By Tom Quiner
How do you moderate health care costs?
Let’s look at two hypothetical health care consumers. We’ll call them Tom and Karl.
Let’s say Tom has a health insurance policy with a hundred thousand dollar deductible. In other words, his insurance only kicks in after he has spent a hundred thousand dollars out of his own pocket in a year. Tom’s policy is designed to cover catastrophic health care issues, the kind that rarely arises, but if it does, you need to be covered.
Karl has a health insurance policy with no deductible. Every doctor’s visit is covered from the first dollar. Same with every prescription.
Which of these two will be the most judicious in his consumption of health care?
Tom, of course. He’s paying most of his health care right out of his pocket. If he has medical issues arise, he will be a careful consumer of medical services. He may even do some price comparisons before pursuing certain discretionary medical procedures.
Karl has no such motivations. His product is not really insurance, since it kicks in on the first dollar. Since he doesn’t bear any out of pocket costs, he has no incentive to moderate trips to the doctor. The first sign of a sniffle might send him to the doctor.
There are pros and cons to each of these two approaches to health insurance.
Tom’s premiums are going to cost a lot less than Karl’s. On the other hand, Tom may run out of money before he hits his hundred thousand deductible and forgo critical treatment if a health issue arises.
Karl’s policy is going to cost a bundle, but he’s going to get great treatment because he has no out of pocket expenses to deter his pursuit of the finest in medical treatment.
If everyone had Tom’s type of policy, health care would cost less because those insureds would be more discreet in their pursuit of medical care.
If everyone had Karl’s type of policy, health care would cost a lot more for the exact opposite reason.
Everyone should be free to purchase the type of coverage that fits their personal situation. Obamacare distorts the marketplace in many ways by involving taxpayers so profoundly in a heavily regulated new approach to health insurance.
I will address one which kicks in on January first and affects me personally. I carry a high deductible flexible savings account policy. I pay the first $5000 in health care costs before insurance kicks in. However, I am allowed to deduct those expenditures on my taxes. Obamacare reduces the tax deduction to the first $2500. If my medical expenses are more than $2500 in a year, I have to pay taxes on the balance until I exhaust my deductible.
In essence, Obamacare is penalizing health care consumers like Tom who help to mitigate health care costs through discreet consumption of medical services and rewarding the Karl’s of the world who don’t.
Mr. Obama vowed no tax increases for the middle class when he passed Obamacare. The reduction of Tom’s allowable deductible is a de-facto tax increase. Tom will pay more because of Obamacare.