Tag Archives: medical costs

The True Rate of Healthcare Inflation

The chart below compares the government’s Bureau of Labor Statistics’ inflation calculations for Medical Care versus the Kaiser Family Foundation’s research into how much insurance premiums have been increasing. The differences between the two calculations are huge. From 1998 – 2018, the government estimates that health costs have increased by only 107%, but for some reason insurance premiums have increased 288%. In fact, 288% is a material understatement, because that figure does not include the huge increases in deductibles.

One might say, “Well, this means the insurance companies are overcharging!” That is a possibility, but if the insurance commissioners of America are that bad at reviewing rate filings, which I doubt, then all the insurance commissioners and their staffs should be replaced ASAP. Another reason I don’t think the difference can be accounted for by declaring insurance companies are grossly overcharging is that the ACA to some degree limits their profit margin, and a review of their financials finds profit margins that do not suggest massive overcharging.

Another perspective is that government-sponsored healthcare expenses do not increase nearly as much as the costs covered by insurance companies. Medical care is medical care, unless if under government programs patients get materially less care or the insurance companies subsidize government programs by overcharging everyone that buys their own insurance.

A third alternative is the Bureau of Labor Statistics’ numbers are just plain wrong. I trust the Kaiser numbers because they are associated with Kaiser Permanente Insurance, so they know what premiums are being charged. Premiums are easier to verify, too.

See also: The Science That Is Reinventing Healthcare  

In your day-to-day world, what difference does all this make? Maybe none except by adding to your humor or frustrations. Or, perhaps the difference adds to your conspiracy theories. In selling benefits, though, I think seeing the discrepancy helps the intelligent and educated producer sell and advise the educated and intelligent buyer. Understanding the true inflation of medical care will help people make better decisions.

What Happens When Big Firms Opt Out?

A 74-page study released on March 18, 2016, covers 15 large, multi-state employers that provided their Texas employees with customized occupational injury benefits in lieu of workers’ compensation coverage between 1998 and 2010. This is Professor Morantz’s second research study on Texas “nonsubscription” (also known as the Texas “option” to workers’ compensation).

The new report is found here.

Major findings:

1. Option programs paid better wage replacement benefits than workers’ comp programs did.
2. The frequency of severe, traumatic employee injury claims was cut in half.
3. The percentage of employees disabled dropped by a third.
4. Employer costs were cut in half.
5. Coverage exclusions had minimal impact on cost savings.
6. Negligence liability exposure gave incentives to option employers to invest in safety.
7. As large Texas employers elected the option, workers’ compensation costs dropped.

In the study, Morantz stated all the study participants “offered employees private plans whose benefits roughly resembled (yet also differed from) those available through workers’ compensation.” She said, “Some ubiquitous features of private plans—such as first-day coverage of lost earnings  and wage replacement rates that are not capped by the state’s average weekly wage—are more favorable to injured workers than workers’ compensation.”

See Also: Texas Work Comp: Rising Above Critics

Morantz expressed concern in her study because past studies have confirmed the existence of two moral hazard effects:

  1. “Risk-bearing” moral hazard predicts employees will take more risks on the job as benefit levels increase; and
  2. “Claims-reporting” moral hazard refers to the expectation that a worker will be more likely to file an injury claim (including for a feigned or off-the-job injury) as benefit levels increase.

The study says: “Consistent with the existence of both moral hazard, nearly all studies have found that increasing benefits or shortening waiting periods increases the frequency, cost and duration of claims.”

Fewer Traumatic Claims and Lower Costs

In spite of this historic research on injury benefit improvements, Morantz found:

  • Frequency of severe, traumatic injury claims declines by about 47% under the Texas option;
  • Serious claims involving replacement of lost wages are about 33% less common in the option environment;
  • Employer costs per claim fell by 49% under the option;
  • Employer costs per worker hour fell by about 44%; and
  • Although the fall in wage-replacement costs is larger in percentage terms, the decline in medical costs was equally consequential.

Coverage Exclusions Have Minimal Impact.

The option injury benefit plans studied all contain:

  1. Exclusions (non-coverage) for permanent partial disabilities;
  2. Exclusions for certain diseases (such as any caused by mold, fungi, pollen or asbestos) and some non-traumatic injuries (such as non-inguinal hernias, cumulative trauma if the employee has worked less than 180 days, carpal tunnel syndrome, chronic fatigue syndrome and fibromyalgia),
  3. Caps on total benefits; and
  4. An exclusion for chiropractic care.

