When you buy homeowner’s insurance, you don’t expect your insurance to pay for installing new windows or a new roof. Likewise, you don’t expect your auto insurance to pay for an oil change or new tires. You only expect these insurances to protect you when major problems arise like a fire or an auto accident. If you feel that a new roof is needed on your home, you find 2 or 3 reputable contractors, compare their prices and services, and then pay the chosen contractor for their work. You don’t expect your insurance to pay for it.
- Why is it that when you buy health insurance, you expect it to pay for almost everything, while often giving little attention to the costs of your medical services?
Do you even need health insurance? Yes. But what most people need is simply catastrophic health insurance. This coverage is available to the majority of Americans by using High-Deductible Health Plans coupled with Health Savings Accounts (HDHP/HSA). These plans can be purchased at very affordable rates and can save both employers and patients large amounts of money.
What most people don’t need is the standard $500 deductible plan in which the insurance companies tell the physician what to do and how to do his job, creates a structure that limits a patient’s access to the physician, and reduces the quality of care by forcing the physician to see a certain amount of patients per day. Most health insurance plans are too expensive, financially wasteful, extremely inefficient, irrational, and are not actually “insurance” at all. They are a form of pre-paid healthcare, which many of the patients never fully utilize or receive.
An important key to reducing rapidly rising healthcare costs is to redefine “health insurance” in the same way as it is already defined in these other insurance industries. This is easily accomplished through the combination of High Deductible Health Plans (HDHP) and Health Savings Accounts (HSA). High Deductible Health Plans are health insurance plans that typically have a deductible of $2,000 – $10,000. After the deductible is paid, the insurance covers 80%-100% of additional costs. There is a maximum yearly out-of-pocket cost that is incurred. Health Savings Accounts are an interest earning account obtained through a bank that can only be used for healthcare expenses. Deposits are made pre-tax just like an IRA. Most major banks offer them now and funds can be accessed by writing checks or swiping a debit card. This account must be tied to an HDHP. Most patients will have money left over in their HSA at the end of the year to roll over to the next year. That money will earn interest and can be used when bigger problems arise.
How can HDHP/HSAs save you money? Because the premiums are greatly reduced from typical health plans (i.e. $200 vs. $700 monthly). This allows for an immediate and substantial savings. You simply swipe an HSA debit card to pay at the time of service for needed physician visits and testing. There are no claims, preapprovals or rejections, and far less administrative costs. Since decisions are made by physicians and patients, important tests such as coronary calcium scoring and fractionated cholesterols get paid. Tests such as these can help physicians make better case-management decisions that are in the patient’s best interest, but many insurers have deemed them unnecessary and won’t pay for them.
With HDHP/HSAs, transparent pricing becomes critical. Medical services now enter the free market which lowers costs, spurs competition, and improves the quality of care and services. You know how much a new tires will cost before you buy them and when patients start writing checks for their medical care, they will expect to know the costs before paying for them as well. Pricing at reputable facilities is surprisingly variable. Service providers are frequently very willing to deeply discount their fees when cash is paid at the time of service (with a simple swipe of an HSA debit card). They avoid the hassle of the collection process, delays in payment, and uncertainty whether the bill will even be paid.
It should be required of x-ray facilities, labs, physicians, hospitals and other health service providers to post their cash prices. Just like at the auto mechanic, patients should be able to know the cost before receiving a service, not after. Perhaps prices could even be available on their websites. It would create competition for services, lower prices and give more people the comfort level to purchase an HDHP/HSA.
|Procedure||Private Facility A||Private Facility B||Private Facility C||Hospital 1 (unwilling to negotiate)||Hospital 2 (unable to get pricing after 3 attempts)|
|MRI – Lumbar Spine||$918||$400||$599||$2,618||n/a|
|Plain Films – Knee Series||$47||$75||$46||$797||n/a|
Most people know very little about HDHP/HSAs because insurance brokers and benefits advisors don’t discuss them unless asked. Brokers and agents receive commissions as a percentage of premiums, leaving little incentive to educate themselves or their clients about the low-cost and low-commission HDHP/HSA option. But, from a fiscal standpoint, a healthy person utilizes less medical resources.
Employers can also easily reduce healthcare expenditures and lessen lost employee work time. The typical employer who offers health insurance pays $600-$700 monthly per employee. Employers could instead pay $100-$200 for an HDHP and $200 per month to fill their employees’ HSAs. That would leave an extra $200-$300 per month that the employer could use to cut their costs, claim as a ROI, invest back into the business, or give it back to the employees as a bonus. When insurance rates inevitably rise further, the employers’ out of pocket costs will be less because the lower base insurance cost will rise more slowly.
|Requested Test||Retail Cost||Cost to Managed Care Insurance||Negotiated Cost (Payment at Time of Service)|
|HSCRP (cardiac inflammation)||$115||$35||$12|
|VAP (fractionated cholesterol)||$179||$95||$39|
This may seem like an unusual insurance model at first glance, but keep in mind that this is the way that most insurance works. Looking again at the introductory examples, the purpose of homeowner’s insurance is to cover the cost of big problems when they arise, like fire or earthquake. When upkeep of your home is needed like installing new windows or purchasing a new roof, you expect to hire a reputable contractor and pay them directly. Homeowner’s insurance does not get involved. You make the decision and get the quality of work desired. Competition among the contractors drives quality service and prices. Free market pricing and competition along with the redefinition of health insurance to match with other comparable insurances are what is needed to keep healthcare from bankrupting employers. The free market lowers costs and improves quality. Look at cars, computers, cell phones, etc. It is time to allow the healthcare system to interact with the free market. And that will save you money and give you better care.