Consumerism is the hey to
containing health care cost increases

by Allen Wishner

Health insurance premiums are forecast to rise 13.2 percent in 2005 – an alarming statistic considering businesses are seriously overburdened already by a decade of annual double- digit premium increases. At this rate, the ranks of the uninsured are forecasted to swell by 7 million, up to 51 million Americans.

At the same time, the Democratic party has tried to embrace health care reform as a defining issue. Yet, what solutions have they brought forward? Universal health care simply shifts the burden from the private to the public sector. It does, however, address the fundamental flaw of our existing system: lack of consumerism.

Under our current system, many people do not know the real cost of their health care. There is no service that is more personal or more intimate. There is also no service that is more expensive. And there seems to be no limit to how much money we could potentially spend on health care services. In our present system, insured consumers face prices that indicate to them that health care is free or nearly so, with $10 and $20 co-pays. They are insulated from the cost of consuming services, and their consumption is limited only by their priorities.

As we look to the future, we can anticipate accelerated technological progress that will bring many new products to the medical care marketplace. These advances will rapidly expand the possibilities for spending money on health care. There is no more important issue than the future of our health care system.

Over the past several years, employers, workers, and the self-employed have been looking for ways to lower health care costs. Over the past seven years, Congress made changes to the tax code establishing tax-favored status to consumer-driven health care models, specifically Medical Savings Accounts (MSAs), Health Reimbursement Accounts (HRAs) and Health Savings Accounts (HSAs). These plans represent the beginning of a free market approach to reform the current health care system – and major organizations and even the health insurance industry have embraced them to give employers and employees the ability to control and define contributions as a way to tackle, and even reduce, double-digit premium inflation.

Recognizing that excessively generous benefits lead to extraordinary utilization, HSAs, HRAs and MSAs are plans of insurance designed to reconnect the consumer with the cost of goods and services. They take a direct approach to addressing the problem of health care cost inflation by creating consumer incentives to conserve health care expenses. This has been the missing ingredient in our current employer-sponsored health insurance market. The plan works by combining a low-premium, high-deductible major medical policy with a medical “savings” account that offers employees tax-free compensation to pay their provider directly. The savings account can be likened to a 401(k) plan where the employer, employee or both can make contributions and the employee can direct how those contributions should be invested.

With HSAs, HRAs and MSAs, employees are empowered to exert free market pressure on health care providers as they shop for the best of services for their money, since unused funds in their savings account are allowed to roll over year-to-year to cover future medical expenses.

With the emphasis of health care reform on cost containment, consumer-driven HSAs, HRAs and MSAs represent an alternative plan, designed to foster cost consciousness and economically efficient choice at the level of the individual decision-maker. Most of our health care problems related to rapid expenditure growth are due to the absence of a proper pricing system. Empowering consumers to take more responsibility for their health care will make prices more meaningful and stimulate competition among providers on the basis of price and service.

No system, public or private, can meet the demands for medical care in the quantities that are generated when patients view it as entitlement. If we are ever going to stabilize the cost of health care, we need to get every employee to treat health care dollars as if they were their own. Every penny spent on health care comes from us. We pay the taxes, we pay the insurance premiums, and we earn our benefits as surely as we earn our wages.

This article originally appeared in the 2004 ISA Business Expo issue of Progressive Distributor. Copyright 2004.

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