Morantz found these exclusions from benefit coverage account for little of the estimated cost savings, writing, “Even when all four factors are accounted for, [the Texas option] is still predicted to lower total cost per worker hour by more than 35%.”

Benefit Enhancements and Liability Exposure Lead to Safety Improvements

Morantz mentioned a prior research finding that a rise in benefits can spur employers to invest more heavily in safety. Also, the study says the significantly lower frequency of severe, traumatic accident claims “provides strong evidence for a real safety effect, which is precisely what economic theory would lead one to expect. [Texas option employers] are, at least in theory, internalizing all of the costs associated with workplace accidents (including tort liability), which should induce them to invest more in safety-enhancing technologies.” The negligence liability exposure for employers that elect the Texas option “may prove costly in exceptional cases” and “may strengthen their incentives to implement costly safety improvements” which, in turn, offsets the above moral hazard effects.

Grounds for Denying or Terminating Benefits

Morantz found the majority of private plans include more grounds for denying claims or terminating benefits in particular cases than are commonly found in workers’ compensation. These provisions focus on employee accountability just before or after the injury takes place and on the nature of the injury. (Those provisions are commonly subject to a “good cause” exception that must be administered by a fiduciary under ERISA in the best interests of the injured worker.)

Impact of Employment Status

Contrary to option critics’ claims that all injury benefits cease upon any termination of employment, Morantz found that medical benefits continue unless the employee is fired for gross misconduct. She also found that option plans commonly do not terminate wage-replacement benefits if an employee is laid off, but such benefits do cease if the employee voluntarily quits or is fired for other reasons. Only one study participant’s plan reserved the right to terminate wage-replacement benefits if the employee was fired for any reason at all.

See Also: What Schrodinger Says on Opt-Out

Retaliatory Discharge Claims 

Morantz noted that the Texas’ Workers’ Compensation Act protects employees who file workers’ compensation claims from retaliatory discharge but that employees covered by option programs enjoy no similar protection under state law. However, she also noted the anti-discrimination/anti-retaliation claim available to workers under Section 510 of ERISA.

Drop in Texas Workers’ Compensation Rates as Large Employers Moved to the Option

Although very small firms (those with one to four employees) have always been disproportionately likely to forgo participation in Texas workers’ compensation, Morantz noted that substantial numbers of very large employers (those employing at least 500 workers) began doing so around the turn of the millennium. In 2001, Texas had among the highest reported cost-per-claim among the 14 states included in the annual Workers’ Compensation Research Institute (WCRI) cost benchmarking study. Since then, both medical costs and indemnity payments per claim under Texas workers’ compensation have plummeted.

Need for More Study

Morantz concluded there is an urgent need for further analysis of the economic and distributional effects of workers’ compensation systems co-existing with privately provided forms of occupational injury insurance. This includes the need to further (1) identify which specific characteristics of private plans are producing the majority of cost savings, (2) study potential cost-shifting to government programs or group health plans and (3) consider differences between option programs sponsored by small-, medium- and large-sized employers.

Texas Work Comp: Rising Above Critics

Recently, published articles have been critical of the Texas workers’ compensation system and the choice of an “Option” available to Texas employers. Such articles tend to be an accumulation of plaintiff attorney opinions and confusion of out-of-state persons who do not have sufficient working knowledge of the subject matter. This article will address two recent examples:

  1. “The Status of Workers’ Compensation in the United States — A Special Report” by the Workers’ Injury Law and Advocacy Group (“WILG”).[1]

This is a group of attorneys supposedly “dedicated to representing the interests of millions of workers and their families.”[2]  Their paper is at best a rant against the original “grand bargain,” which was struck to create each state’s statutory workers’ compensation system. It is without virtually any legal citations or other back-up. It does, however, illustrate the wisdom of the Texas system in offering a choice — (1) workers’ compensation insurance or (2) the “nonsubscriber” Option. For example, the article notes that many physicians will not take workers’ compensation patients, that 33 states have cut workers’ compensation benefits and that insurance companies continually clamor for reform by lobbying legislatures to cut medical costs or implement other cost savings — all of which the authors say makes it more difficult for the injured worker to recover.

See Also: Who Is to Blame on Oklahoma Option?

