Insurance Price Awareness

By David Anderson:

Ezra Klein at the Washington Post argues that the biggest impediement to healthcare reform is a lack of price awareness on the part of American consumers. 

The truth is we all pay, and much more than we recognize, for health care.

For many, it's among the largest investments we'll make, on par, even, with the money we spend on a house or tuck away for retirement. But while it's easy to track our stock portfolios as they tank along with the market, our outlay for health care is less obvious. Employers pay some, and so do individuals, and taxpayers. And some even hides behind the deficit. As such, few of us see the full picture. But to make sense of the proposals for reform, getting a grasp of the cost is critical.

Imagine if people who touched a hot stove felt only a small fraction of the pain from the burn. That's pretty much what's happening in our health-care system. It hurts enough that we would prefer it to stop, but the urgency is lost.

I was laid off ten days ago.  I have not received my COBRA letter yet, but I have a pretty decent idea of what the bare bones plan my family was already consuming last year will cost -- an arm and potentially a leg amputated beneath a knee.  I don't think that I am too unusual in not being able to name an exact dollar figure but being able to ball-park the figure as impossible to pay for in the individual market.  Most Americans, I think, get that.  [correction, I received my COBRA letter, and without the COBRA subsidy from the ARRA, the cost would be an arm and a leg cut above the knee]

Ezra's column is fact-filled and informative, but it jumps for Econ 101 answers in the bearing of pain question. Econ 101 predicts that the more transparently expensive something is to an individual consumer, the less it will consumed.  This is the idea behind the donut hole in the Medicare Part D, it brings the full cost of drugs to the consumer with the hope of dissuading the mildly hypochondriac from over-consuming prescriptions.  More prosaically, this is the idea behind high deducitible insurance plans as well as co-pays for emergency room visits; making the consumer bear comparably high first dollar obligations will "ensure" that services are only used when they are high value.

There are two problems with this.  The first is a problem that Ezra has repeatedly pointed out --- Americans, and people in general, are poor discerning consumers of healthcare.  People are rationally ignorant of whether or not Procedure A is a superior and more cost effective choice of treatment than Protocal B or non-treatment of a particular sympton set or disease.  I outsource my lack of plumbing knowledge to a plumber, and that is rational, and we as a society outsource our lack of medical treatment knowledge to medical professionals.  I'm inclined to listen to a professional who is trained and has seen hundreds or thousands of cases instead of attempting to treat myself by looking at a price list.

Secondly, for most people, going to get medical treatment is not fun.  It is not enjoyable.  At best it is a means to an end to do other, more enjoyable things.  Going to a doctor's office is a personally high cost activity for many relatively healthy individuals already.  It eats up part of a day, it is not particularly pleasant but it is worthwhile to go if one is already feeling gross .  The same applies for physical therapy, rehab services and most other basic medical services.  The act of receiving care is a means to an end, and not an end in and of itself.

The biggest problem with healthcare reform is not a lack of insurance price awareness.  Most people see the costs directly, maybe not fully, but at least directly, in the form of higher co-pays, higher deductibles, more hoops to jump through and higher paycheck deductions.  The problem is, as Ian Welsh notes, a failure of the elites to have their skin in the game as they are insulated from the natural course of shit happening that could be a life-changing event from something as simple as a lay-off in the middle of a nasty recession and a car accident or an expensive diagnosis.