A fourth simple solution for Medicare that's as unworkable as the first three

Johns Goodman’s Three Simple Ways Medicare Can Save Money sparked ample debate on this blog and John’s. Now the Wall Street Journal has printed letters in response. Three of the four point out ways in which the simple solutions aren’t quite as promising as they seem. I won’t dwell on those. But one adds a fourth “simple” one. Alas, that simple one suggested by Ronald Horwitz of Farmington Hills, MI won’t work too well either.

His idea:

Do away with all dollar-based deductibles and co-payments and replace them with percentage co-pays.

Horwitz thinks this would give patients the incentive to seek out the lowest price for their care. Alas, once again a simple, elegant solution isn’t going to get us where we need to go. Here are a few problems with Horwitz’s plan:

  • Percentage co-pays may encourage the use of lower cost approaches, but they aren’t always the most effective ones. If a $500 drug is more effective than a $50 one in keeping a patient out of the hospital, which could cost tens of thousands of dollars, do I really want to push the patient to the cheaper product?
  • A lot of health care products and services are just too expensive for flat percentage co-pays. Most people can pay 10% of a $100 prescription cost, but fewer can afford 10% of a $40,000 surgical procedure
  • Percentage co-pays can give patients an incentive to use more costly services –at least up to a point. If the insurance company is paying 90% of the cost, why not choose a pricier doctor or drug that might be better?
  • It’s hard to know in advance what something is going to cost. Try sometime to find out the real price for a surgery in advance. Few hospitals can tell you.

Unfortunately health plans are being rational with their complex benefit designs: multi-tier formularies, different prices for different facilities and physicians, prior authorization, co-insurance, co-pays, out-of-pocket maximums, and provider networks. Simple solutions are unlikely to solve the complex problem of third-party payment for health care.


August 18, 2011

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