“Make no mistake: The cost of
our health care is a threat to our economy. It’s an escalating burden
on our families and businesses. It’s a ticking time bomb for the
federal budget. And it is unsustainable for the United States of
America.”
Spoken by Barack Obama, on June 15, 2009 at
the Annual Conference of the American Medical Association, and he was
right on. The healthcare system of the United States is broken.
The big question is why? Answering that question correctly is essential when considering possible fixes.A big contributor to the problem is that most medical services are paid by parties other than the individual receiving care. A solution to the problems we have MUST include keeping the payments for services as closely-connected as possible to the person receiving those services. One always is more careful spending their own money than spending someone else’s.
Years ago I worked for a company where a part of my compensation was dependent upon the expenses I incurred. I received ten percent of of the net proceeds my sales activities generated. “Net proceeds” was after any and all business costs. The lower my expenses, the greater my income. So far, so good. The intention was to create an incentive to increase revenue and lower costs.
The other way to look at it was every dollar of expenses I incurred left me with a dime’s less income. Some of the expenses were not discretionary: a certain amount was apportioned for company overhead; recurring items like phone, auto, and things of that nature. Again, so far so good. The less I spent, the more I made.
Some things, however, were discretionary and a reverse incentive appeared here. A business is left with a dollar’s less income for every dollar in expenses whereas I lost only ten cents. The discretionary stuff is where the fun happened. Entertainment was a big part of gaining and maintaining: dinners, golf, trips, etc. Certainly they were necessary and an important part of the business, but the reverse incentive impacted my
decision making at the margin. I sometimes spent far more money than I “needed” to because it 90% of the money WASN’T MINE.
One dinner with two clients cost over $700. And yes, it was AWESOME. The perverse incentive? It cost me $70. If I had instead taken the two guys to somewhere inexpensive and spent $120, that would have reduced my income for the month by $12. Spending an additional $580 cost me $58. Was it worth it? You betcha.
Would
I have spent $700 of MY OWN DOLLARS to eat dinner with those two? Not a
chance. We would’ve gone to a cheapie burger joint and the cost
would’ve been about $12.
The moral: spending someone else’s money is always WAY easier than spending your own.Years ago I had a medical procedure that my insurance did not cover. It was completely discretionary and I had to pay for the whole thing. It was north of $8,000, not an insignificant amount.
Furthermore, I had competing interests with regards to finding a doctor to perform it. On one hand, I wanted to spend as little as possible. My hard-earned dollars were being spent and I did not want to waste a single penny. On the other hand, the definition of “as possible” was extremely important. It encompassed much more than just the lowest price.
So I shopped. I talked to multiple doctors. I talked to others who had also had the same surgery. I did as much investigation as I could to make sure I had as much information as possible upon which to base my decision.
By the way, this was the result, so I am VERY happy:
She is 7 and wonderful.
The other day a friend was told that they needed an MRI. The doctor referred a service provider and said that they take all types of insurance. Notice that the doctor did NOT say anything about the price of the MRI, only that all types of insurance were honored.
My friend, however, does NOT have insurance. Their family policy was cancelled and so they pay for their healthcare the old fashioned way: with their money. So they are now in the process of figuring out where to get the MRI.
Granted, it was not as big of a deal as my operation was. In doing their homework, they have discovered that various providers in their area offer MRIs at a range of $200 to $400. Guess where they’ll get the MRI?
Another thing: getting a “price list” from a doctor is almost impossible. The world of today is not one where “How much do you charge to do an MRI” is a common question.
Again, one is always much more careful spending their own money than spending someone else’s.
In answering the question posed as a result from our President’s comment, a system where folks are removed from bearing some impact from the costs of the healthcare they consume will be one where prices will increase. When thinking about what to do with our healthcare system, this critical point cannot be forgotten.
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