Dear Mr. Smith...

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October 25, 2010

Dear Mr. Smith.....

By DAVID DRANOVE

John Smith of Chicago (not his real name)?asked the following question in a recent?letter to a local newspaper:

“Over the last several years my annual deductible has increased from $500 to $2000…With higher rates, I have had to limit key diagnostic services that my physician recommended at my physical.? Does health reform cap deductibles…?”?

The?paper's response mentioned that many preventive services are covered under the new law and mentioned something about risk pools – a decent enough answer I suppose.? Here is what I would have written:

Dear Mr. Smith,

I understand that you are upset.? No one wants to spend money on something when someone else has been buying it for them.? Healthcare is no exception, and over the years we have gotten use to having our health insurance company buy everything our doctors ordered.? The upside of generous health insurance coverage is that we are better able to avoid the risk of financial ruin.? The downside is that we sometimes agree to receive medical services that we might not need.? The latter is really true – the research evidence is overwhelming – and this has contributed mightily to the cost crisis you have been reading about.

I am sure you will tell me that you really need the diagnostic services ordered by your physician.? Then you should find a way to pay for them.??I understand that these services can cost hundreds of dollars, but I would imagine that there are other things in your life that are equally costly – car payments, vacations, new clothing, and so forth. ?Don’t you give equal or higher priority to your health?? If so,?then perhaps by next year you will set aside the extra money you will will need?for these tests.?? If not, then how can you say that you really need them?? If you are unwilling to pay several hundred dollars for medical tests, then you must not hold your life dearly.? Why then should others pay for you?

I know that I sound excessively harsh, and if your financial situation is such that purchasing these services will push you over the financial brink, I apologize.? You are in a?rough situation for sure.? But consider that if your employer offered a more generous health plan, the premiums would have been thousands of dollars higher.? Think of how this would have affected your job situation.? Many employers, perhaps?most,?have to hold the line on wages when health insurance costs increase,?so you may well have seen a substantial wage cut.? If your employer could not reduce wages, then your very job might have been threatened.? I doubt you would have preferred either of these outcomes to the present situation. ?The real problem isn’t that your deductibles increased; the problem is that healthcare is so darn expensive.

All of this rational economic analysis may leave you cold, and I understand that you cannot possible like the present situation.? There are alternatives that you might prefer.? Under a government-run system, you wouldn’t have to pay for many diagnostic services.? But to keep costs under control, the list of free services would be chosen by the government, not your doctor.? The new health law moves us in that direction and many Americans like the new direction we are taking.? Others would prefer to let market forces work to control costs.? Part of that solution would require us to face more of the financial consequences of our healthcare decisions while still having protection against financial ruin.

There is no going back to the old days.? Pick your poison.

Sincerely,

David Dranove

David Dranove is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University's Kellogg Graduate School of Management, where he is also Professor of Management and Strategy and Director of the Health Enterprise Management Program. He has published over 80 research articles and book chapters and written five books, including "The Economic Evolution of American Healthcare and Code Red". He has a Ph.D. in Economics from Stanford University.

October 25, 2010 in David Dranove, Health care costs | Permalink

Comments

A few years ago I wrote an opinion piece titled... "Other People's Money." I referenced a lady who called my office to ask if it was legal that her individual health insurance policy did not include maternity benefits – after all, she and her husband wanted to start a family. There ought to be a law, she thought, requiring insurance companies to sell individual policies (with $12,000 in maternity benefits) to any couple willing to pay $2,000 in premiums. In other words, she wasn’t willing to pay the price for having a baby; She wanted that paid with other people’s money.

Posted by: Devon Herrick, PhD National Center for Policy Analysis | Oct 25, 2010 3:21:55 PM

Or, he could simply defer the preventive care until he needs the costlier care that will be covered by insurance. A clever provider might offer these services at a lower cost, but jack up costs for the insured procedure that might come from the aforesaid tests.

Steve

Posted by: steve | Oct 25, 2010 3:25:09 PM

"Under a government-run system, you wouldn’t have to pay for many diagnostic services. But to keep costs under control, the list of free services would be chosen by the government, not your doctor."

Interesting that you say a government-run system does not allow docs to choose the free services, but where in this private system do docs get to choose the free services? Doesn't the insurance industry choose those services? Actually in the Canadian system I lived with, the docs chose the services, based on medical need not financial need, and the government paid for them, through taxes.

"I understand that these services can cost hundreds of dollars,"

Priced by the medical cartel. I'd actually insert "thousands of dollars". Sell the car, sell the house, put the kids into foster care and just pay for the damn stuff.

Posted by: Peter | Oct 25, 2010 5:45:14 PM

Welcome to thbe Age of Austerity. Be happy with what you still have and pay up.

Posted by: MG | Oct 25, 2010 6:15:09 PM

"the government paid for them, through taxes."

- And the federal government doesn't expect a fight when they propose a veiled taxation, through the AHCA. Trying to convince us that it will function effectively. All while completely failing to even try to bend the cost curve? Even worse, failing to at least identify the cost curve or attempting to convince us that it's the best option.

Not going past the argument of "those evil insurance companies", won't convince rational decision makers.

Posted by: Che | Oct 25, 2010 11:46:44 PM

177 million

Number of Americans covered by employer-based health care.

Posted by: Edwin | Oct 26, 2010 3:10:24 AM

"All while completely failing to even try to bend the cost curve? Even worse, failing to at least identify the cost curve or attempting to convince us that it's the best option."

The cost curve is because the prices are too high. I agree that this legislation will not bend the cost curve, but try to get lower prices past the well lobbied and financed providers. The present system hasn't even been willing to bend the cost curve, even with "evil" insurance companies.

Posted by: Peter | Oct 26, 2010 4:38:26 AM

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