The article changes course when it suddenly says that an option to workers’ compensation is at fault, boldly declaring that “opt-out is bad for everyone” and claiming that intervention by the federal government is “immediately needed.” WILG criticizes the no-fault workers’ compensation insurance system and in the same breath castigates those who elect the Texas Option and thrust themselves into the tort system, which plaintiff attorneys have long claimed they love. This is particularly perplexing for Texas readers in view of two factors: (1) the need for plaintiff attorneys has been largely eliminated from the Texas workers’ compensation system,[3] and (2) the fact that the Texas Option gives the injured employee the right to sue for negligence and recover actual and punitive damages. [4]

Responsible employers that elect the Texas Option establish injury benefit plans for medical, lost wage and other benefits.   The benefits are subject to the Employee Retirement Income Security Act (ERISA), which provides numerous employee protections, including communication of rights and responsibilities, fiduciary requirements, and access to state and federal courts.[5] Only negligence liability claims against the employer can be forced into arbitration, which many employers insist upon as a more efficient method of dispute resolution that has been sanctioned for decades by both the U.S. Supreme Court and the Texas Supreme Court. Arbitration even supports awards for pain and suffering and punitive damages. In those cases, plaintiff attorneys have the advantage because an Option employer loses the defenses of contributory/comparative negligence, assumption of the risk or negligence of a fellow employee.

Perhaps the real reason why WILG is fighting Options to workers’ compensation is a combination of not wanting to learn how to succeed at ERISA litigation and fear that other workers’ compensation systems will become as efficient as the Texas system. Why aren’t these self-serving lawyers touting workers’ compensation Option that embraces the tort system they have so righteously pledged to protect?

  1. “Worse Than Prussian Chancellors: A State’s Authority to Opt-Out of the Quid Pro Quo” by Michael C. Duff, University of Wyoming College of Law, Jan. 9, 2016. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2713180

Professor Duff complains primarily about “compulsory arbitration” of workplace claims. He erroneously and boldly declares, “In states both retaining the exclusive remedy rule and allowing employers to opt-out of the workers’ compensation system, employees of opt-out employers are left with no legal remedy for workplace injury.[6]

This apparently refers to the Oklahoma Option, in which an employer can adopt an injury benefit plan with benefits at least equal to or greater than traditional system levels. Such a high benefit mandate may merit application of the “exclusive remedy rule,” which prevents an injured employee from suing their employer. However, Professor Duff overlooks the fact that ERISA provides injury claimants with extensive legal rights, including causes of action for wrongful denial of benefits, failure to produce documents, breach of fiduciary duty and discrimination (including retaliatory discharge). He also overlooks the fact that ERISA claims generally cannot be made subject to mandatory arbitration. [7] So, is this really a matter of having “no legal remedy” or a case of Professor Duff (who is also a WILG member) trying to support the positions and business of his plaintiff attorney friends?

See Also: Strategic Implications of the Oklahoma Option

Professor Duff makes it clear in the rest of his long article that the real enemy is an employer’s ability to implement a employment dispute resolution system that includes arbitration. Professor Duff omits the fact that he is bucking almost the entire U.S. judicial system, which endorses arbitration. For example, the U.S. Supreme Court clearly maintains that arbitration is right, proper and allowed.[8] “By agreeing to arbitrate a statutory claim, a party does not forego the substantive rights afforded by the statute, it merely results in submitting the resolution of the claim in “an arbitral, rather than judicial, forum.”[9] The Texas Supreme Court has been even more clear by stating that “. . . an agreement to arbitrate is a waiver of neither a cause of action nor the rights provided under [The Texas Labor Code]” and is not the denial of a right but rather simply “an agreement that those claims should be tried in a specific forum.”[10]

Oddly, when discussing his arguments against arbitration, Professor Duff states emphatically that it might be “acceptable if employees have knowingly signed pre-injury waivers of workers’ compensation benefits.” [11] What Professor Duff apparently does not understand is that pre-injury waivers of negligence claims have long ago been essentially outlawed in Texas, and an injured employee under the Texas Option retains his rights to sue the company for negligence. [12] The Texas Labor Code also specifies strict conditions under which an employee is allowed to even settle such a tort claim — i.e., only after at least 10 days have passed following the employee’s receipt of a medical evaluation from a non-emergency care doctor, the agreement is in writing with the “true intent of the parties as specifically stated in the document” and the provisions are “conspicuous and appear on the face of the agreement.”[13]

Like the WILG report, Professor Duff confuses benefit and liability exposures in Texas and Oklahoma, overlooks available legal remedies in both states and refuses to accept well-established public policy and judicial precedent that favors arbitration of employment-related claims.

