Adding insurance to the mix creates a whole host of problems. First of all, it imposes significant administrative costs, which often exceed the price of the actual medical service. Secondly, insurance gives both the doctor and the patient an incentive to maximise costs – the patient because he's paid his dues and wants his money's worth, the doctor because he wants to increase his income. Thirdly, it blunts incentives to keep yourself healthy, because that's what you've got insurance for.
Moving to a more rational system, where people pay their doctors directly for routine services and insurance is confined to its natural role, is the key to reforming healthcare the world over – to keep costs under control, free doctors and empower patients. I hope policymakers realize that. For a more detailed explanation of the benefits of health savings accounts, have a look our 2001 report Medical Savings Accounts.
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According to the Investor's Business Daily, a Democrat controlled US Congress could attempt to drive Health Savings Accounts (HSAs) out of the market. They won't roll them up overnight, the article says, but they could tie them down with lots of regulation and paperwork, and cap the tax deductibility of savings at a low level – essentially rendering them useless. Given that healthcare is meant to be one the Democrats' priorities, it is hard to think of a more counterproductive step they could take.
According to a presentation I saw from the (US) National Business Group on Health a couple of weeks ago, 27 percent of large employers already offer health plans including HSAs, with a further 9 percent intending to do so for 2009. The reason for this is simple: consumer-directed health plans or CDHPs (which tend to include a savings/direct payment element and high-deductible insurance) are much more cost-effective than traditional group insurance options, coming in at an average $5970 a year compared with $7120 for health maintenance organizations (HMOs), $7252 for preferred provider organizations (PPOs), and $7714 for point of service (POS) plans. CDHPs, which are used in one guise or another by 55 percent of large businesses, can produce 3-year total savings of $1m per 1000 workers without compromising quality of care. In an era of uncontrolled medical inflation, that is nothing to be sniffed at.
The reason HSAs are so important is that unlike most proposed reforms they actually address the fundamental problem with healthcare today – the absurd overuse of comprehensive insurance. This applies as much to government systems like Britain's NHS as it does to mixed or private systems elsewhere in the world. Think of it like this: insurance is very useful for protecting us against unanticipated and costly occurrences, but is completely ill suited to the funding of predictable expenses. Why rely on insurance for a run-of-the-mill doctors visit or a bog-standard prescription? You know these things are going to happen from time to time, so you can plan for them. [Click 'read more' to continue]
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