the cost of health insurance (with some paying two thirds or even 75%), the opportunity cost for health insurance is at least twice (if not 3x or more) higher than what people recognize as their “cost” for health insurance.

Imagine if you were paying for mobile phone service each month but had no idea what it cost?  Would it be realistic not to expect monthly phone subscription prices to rise?  One of the main tenets of a competitive economy is that competition drives prices down, but this is only possible when people actually compare the prices of like products and choose the cheaper alternative.  This is impossible if the consumer doesn’t know the price.  This is one of the fundamental issues behind the rising cost of healthcare – ignorance on behalf of consumers for the actual cost of healthcare – and yet it’s one issue regarding which I’ve heard very little discussion as the health reform debate wages in Washington.

What if…?

What if we had a world where health insurance was no longer predominantly employer sponsored?  What if instead, employers put the money that they currently use to subsidize health insurance into the employee’s paycheck every month, and the insurance company billed the employee for the full amount of their health insurance coverage?  The government could still give healthcare insurance consumers the tax break that we get today so there would be no increase from what a subscriber pays now to what they would  pay under this new model – but consumer awareness (and sensitivity) to the full cost of healthcare would skyrocket.

Suddenly, health insurance consumers would be much more likely to become discerning consumers of health insurance (and healthcare services).  Combine this with the concept that in this model, health insurance subscribers become the decision makers regarding which insurance they buy (instead of being limited to the options that their employer offered).  This new price awareness plus decision making power would lead to a new competitive environment among the health plans, where plans would innovate and compete to provide higher value options for consumers.  Decoupling plans from employers would also entice health plans to focus on ways to enable their subscribers be healthier.  The plans would be able to see a much larger return on each dollar of investment made in a subscribers health today, since there would be a much larger possibility that the subscriber would still be in that plan many years from now.

It’s unrealistic to expect that we can address the cost trend without addressing the lack of cost sensitivity on behalf of the ultimate consumer of healthcare services – the patient.

© 2009 medullan | blog.