Conclusion

The publication titled, “Non-Subscription: The Texas Advantage,” [14] states that, “Fortunately . . . legislators who drafted the first workers’ compensation laws in 1913 were farsighted enough to provide an option.” Employers that elect the Texas Option to workers’ compensation are subjected to an extra measure of liability as they cut out the middleman and decrease the taxpayer expense of the governmentally prescribed workers’ compensation system. Those Option employers that are operating legally and responsibly should be credited with advancements, such as improving worker access to better medical care, offering modified duty job availability and oftentimes providing better wage replacement benefits.

At the end of the day, perhaps WILG and Professor Duff should make an investment of their time to learn how ERISA protects injured workers and how to litigate an ERISA dispute. These authors should also further consider the ample remedies under Texas law for employer negligence liability, an exposure that provides more incentive to maintain a safe workplace.

No doubt, pursuing such claims does require some effort. Perhaps, therefore, the real objectives of these two papers is a desire to maintain the profitability of legal work favoring injured workers and reducing the attorney effort.

[1]https://s3.amazonaws.com/membercentralcdn/sitedocuments/wp/wp/0245/745245.pdf?AWSAccessKeyId=0D2JQDSRJ497X9B2QRR2&Expires=1458161961&Signature=7rYh45nzAcLAZ%2BYqPx1HilrodQ4%3D&response-

content‑disposition=inline%3B%20filename
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filename%2A%3DUTF%2D8%27%27WILG%2520
Grand%2520Bargain%2520Report%25201%252D16%252Epdf

[2] www.wilg.org

[3] St. Mary’s Law Journal 2000, “Texas Workers’ Compensation: At Ten Year Survey – Strengths, Weaknesses and Recommendations,” Phil Hardburger, Chief Justice, Court of Appeals, Fourth District of Texas, San Antonio, page 3, 41, citing to research an oversight counsel on workers’ comp, an examination of strengths and weaknesses of the Texas Workers’ Compensation System (August, 1998).

[4] Tex. Lab. Code § 406.033 and Carlson’s Texas Employment Laws Annotated, 2015 Edition.

[5] 29 USC Chapter 18, Subtitle B, Parts 1, 4 and 5.

[6] Page 3 of Professor Duff’s treatise.

[7] 29 C.F.R. 2560.503-1(c)(4); see also Professor Duff’s footnote 26, stating “in Texas and Oklahoma, employers are able to combine opt-out with arbitration.”

[8] Scherk v. Alberto-Culver Company, 417 U.S. 506, 519, 94 S. Ct. 2449, 41 L. Ed. 2nd 270 (1974) (holding that arbitration clauses are, “in effect, a specialized kind of forum-selection clause.”)

[9] Id. at 631 quoting Mitsubishi Motors Corp v. Solar Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S. Ct. 3346, 87 L. Ed. 2d 444 (1985).

[10] In re Golden Peanut Company, LLC, 298 S.W.3d, 629 (Tex. 2009).

[11] Professor Duff at page 2.

[12] Tex. Lab. Code see 406.033(e) and (f) (a legal cause of action by an employee who claims to be injured on the job “may not be waived by an employee before the employee’s injury or death”); Tex. Lab. Code 406.033(a).

[13] Tex. Lab. Code 406.033(f) and (g).

[14] Published by the Texas Association of Business.

The Biggest Medicare Fraud Cases of 2015

Medicare does not keep records of how much it loses annually because of fraud, but the FBI, which oversees the investigation and prosecution of those alleged to have participated in fraud, estimates that 3% to 10% of all Medicare billings are fraudulent. The FBI task force believes that healthcare fraud costs taxpayers “tens of billions of dollars a year.”

