- The Washington Times - Friday, October 16, 2009

ANALYSIS/OPINION:

Price is power. Given limited resources and infinite wants, price empowers us to determine the best use of limited resources.

With health care, the closest most patients come to price is the $15 or $20 co-pay. When we leave the doctor’s office, we don’t know if we received $5 worth of health care or $500.

On the surface, it’s a bargain. But the “bargain” hides and contributes to higher insurance premiums and massive medical inflation.

Our current system ignores the power of price. We can’t know or compare prices, much less be rewarded for acting on them. Because there is no incentive to control costs, we don’t. At $15, why not request any test? According to a McKinsey Quarterly report, the disconnect between price and cost is a leading driver of skyrocketing medical inflation, along with the burgeoning cost of treating chronic disease and the expense of administrative overhead.

Nationally, insurance premiums have increased by roughly 13 percent per year during the past decade. At Roy O. Martin Lumber Co., a Louisiana-based timber firm with 1,200 employees, they have increased by less than 3 percent.

What does Roy O. Martin know that others do not? It’s not new or fancy. They’ve had the same plan since 1980. The difference is that Roy O. Martin employs the power of price.

At Roy O. Martin, premiums range from $3.10 per week for single employees to $67.41 per week for employees with large families. The company contributes $32.60 to $100 per employee. There are no co-pays. Employees choose a low deductible ($500) plan or high deductible ($1,250) plan. The maximum annual out-of-pocket expense is $2,500. When purchasing medical care, employees pay 20 percent and the company pays 80 percent.

Roy O. Martin’s cost containment strategy does not compromise quality. Employees can see any physician they choose, without precertification or referral. At no cost to them, employees have access to full-time occupational health nurses on-site and a physician visits weekly. Wellness and preventive benefits are covered and encouraged.

Diane Davidson, Roy O. Martin’s employee benefits manager, says the reason for the difference between the 3 percent increase at Roy O. Martin and the 13 percent increase elsewhere is that “*ur employees always understand the full cost of service and share in the cost. It allows them to be their own gatekeeper for health care.”

Because Roy O. Martin’s employees participate in cost, they are guardians of their health care dollars. In turn, they receive high-quality care for less than most Americans pay.

This is consistent with a landmark Rand Corp. study, which found that cost-sharing significantly reduced health care costs without adversely affecting quality. Greater awareness of cost lowers costs.

Health Savings Accounts (HSAs), for example, can extend the power of price throughout health care. HSAs are essentially bank accounts filled with dedicated health care dollars, accessed via debit card or reimbursement. Rather than contributing to a traditional insurance plan, patients and employers contribute to the HSA, which is coupled with a wrap-around policy for catastrophic events.

Because HSAs “belong” to the patient, they reward wise health care spending. The patient keeps unspent HSA dollars. The Kaiser Family Foundation found that HSAs are 30 percent cheaper than traditional insurance policies with similar benefits and that 27 percent of those currently covered by HSAs were previously uninsured.

Armed with HSAs, patients drive down costs by demanding higher quality care for less, as consumers have with televisions and cell phones. As costs fall, health care becomes more accessible. Advanceable tax credits could be given to those who otherwise cannot afford HSAs. To increase the effectiveness of HSAs, Congress should eliminate barriers to transparent medical pricing.

Unfortunately, the dominant plans before Congress do not empower patients. Rather than revolutionizing health care, they double down on a system that divorces health care from economic reality. Accordingly, the Congressional Budget Office estimates that leading Democratic proposals in both the House and Senate will not significantly reduce medical inflation. Under both bills, costs will continue to double roughly every decade.

To save patients money, patients must be empowered and connected to price. Health care reform that ignores the power of price will fail to lower costs and, therefore, fail to be sustainable.

Rep. Bill Cassidy, a medical doctor, is a Louisiana Republican.

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