(cont'd from part II)  So a guiding principle for a successful and cost-effective health care system - help the consumers feel the financial pain of their health care decisions to keep costs manageable.  Private insurers and the federal government have known this for years.  Many private insurance plans carry a deductible - e.g. how much money you pay before your insurance kicks in.  For co-pay plans, co-pay dollar amounts tend to increase as a function of the expense of the service:  ER co-pay> Urgent Care > Office Visit.  The federal government operates more of a sliding scale deductible - you can only write off health care expenses above and beyond 7.5% of your annual income. 

Unfortunately, the "feel the pain" principle is in direct opposition to another key principle of a successful health care plan:  "visit your doctor regularly".  Your standard deductible setup actually discourages consumers from their routine doctors visits and preventative care.  Even with a small deductible, that regular check-up is $100+ out of your own pocket, plus blood work and x-rays, etc.  And while statistics aren't as clear-cut as you might expect, most studies agree that regular check-ups and preventative care save cost in the long run. 

So how does a health care package simultaneously promote financial accountability and encourage regular use of its services?  One method is a "bridge" system, which is essentially how Medicare works.  Medicare allows its users a base amount of benefits to cover routine medical costs.  Medicare also kicks in catastrophic coverage when out of pocket costs get out of hand.   Healthy users have access to routine and preventative care but also have incentive to keep their costs within base benefits.  The chronically ill are covered against utter financial ruin.  The trouble comes in the in-between space between base benefits and catastrophic coverage.  An article in today's paper calls this the "doughnut hole" - I've heard it also called the "bridge".  In Medicare, the bridge is set up such that users pay 100% of costs above base benefits until catastrophe coverage kicks in.  This again presents a weird sort of economics, in which (for example) the first ten doctor visits are free and the eleventh is full price.  Obama, to his credit, is taking some action to fix this by negotiating "sliding-scale" prescription costs for Medicare recipients. 

Private "bridge"-type insurance may operate differently.  One of the plans offered by my employer covers ~$3000 worth of base benefits for a family of four (roughly equal to the cost of the premium).  Beyond $3000, medical costs are covered via co-insurance, with the insurance company paying 50-90% of covered costs.  Once out-of-pocket costs exceed $2000 (above and beyond the $3000 premium), catastrophic coverage kicks in and covers everything.  This maintains accountability for cost - a family has strong incentive to keep total costs below $3000 - but cushions the blow of exceeding base benefits.  Total annual out-of-pocket costs are capped at $5000.   Moreover, unused monies roll over year to year, allowing a "healthy" family to potentially accrue $10k or more as protection against catastrophic medical expenses. 

These sorts of things seem to be a winner for everyone.  The insured aren't throwing money into a pit - they are essentially funding an account managed by their insurance company.  If they overspend they are protected.  If they underspend, they get to keep the difference.  The insurance company wins because clients are aware of the cost, and more likely to use cheaper pharmacies, in-network physicians, urgent care instead of ER, etc.  Plus, given the strong incentive to stay within the $3000 mix, the insurance company will likely incur few costs above administering the account.    The employer wins because his contribution is lower overall - in the case of my employer about 1/3 of a conventional PPO and less than half of a Kaiser-type HMO.   Doctors don't exactly win, but they're no worse off.

How much will cost-accountability save us in the long run?  Not sure and even reliable sources of information have very different opinions, but here's some ballpark figures.  Excess money spent on non-emergencies treated at emergency rooms contributes "$5 billion to $7.2 billion to the nation's annual health care bill."  A cost-aware consumer will be more likely to use cheaper urgent care services or, better yet, schedule an office visit.  Cost-awareness will discourage price-gouging by pharmacies and minimize brand name markup when generic brands are available.  With 4 billion+ prescriptions filled in the U.S. each year, it's reasonable to expect tens of billions of dollars of savings from simple comparison shopping and generic substitution.  So we're looking at something in the neighborhood of maybe $50 billion.  Nothing to sneeze at, but only a couple of percent of our $2 trillion annual health care bill.   Cost-accountability is a key principle to keeping health care costs down and probably has important long term effects, but it's not going to drastically reduce overall health care spending. 

Of more interest is the $400+ billion in "administrative and marketing costs" that Obama calls unnecessary overhead.    (cont'd)