Here is an overview of some of the biggest Medicare fraud cases of 2015:

  1. In June 2015, 243 healthcare providers across the country were charged individually with Medicare fraud. This was the largest-ever coordinated takedown in the history of the National Medicare Fraud Strike Force history. Doctors, nurses, pharmacists, home health workers and other healthcare professionals were all indicted for falsely billing Medicare for approximately $712 million in various fraudulent schemes. The healthcare providers allegedly:
  • Billed for services that were not rendered
  • Charged for equipment that was never delivered
  • Billed for care that was not needed

Specific criminal charges include:

  • Conspiracy to commit healthcare fraud
  • Violating anti-kickback statutes
  • Money laundering
  • Identity theft

Healthcare providers nationally were included in the sweep of the task force. Charges were brought in Texas, Louisiana, Florida, California, New York and elsewhere. The defendants face years in prison in addition to having their assets forfeited to the government and having to repay the amount of money they fraudulently obtained.

In a press release announcing the takedown, the attorney general for the U.S. expressed the commitment of the Department of Justice to continue its “focus on preventing wrongdoing and prosecuting those whose criminal activity drives up medical costs and jeopardizes a system that our citizens trust with their lives.”

  1. Also in June 2015, the former president of a Houston hospital was sentenced to more than 40 years in federal prison and ordered to pay $46.8 million in restitution to Medicare. His son and two other co-conspirators were also found guilty of receiving kickbacks, conspiracy to commit Medicare fraud and money laundering. The scheme involved billing Medicare for psychiatric services that were never provided to patients. The total amount of money fraudulently received by all participants was estimated to equal $158 million.
  1. In October 2015, Millennium Health in Boston, formerly Millennium Laboratories, admitted to billing Medicare and other governmental healthcare programs more than $256 million for laboratory tests that were either unnecessary or never actually performed. The lab also provided kickbacks to physicians for referring patients for testing. Millennium, with headquarters in San Diego, is one of the largest urine-testing laboratories in the U.S. According to the Massachusetts U.S. attorney, “Millennium promoted indiscriminate and unnecessary testing that increased medical costs without serving patients’ real medical needs. A laboratory which knowingly conducts medically unnecessary testing operates unlawfully and squanders our precious federal health care resources.”
  1. In August 2015, a New York man who operated several healthcare clinics for treating HIV/AIDS patients was sentenced to more than seven years in federal prison for defrauding Medicare out of more than $31 million. He billed for treatment that patients did not need and often were not given. Medicare was billed for infusion or IV treatment for many patients who never received treatment. Some patients who were provided infusion therapy were administered doses that were highly diluted.
  1. Two psychologists were recently added to an indictment to join two of their cohorts who had previously been charged with defrauding Medicare of more than $25 million. The psychologists are owners of two companies that provide psychological testing to nursing home patients in four Gulf Coast states: Alabama, Florida, Louisiana and Mississippi. The problem is that the psychologists allegedly billed Medicare for tests that were not medically necessary and, in many cases, were never performed. The case is pending, and the press release notes that the defendants are presumed innocent until proven guilty.

The Medicare Fraud Strike Force, since its formation in March 2007, has charged 2,300 defendants with fraudulently billing more than a total of $7 billion. The task force is committed to continuing its work to hold providers accountable so that the number of fraudulent providers will decrease.

Real Reason Health Insurance Is Broken

Healthcare is broken in this country; I don’t think I really have to convince too many people of that. Whether your political leanings are blue or red, whether you’re a senior citizen or a teenager, really whether you’re rich or poor — just about everybody senses that something is wrong with how we manage care. This is not a quality-of-service issue, not so much an access-to-care issue and not really a lack-of-options issue. No, the problem most Americans rightly recognize as being wrong in current system boils down to one word: price.

But how do you fix that? For 20 years now, I have tried to help employers manage their healthcare costs for employees and their families. For at least the first 15 years of my career, that job mostly entailed comparing options from the national and regional carriers, negotiating the lowest rates possible, making suggestions to help lower benefits to offset rising premiums and then preparing spreadsheets of all those options for our CEO, CFO and HR director. Basically, my job was to bring in bad news, but to try to bring in the least bad news. All to get new clients and keep old ones.

Any time a business owner would ask me, “Why are our premiums rising so much?” I’d turn the question around a bit and ask what she thought the causes were. Inevitably, I’d hear the same three things. First, those “staggering profits of the insurance companies.” Closely behind that is America’s notorious “increase in obesity.” Then third — every once in a while — someone would actually get closer to the truth and say the reason is that “medical costs are rising.” And all of these are true, no doubt, to one degree or another. But none explains how health insurance premiums have historically risen at a rate five times or more beyond normal inflation.

