How to Control Health Care Costs - More Choice not More Central Planning

Just Who Should Control Your Healthcare Spending?

By Paul Hsieh, MD

What simple health care reform has reduced medical costs by up to 30%, while preserving quality of care? Hint: It’s not government price controls or mandatory health insurance. Rather, it’s letting patients decide how to spend their own health care dollars.

The RAND Corporation recently published a study of 360,000 families who used Health Savings Accounts (HSAs) to control their own spending on routine medical expenses. These HSAs were coupled with high-deductible insurance to cover unlikely-but-expensive serious accidents and illnesses.

According to health economist John Goodman: “Not only did spending go down by as much as 30 percent, there was no noticeable decrease in quality and no discernible difference in outcomes among various income groups.” Nor did patients with chronic conditions such as diabetes skimp on preventive care relative to healthier patients. The study authors estimate that widespread adoption of HSAs could reduce overall health costs by as much as $57 billion. Health economist Greg Scandlen thinks it could be much more.

This makes perfect sense. People are much more careful shoppers when their own money is on the line.

In my own practice, I’ve counseled many patients with HSAs deciding between, say, an ultrasound or a CT scan for their condition. We discuss the relative costs, accuracy, and disadvantages of each option, but the final decision is always theirs. I’ve been consistently impressed with my patients’ ability to make appropriate decisions about their medical spending. Patients can shop prudently for health care just as they do for cars or big-screen televisions.

Recently, it’s become fashionable for pundits to blame rising health costs on the “fee for service” system, where doctors and hospitals are paid for each service they provide. But as Greg Scandlen noted, we routinely pay “fee for service” for food, clothing, and electronics, and this hasn’t resulted in out-of-control inflation. This is because consumers directly control their own spending for these items. HSAs allow patients to similarly control their medical spending.

Scandlen notes that the real cause of rising health costs is not “fee for service” but rather a third-party payer system that encourages wasteful spending.

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