The U.S. pays more for health care than every other country in the world.  Some blame the fee-for-service medical payment system for this.   They’re wrong.  Government regulations and paying directlya 3rd party payment system are the real culprits.  Instead of making health care more affordable as its name would suggest, the Affordable Care Act (ACA) has doubled down on the very factors that are at the root of the problem.

Health care reformers like to say that the fee-for-service payment system allows doctors to enrich themselves by prescribing expensive treatments and charge exorbitant prices.  That my be true in some cases but it wouldn’t happen in any case if people had to pay directly for their health care.  The truth is, right now, many, if not most, don’t care how much medical services cost them.  Patients seldom ask the price of a treatment the doctor suggests because they’re not paying directly for it.  A surgeon contributor to Kevin MD‘s blog, recently wrote that in 40 years, he couldn’t remember any patient asking the cost of operations he’s performed.

In general, people don’t pay the doctors, labs, hospital, or clinics for the health care they receive.  It’s an insurance company or the government who signs the checks.   For people who are covered by an employer or Medicare, even the cost of the insurance is discounted.  When it comes to medical bills, in most cases, people are spending what they think is someone else’s money – a 3rd party: an employer, an insurer or the government.  However, they are, in fact, paying for it.  They’re paying for it with higher insurance premiums, higher taxes and lower salaries.  And unless there’s change, the situation is about to get worse.

Health Affairs, the highly respected journal on health policy, reported the findings of researchers who conducted a series of focus groups and surveys to determine how people make decisions about their medical care.  They found that people today, given the chance, regularly chose more treatments, the newest treatments and the most expensive treatments over just as effective, but cheaper, alternatives to solve their medical problems.

patient entering in a medical scanIn one part of the study people were asked to choose between a CT and the much more expensive MRI scan, each covering the same ground.  Even when the high cost of the MRI was emphasized, people were unwilling to accept the cheaper CT scan.  The belief held by many in the group was that you get what you pay for…. If it costs more, it must be better.  Illogical thinking didn’t stop there.  The researchers found that people will demand an expensive treatment even when the odds are only 1 in 500 that it would be successful.  If the cost for this would came directly out of their pockets, I doubt they’d do this.

Some of the participants in the Health Affairs study felt vengeful towards health insurance companies.  Making an insurance company pay for expensive medical treatments was a way, some said, of getting their monies worth and ‘getting back’ at health insurance companies.  That some would have this attitude isn’t surprising given the vilification heaped on health insurers by people involved in the health reform debates.  But this attitude also betrays a lack of understanding of how insurance works: the high cost of health care, in fact, drives the high cost of health insurance.

The Health Affairs researchers were surprised at the number of people in the study who didn’t see this.  While most people in the study understood or at least were familiar with the issue of unsustainable health care costs, few saw any role for themselves in keeping health care costs down by making more economical decisions.  The study researchers determined, furthermore,  that it would be very difficult to change consumer thinking on this.  The only solution, they concluded, was to explore better and more effective means of education.   Really?

No one person is going to chose cheaper medical care unless he sees it in his best interest to do so.  And that can only happen if he pays more directly for the medical services he chooses.  One only has to look at medical procedures that people do pay for to see the truth of that.  The real, inflation adjusted, price for cosmetic surgery, not covered by health insurance, fell over the last 20 years despite advances in technology and increased demand.  When there’s price competition, medical providers look for cheaper and more effective ways to get the best result at the cheapest price. Unlike most other medical services, cosmetic surgery prices are readily available.  They have to be.  Because when patients pay with their own money, they want to know the cost.

But prices for most medical procedures are rarely available because the people who use these services don’t need or want to know the cost.  In another recent study, analysts found, not only a lack of price transparency but a wide variance in cost such that the same medical treatment performed in the same city varied as much as 700% with no difference in quality.  This couldn’t happen if there was competition and there’s no competition when people have no incentive to “shop around”.

The new Affordable Care Act (ACA) has distanced people still further from the cost of the medical treatments they receive.  In the name of health care reform, regulations have been put in place that raise the cost of health insurance still more, giving people all the more reason to ignore the real cost of their health care.

Instead of making health care more affordable, the Affordable Care Act had done the opposite.  In this instance, it has all but disallowed catastrophic health insurance, the insurance that would cover serious illnesses at the lowest cost.  In the past, people with this type of insurance could pay for their day to day health care needs with dollars saved in tax free Health Savings Accounts and Flexible Savings Accounts. Instead of promoting a way to encourage people to directly pay for their medical expenses, the ACA has made the use of these accounts more costly.  It’s time to call it the Unaffordable Care Act.