When pressed for an answer on higher premiums, I’d explain how we receive very little information from carriers (especially in the fully insured market), but you’ve got a higher-than-desirable loss ratio — or I might mention the aging employee population, declining overall health, new taxes and regulations perhaps related to the Affordable Care Act. Again, all those reasons, to some degree or another, have a real impact.

The one that kept coming closest to the truth, at least from an insurance insider’s perspective, is the steady rise in costs. Or, unfortunately, as most consumers see it, the outlandish profiteering manufactured from the suffering, confusion and fear of others.

To truly find a more meaningful answer — something consumers and advocates and carriers and even legislatures could theoretically one day use to craft a lasting solution — I started to look at the actual unit cost of medical care. That’s vital, because it strips away taxes, fees, insurance profits and many other considerations like America’s decreasing health, or the continued drop in smoking. It clears all that fog and gives you a hard-number comparison. And what I discovered was that we as a nation spend more per unit of care than the next seven most-expensive countries COMBINED.

That deserves repeating. Not only do we as a nation maintain the world’s most expensive healthcare system as a whole, but at the individual level you are likely to be billed more for the same procedure than similar patients in China, France, Germany, Canada, Malaysia, India and the U.K. if all their bills were rolled into one.

Comparisons

To put things in better perspective, I looked at other common costs we incur going back as far as before the Industrial Revolution. And what I found was that the price of a car has not wildly changed in all those years. Nor do gas prices rise against inflation. Meanwhile, prices of computers and technology have historically gone down. So how then do healthcare premiums justify such leaps?

Housing is a great example. Since 1970, housing costs have only gone up 15% — 15% in 45 years. In that same time period, medical care costs have jumped 1,800% — 18 times greater since 1970. How about since 1935? According to Federal Bureau of Labor Statistics, costs have risen 4,200% in that time.

When further comparing health insurance and healthcare itself against any other goods and services we might buy, I realized that Americans, in general, tend to apply common sense and rational thinking to many other purchases, but that much of that practice somehow goes out the window when it comes to medical care.

We’ve become very good at consuming health insurance, but does that mean we’re actually good consumers? The executives at businesses do what they’re supposed to: compare costs, co-pays and deductibles presented by their broker/consultant each year. And when these executives do decide which plans to roll out to their employees, they are good shoppers. They compare their employers’ costs with their spouses’ employers, compare against the Obamacare exchanges (or individual plans pre-ACA) and consider other important factors — your out-of-pockets, your deductible, your premiums….

The goal is to control overall healthcare costs. But look at other types of insurance.

Many of us likely will shop out our car insurance every few years. After all, 15 minutes could save us 15%, right? Yet we know that any savings only apply to the insurance. We don’t expect shopping around for our car insurance to actually affect the price of the car. But the price of the car does affect insurance: A higher price tag means more expensive insurance.

The same is true in healthcare. We CANNOT lower our healthcare costs by shopping our insurance. Our healthcare costs are not at all affected by our insurance costs. This has been proven with the “consumer-driven” model of insurance (which has had limited to no impact on premiums long term). Yet our health insurance costs are almost fully driven by our actual healthcare costs. As a matter of fact, a provision of the Affordable Care Act known as “medical loss ratios” practically guarantees this.

Imagine that your teenager just got his driver’s license. After some good old-fashioned consternation and badgering, you’ve agreed to let him take out the car out unsupervised for the very first time, only to go to the corner store to get some much-needed milk. You hand over the keys and try not to stress too much. Of course, less than 15 minutes later, you get the dreaded phone call: He’s been in an accident.

Rushing to the scene, you’re relieved to discover it’s only a fender bender. The other driver, seemingly a reasonable person, agrees to accept your offer to not file an insurance claim, and instead pay him directly for what appears to be, let’s say, $1,000 of damage. After all, you’ve got a $500 deductible, and a claim filed by your teenager just weeks after getting his license could jack your rates up much more than the difference. Or, worse, your carrier could drop you, jeopardizing your freedom completely! So paying out of pocket makes sense, right?

But would we do ever this with our healthcare? Can you imagine anyone walking into a cardiologist appointment, especially with a co-pay plan, and saying, “I don’t want my insurance company knowing I may have heart disease, so let me just pay the $500 charge instead of submitting the claim and paying the co-pay”?

