A Huge Motivator
Published in The Journal Record
October 19, 2016
My father gave me lots of advice. One pearl of wisdom was to marry a rich girl. I ignored that guidance and married for love. The second piece of advice was if something appeared to be too good to be true, it probably was.
There were several stories over the past several weeks concerning the insurer for state employees’ health coverage working with a handful of medical providers to offer state employees free surgery. Who doesn’t like free stuff?
In this scheme state employees who have their surgery in certain medical facilities do not have to pay a copay or deductible. In other words, it’s making their surgery free to them. The corresponding coverage indicated this would save millions of dollars for the state, and certainly for the individual state employee. Perhaps we should examine this premise.
When the Democrats passed the Affordable Care Act they included a provision called the Cadillac Tax. This tax was aimed at insurance plans that were richer in benefits than average plans as a way to discourage employers from granting rich benefits such as lower copays or deductibles. Their reasoning was sound. There is an economic truth at play and that is when cost approaches zero to consumers, their demand approaches infinity. In other words, removing the economic consequence of a medical decision only enhances utilization and, therefore, cost.
This new offer, while a nice benefit for state employees, only ensures that health care costs go up for the state and its taxpayers. It is really fairly simple. A handful of low-risk, high-cost surgeries are but a miniscule portion of overall health care costs. The vast majority of health care costs that employers pay are due to the chronic conditions of their employees. A company with an employee who is a brittle diabetic is going to cost the employer significantly more than an employee having a bunion removed from his or her foot.
It’s really clear that while this announcement makes great press, removing any economic disincentives to overutilization only inspires the medical provider and the patient to demand more services than they otherwise would. The state of Oklahoma and, therefore its taxpayers, will ultimately foot the bill for this benefit that seems too good to be true.