There has been anecdotal evidence. But now The Wall Street Journal in its story about GE’s quandary confirmed it: the toughest creature out there that no one has been able to subdue yet, the inexplicable American consumer, is apparently accomplishing a miracle: putting the screws to runaway health-care costs. One of their targets: over-used, over-hyped medical services, such as MRIs and CT scans—an industry bubble that has been ballooning by the double digits for decades. Motive? Profit.
It may be early for a victory lap: critics contend that “the health-care system is still overrun by unnecessary imaging at prices that are much higher than in other countries,” the Journal writes. “A study by the International Federation of Health Plans found that US fees for an MRI were about 80% higher than Germany’s.”
American health care costs are beyond legendary. Employer plans that cover a family of four are expected to break the sound barrier of $20,000 this year, up 7% from 2011, and up 117% from ten years ago. The country is spending $2.6 trillion on health care a year, or 17.9% of GDP! Yet, in terms of life expectancy, these expenditures don’t add up. Depending on who is counting, the US ranks somewhere between 38th and 51st place. On the latter list, US life expectancy of 78.49 years is almost 11 years lower than Monaco’s.
The Journal describes the inherent conflict between GE’s health-care division, which generates $18 billion in revenues by selling MRI machines, CT scanners, and the like, and the health insurance program for its employees, which costs $2.5 billion. While the health-care division wanted to sell as many imaging devices as possible, cost cutters wanted to contain the spiraling health-care costs. The cost cutters won—and introduced high-deductible health plans. After two years, the use of imaging technologies dropped by as much as 25%.
Other large corporations are implementing similar plans. In my experience, high-deductible plans have become nearly standard in small companies—to combat skyrocketing costs. What they have accomplished in the process, without planning it, is introduce a new watchdog into the equation, and not any old watchdog, but the sharpest one out there: consumers motivated by profit.
Many companies offer options, where the employee portion for family coverage may drop from, say, $1,200 per month for a classic plan to $600 per month for a high-deductible plan with a maximum out of pocket of $4,000. People do the math. They’d save $600 per month, or $7,200 per year. Any expenses would be capped at $4,000. Savings: $3,200. Plus any out-of-pocket expenses they would have to pay under the traditional plan. These plans qualify for Health Savings Accounts—and contributions to them are deductible from federal income taxes (but not from California income taxes!!!).
For healthy people, a high-deductible plan with an HSA account is financial nirvana. For people with chronic illnesses that are expensive to treat, such a plan may be less advantageous, but may still be a good deal (check your numbers carefully!). It’s a tough plan for those who don’t have the discipline to put aside the monthly savings so that they can pay their big deductible down the road. But it’s a fiasco for those who can barely pay their premiums and have nothing left to put aside—a growing part of the population.
While it’s still nearly impossible to get accurate pricing in advance of medical treatments—and thus price competition remains illusory—it is possible to question the need for certain procedures. Insurance companies who are trying to deny coverage for procedures they deem unnecessary can get into hot water. For them, the path of least resistance is to pay, and then raise premiums. But when a consumer, motivated by profit and a desire to stay healthy, deems a procedure unnecessary, it’s a different story. Suddenly, the profit motive of the industry smacks into the profit motive of the consumer. Rudiments of checks and balances!
Those are personal decisions. But consumers are motivated to think about them and empowered to make them—rather than handing the entire process over to the industry. And when the toughest creature out there has a major medical event that fulfills the deductible, he or she can spend the rest of the year catching up with accumulated elective procedures: cataract surgery, hip replacement, brain transplant…. For free.
It has had an impact. In 2012, plans with deductibles of $1,000 or more made up only 19% of employee-sponsored health plans, according to the Journal. But the radiology industry is now contemplating stagnation: demand by privately insured patients (rather than those covered by Medicare) declined by 5.4% in 2010. And GE saved 15%.
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Why don't proponents of single payer healthcare simply set up a non-profit health insurance company. With lower costs (no profit margin) it would automatically pull in more and more pools of people and either bankrupt for-profit companies or at least force their pricing model down. Is this a naiive plan, somehow?