Monday, March 1, 2010

Bending the Health Care Cost Curve Down

I read a great line in an article by Cato's Michael Tanner.  He explained that of all the money spent on health care each year, only about 13% of it comes from the pocket of the consumer of that health care.  The rest of the money comes from the government or private insurance plans.  Such a system has the effect of skewing the market toward the consumption of more health care at higher cost to all parties.  If someone else is paying the bill, there is no incentive to make prudent choices in the consumption of health care.  Or as Mr Tanner writes:

Think of it this way. If every time you went to the grocery store, someone else paid 87 percent of your bill, not only would you eat a lot more steak and a lot less hamburger - but so would your dog. And food costs would go up for everyone.

Here's a link to a Wall Street Journal article by Indiana's Republican Governor Mitch Daniels talking about his state's experiment with Health Savings Accounts.  These plans incentivise consumers to spend wisely by providing less expensive high deductible medical insurance while putting money in an account that belongs to each insured person to be used for routine medical expenses.  If there is money left over at the end of the year, it belongs to that insured beneficiary. 

When you're spending your own money instead of someone elses, you're bound to spend it more wisely.  This brings everyone's costs down.