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The Best Health Care Plan You've Never Heard Of

The Best Health Care Plan You've Never Heard Of

By John Graham - September 13, 2009

Washington is in the midst of yet another scandal -- but not the kind you'd read about in a gossip rag. Congressional dilettantes are willfully ignoring health-care reform ideas that would cut costs and provide high-quality care to all.

Sound nuts? It shouldn't. By refusing to even consider consumer-driven health care (CDHC), congressional leaders are proving that they're more interested in putting the government in charge of Americans' health care than in actually improving patient outcomes. Decades of evidence show that CDHC-style reforms can achieve the stated goal of would-be health reformers: high-quality care at low cost.

All the reform plans under consideration in Congress fail to address the biggest problem with our health-care system: third parties, like insurance companies or the government, pay for just about everything. Consequently, Americans have no idea how much the medical services they consume cost.

How much is a visit to a primary care doctor? Or a trip to a specialist? The average patient has no idea. Third-party payment shields people from the truth about how much they're spending at the doctor's office. As a result, most folks have no incentive to manage their health-care expenditures, so make little effort to do so.

Consumer-driven health plans address this problem by putting medical decisions in the hands of patients and doctors, not insurers or the government. Typically, CDHC arrangements couple high-deductible insurance plans for catastrophic care with either health savings accounts or employer-funded health reimbursement accounts.

Holders of health savings accounts can deposit money tax-free into their accounts and use the proceeds for whatever medical expenses they choose, from routine care to elective procedures like laser-eye surgery. Best of all, patients own the funds in their accounts forever. A deposit made today can be spent 50 years from now, when a person's medical expenses are likely to be higher.

When patients have a direct financial stake in the cost of their care, they're more likely to search for the best deal. The prices of medical services can vary widely and are usually unrelated to the amounts providers actually get paid, so asking informed questions can dramatically reduce health costs. Although still uncomfortable with transparency, hospitals and doctors' offices are finding it increasingly necessary to speak with patients about prices and payment.

Encouraging patients to consider the cost of procedures yields huge savings.

Research from the American Academy of Actuaries confirms that CDHC plans are driving health costs down without sacrificing quality of care. The typical plan results in first-year cost-savings of up to 15 percent. Meanwhile, traditional insurance plans have been increasing in cost each year. So a patient who switches from a conventional plan to a CDHC plan could save as much as 20 percent.

Further, CDHC plans deliver savings in subsequent years -- between 3 and 5 percent in each year after the first.

Critics of consumer-driven care say that it encourages patients to forgo necessary preventive care in order to take home more money. Yet the data flatly contradict this hypothesis. All the studies reviewed by the American Academy of Actuaries found that patients received necessary care and that CDHC plans didn't cause patients to avoid care.

In fact, all the studies noted pronounced increases in the use of preventive care. This shouldn't come as a surprise. If patients are responsible for their health dollars, they have every incentive to take better care of themselves in order to avoid more serious -- and more costly -- conditions.

As the health-care debate progresses, the paramount challenge remains how to cut costs without sacrificing the quality of care. Many have said that it's just not possible. But a decade's worth of experience with consumer-driven plans suggests otherwise.

John R. Graham is Director of Health Care Studies at the Pacific Research Institute.

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