So Bubba, With Healthcare, is it a Cost Thing or an Insurance Thing?

Huh?  Isn’t it all a cost thing one might ask?

Well, it is for sure but why is everything so expensive, and does it have to be that way?   Healthcare is a complicated issue.  For anyone who has ever read their company’s benefits enrollment materials or purchased insurance on their own, it seems pretty complicated.  And that is merely the tip of the iceberg.

Let’s poke around this subject for a minute or two.  Let me be clear, I am no expert, simply a guy making observations.  Insurance is really a mechanism, a financial tool, to manage risk.  The greater the risk, the higher the cost of the insurance.  So, if I live in Georgia and want earthquake insurance on my house I pay a couple of bucks a year for hundreds of thousands of dollars worth of insurance, but if I live in San Francisco maybe I pay several thousand dollars a year.  The other piece of the insurance puzzle is the cost to replace or repair whatever is broken.  So if my house in Georgia gets whacked by an earthquake and the cost to build homes where I live is $100 per square foot to replace, but the cost to replace the same home in San Francisco is $200 per square foot to replace, then that is going to make the difference between what I would pay in one state vs. another even that much more.  The same is true with health insurance.  The risks vary from state to state. 

This week I had a double header with our automobiles.  I took my car in for an oil change on Tuesday and it was $24.  The next day I took my wife’s car in and it was $29 for basically the same oil change except her car takes a little bit different oil and more of it.  I do this probably 4 times a year for each car.   With a new set of tires every so often, some wiper blades, air filters, and other miscellaneous items, I probably spend a thousand bucks a year on each car just to keep them going.  There are lots of good analogies in this but a couple that relate to insurance that are especially worth noting.  First, I have no insurance for basic maintenance on my car.  Second, if I take care of the maintenance on my care regularly, I am less likely to be involved in an accident, which would cost me a lot of money out of my pocket (the deductible) and drive my insurance costs up.   Remember, insurance is a financial tool to manage risk, in the case of your car it’s to protect you from the financial ruin in the event you mix it up with someone else.  Insurance covers the legal, medical, and repair costs which can exceed what you have in the bank to pay.

You pay for your auto maintenance and don’t think twice about it.  Well, you may think twice about it because owning a car isn’t cheap, but you probably have never thought about having a maintenance insurance policy for your car.  Can you imagine what it would cost you every year?  Well, if you use my example above, at a glance you might say $2,000.  Actually, it would probably cost a lot more than that if it worked like traditional health insurance.

In the current world you take your car in for an oil change and it costs say $25.  But if you had car insurance that worked like traditional health insurance, you’d take your car in, and maybe you’d expect to make a $20 co-pay.  BUT since it only costs you $20, you might have the wiper blades changed, you might have them check out a few rattles, you might have them fix the radio, change the tires.  So the insurance company would have to bake all of that into the cost of your insurance plus put in enough extra for them to make a profit.  Now, instead of your auto maintenance costing you $2,000 per year, maybe it costs you $3,000 per year in premiums plus your co-pay.  It might even cost you more.

Remember the “cost thing” noted in the headline of this article?  With your car, you can walk into any service station, quick oil change, or dealership in the country and ask them what an oil change cost and they can tell you.  In fact, they can pretty much tell you what any car repair will cost.  And because you have that information, you have the power to vote with your wallet and feet which helps keep auto repair pricing competitive.

In healthcare, this lack of transparency is an awful thing.  Regardless if you have insurance or not, it is very difficult to know what the true cost of various procedures, tests, and “maintenance” is.  So people are not good shoppers, which drives down competition and drives up costs.  This is part of the reason insurance costs are so high.  Now maybe you are saying, yea, but insurance companies know the cost of healthcare, they select the doctors, they negotiate in bulk, they should be able to drive the price of insurance down, not up, and I suppose this is sort of true.  However, not everyone is insured, in fact therer are over 40 million Americans without insurance,  and because they don’t have any real good ability to shop their healthcare, their buying power is completely wiped out of the equation.  And then you have this little thing called the government that gets in the middle of all this and that screws things up totally.

Back to the car again.  Now imagine for a moment that you do have auto insurance that covers maintenance.  What if your state government said, all insurance policies must cover 4 sets of wiper blades a year, emergency towing and electrical harnesses for trailers.  Now, courtesy of your government, your insurance company has to build those costs into your plan, even if you never plan to tow a trailer, if your car never breaks down, and if it doesn’t rain in your state all year.  Oh, and here’s the other piece.  Your goverment says to all the auto repair guys, if someone calls your shop and asks for a tow, you are required to go tow them in, even if they don’t have enough money to pay for it.  Well, if that is the case, they are going to have to build those expenses into their costs and they might not just jack the cost of a tow up, they might spread it across all of their services.

In healthcare, this happens all the time.  States mandate certain coverages and everyone with insurance pays for it regardless of whether or not they will ever need that specifical procedure or not.  

So is this healthcare a cost thing or an insurance thing?  Well, I suppose both feed each other.  Insurance costs are high because of the Government’s demands on the insurance and medical industries along with our expectations of what we want our insurance to provide for us.  And medical costs are high, because we don’t want to be responsible for our own health, nor do we have the tools to understand it well enough to drive more competition into the marketplace which would in turn drive costs down.

There are lots of articles out on the web that can really dig into the reasons why the cost of healthcare is so high in America.  HSAeducator.com has an entertaining top ten article on it that looks at some of the other reasons healthcare costs so much and can help you think about your own healthcare and how to deal with some of the costs.  There are also other resources there that can help you unravel the world of Consumer Driven Health.

So the answer to the question is yes.  If you were still wondering.