I’m an English major and a Healthcare Geek.  I could go on for 2500 words with this topic.  But in this case, a (non-healthcare) friend asked my opinion on the topic on my Facebook timeline.  Wishing to spare my grandmother this diatribe, I present it here.

As I have admitted in earlier posts IANAE (I am not an Economist), but there are a few significant ways in which insurance has influenced price:

1. Moral Hazard–This is a fancy term that means, “Any system that allows consumers to spend other people’s money on their consumption is inherently going to have rising costs.  During the year, you pay the agreed-upon copays to visit the physician as many times as you’d like–any time you get a little sniffle, if you so choose.  Your premiums may rise next year to account for so many people in the patient pool having utilized the system the previous year, but for each episode of care, you didn’t feel the full bill.
2. Healthcare is not a truly competitive market–At the consumer level, patients have no idea what a service costs before they purchase the services of a provider or hospital, so they can’t comparison shop.  That could all change in 2014–the Affordable Care Act requires all hospitals to publish their prices for common services by 2014.
3. “But what does the patient care about prices if they have insurance?  You just said they were shielded from prices.”  Yeah, publishing prices so that we know that the appendectomy at Hospital A is $1000 cheaper than at Hospital B  for the insurance company doesn’t really matter.  But what if that price difference was passed on to the patient?  Sometimes it is.  Let’s say your appendix is causing you severe pain and so you’re looking for the closest hospital, which happens to be Hospital B.  They get you into surgery a few hours after you arrive at the ER (after tests and diagnostics and a good dose of pain killers), and a few weeks later you get the bills.  Bills?  But I have insurance!!!  Yes, but you chose Hospital B, which is Out of Network with your insurance plan.  They have a special pricing contract with Hospital A, based upon negotiated charges (see previous blog entry).  If you had gone to Hospital A, it wouldn’t have cost much more than the various agreed-upon copays for the ER and diagnostic imaging.
4. Health insurance is highly-regulated–Each state regulates insurance companies for its citizens.  State-by-state benefit mandates necessarily determine the cost of premiums–if your insurance has to provide coverage for a wider range of services, it will cost.   This issue isn’t truly caused by insurance, per se, but facilitated by its existence.   There are over 1,000 mandated coverage laws in the United States today, ranging from mandatory coverage of kidney transplants in Illinois and Heart transplants in Georgia to marriage counseling in California and hair pieces for the bald in Wisconsin.

These are a few of the most insidious ways insurance companies have influenced healthcare prices.  Certainly the biggest culprit in my mind is the shielding of cost from the consumer.  Some studies suggest that Health Savings Accounts (HSAs) reduce the cost of care by making a patient more sensitive to when they seek care and where they go for treatment (i.e. “Do you go to the physician and ask for antibiotics at the first sign of a sniffle?” “Do you ask for the price of that appendectomy up front?”).

The recently-upheld PPACA, however, may soon eliminate HSAs–now used by more than 11 million people for 100% coverage of preventive care and a deductible of roughly $4,000-6,000 per family for everything else.  The law puts guidelines for health plans to meet certain actuarial standards of coverage.  HSAs were created to be low-cost, high-deductible options, and in order to meet those standards, they may have to add benefits and, consequently, raise premiums.  An exception for HSAs wasn’t written into the law, nor were HSAs considered as option in the current reform law.

But I digress.  And I promised that I’d keep my answer shorter than a Faulkner novel.