Do you know your cost of Health Care? A reality test for congress

I have often thought that a basic problem with health care is insurance.  That insurance, promising full coverage for those with the right employer, motivates bad behavior from customers and doctors.  Why be a savvy shopper when all health care is free?  This is often referred to as moral hazard, one abuses a resource if there are no repercussions.  Conversely, the need to mitigate health care cost (counter moral hazard) has been regulating price, not paying more than $X for a given procedure.

Now in most other markets this combination of moral hazard and cost constraint, constrains innovation.  Why innovate if I can't sell more product and make more money?  If the customer can't decided on procedure, why offer any options?  If there are no options, there is not concept of early adopters willing to pay a bit more for a more innovative product, that might not be perfect but none the less appealing to savvy shoppers (like the folks that bought an iPhone before it was a cool idea, in my case it was testing for CRP before it became a routine blood test).

I am a student of innovation.   A true believer in the concepts of Creative Destruction (Schumpeter et. al.)  What that all means is that if a buyer and seller can negotiate different options of what might be bought, then over a period of time better products will emerge and people will learn what is the best product, in terms of the needs of the customer (not some actuary in a tower).  And, as early adopters consume products, costs will come down and quality will go up.  For example, a $1,000 Dell computer today can do more than a $1M cray computer could do in 1980.

So, I have been testing the health care industry.  I have my own insurance and use a Health Savings Account.  Essentially this lets me put $2,500 into an account pretax and increases my deductible to $2,500.  My overall insurance cost is much lower, but I am at risk in a sense for the first $2,500.  So, I am now a consumer.  I want to know how much everything costs, what its value will be, and wish to know more about my options. 

So, here is my story.  I go to a specialist today.  He looks at my problem and says "I can do either A or B.  A may work.  B definitely will work.  What do you want to do?"

So, I say "Choice B, but what does it cost?".  The doctor says "What does it cost?  Hmm.... I don't know?  Maybe my Administrator knows". 

I go to the administrator, "What does it cost?".  The administrator says "Well, the doctors cost or the other costs for the procedure?  I am not sure?  You need to call the place the procedure will be done?".  I am thinking, "My cost.  Why do I care what the doctor gets paid.  And why do I need to call the surgery center where the doctor plans to do the procedure."

Would you buy a car without knowing what it costs?  A house?  A cell phone?  When doctors don't even know what the cost is, how can some remote bureaucrat figure it out accurately?   And by cost I mean A vs. B.  I am making the A vs. B decision.  The Insurance company might set a rate for A or B, but they really have a hard time forcing my hand if the difference is marginal.  They are just not that good at understanding my "Reservation Price" and other related costs.

The way you control cost and quality is to establish a relationship between buyer and seller.  Period!  Some will say "But this is not a normal transaction, if you get ripped off its your health and you die".  Well maybe you do, but you also die by having piss poor doctors that are not motivate to make more money, do better for themselves and the patients.  I want people who work for me to make money, because then they work harder for me.  People judge their self worth and learn to do better by the interaction they have with those around them.  If you are a smart person thinking about a great profession, do you want to get a job where your hard work pays off or where you just follow a routine and have a defined revenue stream (Defined by Congress).

I personally think we would all be better with an HSA.  The $2,500 deductible can be managed in almost all cases, low income can have a subsidized spending out and the rich can self fund.  We would become more aggressive about our health care, limit our use to when we really need care, and in so doing become a more active participants in the health process.  The ensuing competition would continue to motivate good people to enter the profession.  And, most importantly of all, through innovation, what amounts to $1M Cray computer in health care (i.e. liver transplant or such) will over time come down in price (quickly with innovation) because smart doctors will figure out better tricks and tools for driving better care, because their patients reward them for it monetarily and through the customer/supplier relationship of commerce.

So, your homework assignment - when ever you go to the doctor (if you are paying or not), ask what it costs.  See what you find out.