Motivated Consumers And Health Care Cost Containment

Virtually every American, at some point in their lives, has had to cut back and adjust their spending habits.  It may have been when they were saving for a honeymoon or a special gift for a loved one, or it may have been when they scrimped to put a child through college.  Sometimes the decision is forced on us, such when we are laid off or find ourselves dealing with unexpected expenses, like an unanticipated home repair.  For many people who have lost their jobs in the current recession, the time for careful personal budgeting is right now.

In my experience, consumers who are personally focused on cost containment can, and do, contain costs.  They eat out less or buy the “un-brand” alternative at the grocery store; they decide to drop a magazine subscription or two, drive instead of fly on a trip, or forgo a vacation altogether.  As the sacrifices mount, so do the savings.

That is why this article by Indiana Governor Mitch Daniels seemed sensible to me.  He reports on the Health Savings Account option offered to Indiana state employees and the significant cost savings it has achieved.  Under that system, the state deposits a set amount in an account for each employee for their health care costs for the year, and whatever the employee does not spend becomes their personal property.  The employee has an incentive to be a careful consumer — to think about what they really need, to hunt for a cheaper provider, to choose the generic alternative rather than the name brand, and so forth — and that is precisely what has happened.  The employees want to keep as much of the money in the accounts as they can manage, and as a result the State is realizing substantial savings in its health care expenditures.

I think one significant step toward bringing our health care costs under control would be to introduce the concept of naked financial self-interest to the health care choice equation.  Currently, individuals whose care is paid for by third parties, whether a government-sponsored plan or an employer-sponsored plan, have no incentive to engage in penny-pinching.  They don’t look for the cheapest alternative or consider whether they can reasonably forgo the service because someone else is footing the bill.  I think if they saw an impact on their pocketbook they would make those kinds of careful judgments, and the federal and state governments — and ultimately taxpayers — would benefit as a result.

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