October 03, 2007
Candidates for president have plans to get more people health insurance. Some would compel us to buy it; others would use the tax code to encourage that. Regardless, insurance is the magic that will solve our health-care problems.
But contrary to conventional wisdom, it's not those without health insurance who are the problem, but rather those with it. They make medical care more expensive for everyone.
We'd each be better off if we paid all but the biggest medical bills out of pocket and saved insurance for catastrophic events. Truly needy people would rely on charity, not government, because once government gets involved, unintended bad consequences abound.
If people paid their own bills, they would likely buy high-deductible insurance (roughly $1,000 for individuals, $2,100 for families) because on average, the premium is $1,300 cheaper. But people are so conditioned to expect others to pay their medical bills that they hate high deductibles: They feel ripped off if they must pay a thousand dollars before the insurance company starts paying.
But high deductibles may be the key to lowering costs and putting you in charge of your health care.
Five years ago, the Whole Foods grocery chain switched to a high-deductible plan. If an employee has a sore throat or a sprained ankle, he pays. But if he gets cancer or heart disease, his insurance covers it.
Whole Foods puts around $1,500 a year into an account for each employee. It's not charity but part of the employee's compensation. It's money Whole Foods would have otherwise spent on more-expensive insurance. Here's the good part for employees: If they don't spend the money on medical care this year, they keep it, and the company adds more next year.
It's called a health savings account, or HSA.
CEO John Mackey told me that when he went to the new system, "Our costs went way down."
Yet today, some workers have $8,000 in their accounts.
"That's their money," Mackey said. "It builds up over time because the money is compounding for them."
It will cover all sorts of future out-of-pocket expenses.
Most important, since employees control the money, their behavior changed. Whole Foods workers started asking "how much things cost," Mackey said. "They may not want to go to the emergency room if they wake up with a hangnail in the middle of the night. They may schedule an appointment now."
There was no need to ask about costs before because the insurance company seemed to pick up the tab. But that drove up costs for everyone. Now, saving money makes sense to employees because the money belongs to them.
HSA critics ask whether individual accounts will encourage people to save money at the expense of their health.
Mackey has the right response. "The premise in those kinds of questions is that people are stupid. They're not smart enough to make these decisions for themselves. It's sort of an elitist attitude. The individual is the best judge of what's right for the individual."
And apparently, most individuals are making smart choices.
Harvard Business School professor Regina Herzlinger says studies show that "people who have these high-deductible health-insurance policies take a lot better care of themselves. They have more yearly physicals. Because they're saying, 'If I keep myself healthy, in the long run, I'm going to be spending less money.'"
The critics also argue that spending on health care is too complicated and important for individuals to control.
Mackey isn't buying it. "Should we allow people to make decisions about whether they have children or not? I mean, that's a pretty important responsibility!"
I pointed out that most people know nothing about complex cancer treatments.
"I don't know anything about cars," he said. "But if I buy a Toyota or an Audi or a Lexus, I know I'm going to get a pretty good automobile because competition ensures that it will be that way."
It does. And competition will do the same in medical care. All we need to do is put the individual in charge of his own money.
Next week: Where competitive health care is already working.