And let’s look at how oddly blind we are to the actual quality of healthcare we receive. For instance, in an operating room, a strong argument can be made that the anesthesiologist is the second most important person on the surgical team. After all, when you’re under general anesthesia, it’s her job to control the machines that keep you breathing. She also controls how “under” you go. She makes sure you don’t go so deep that you slip into a coma, but, equally important, makes sure you don’t wake up mid-procedure. Yet, with all that responsibility in her hands, who among us has even known who the anesthesiologist would be until five minutes prior to being knocked out? After all, for such an important role, wouldn’t it be nice to develop a relationship with this doctor, and maybe even have her be the one who administers sedatives for future surgeries? Maybe you’d just like to know if she only graduated medical school last week? That might be pertinent, too.

Instead, we juggle our healthcare purchases like nothing else we buy. Imagine if we consumed hotel stays like we do healthcare. We might have a high-deductible “hotel” plan. Say we had a $500 deductible before our plan covered stays at 100%. So if I’m only staying one night, I might look into cost and quality, maybe compare rooms on Trivago. But what if I needed a hotel room for a week, or a year, and I knew I’d be hitting that $500 threshold no matter where I stayed, from the most rat-infested hotel to a five-star resort? Wouldn’t I be inclined to stay at the Ritz Carlton in a $1,000-a-night because I know I’m hitting my deductible either way.

One of the pushbacks I get is that we, as patients, are not doctors and must rely on the pros. After all, when faced with a major medical condition, we’re usually not in the best frame of mind to make intelligent decisions. “I should just trust my doctor” is a common reaction, maybe the most common. And a very understandable one. But I’d argue that dealing with a major medical condition is the exact time to be most involved. Most aware. Most informed. The stakes couldn’t be higher, and yet our awareness is disturbingly low.

If we bought houses as we buy healthcare, it’d be like finding a reputable real estate agent and then asking him to go ahead and pick out a neighborhood, a house and the price we’ll pay. We’ll just meet him at the closing. Sounds crazy, right?

Where Insurance Is to Blame

Please know that I’m not holding insurance companies blameless. I do, for instance, blame the insurance industry for a major shift in our overall thinking. I hold the industry responsible for creating an environment in which the cost of care, and therefore the quality of care, becomes irrelevant. This was mainly born out of HMOs, of course, which, you’ll recall, lowered costs tremendously at first, and were hailed as the cure to all that ails our system, before things went so horribly wrong.

Here again, comparison can be useful. A while back, I was in a meeting with service department workers at a car dealership. I asked if they’d agree that most people, when paying for their own repair, would care about both the cost and quality. Everyone nodded — of course they would. I asked how that differed from a customer whose car was still under warranty. In that situation, they told me, the customers generally don’t care at all about cost, and, in fact, will likely come to a dealership on a warranty job specifically BECAUSE it’s the most expensive. After all, someone else is paying, right?

What most people are unaware of — mainly because they don’t ask — is that you can get warranty work done at many non-dealer repair shops.

Most people think of their health insurance a lot like they do a car warranty. The total cost, the competitively and fairly priced service, and, to a large extent, how good the work is just doesn’t matter so much when we’re not reaching into our pockets.

Doesn’t that tell us precisely why the “consumer driven” model hasn’t worked?

The idea was that if our plans have us paying higher deductible and co-pays, we’ll care more about the overall cost. Yet in 2015, the highest out- of-pocket allowed by the Affordable Care Act is just $6,600. If I’m going in for a procedure that may range in cost from $25,000 to $125,000, what exactly is my incentive to go looking for a deal? Or even ask questions? Not when I know I’ll be hitting my $6,600 threshold regardless of where I go.

And we inherently associate higher costs with greater quality of care. Is that a fair assumption? Not with the system we have. Actually, the opposite generally proves true.

Transparency

All of these things keep coming back to a singular issue for me: transparency. We simply don’t have the information we need to make wise decisions. Like finding out how good a specific hospital is at replacing hips, or how much it actually charges compared with another facility.

However, I believe the reason this information is not systematically available is the same reason why, if it suddenly were available overnight, with the wave of my magic wand, there would still be little impact. What is that reason? Because today, under the system and mentality we have, there’s simply no consumer demand for it.

Let’s look at it from the pharmaceutical side. The cost at a retail pharmacy for the generic Lipitor can vary from $16 to almost $80, depending on where you go to. But if you have a $10 co-pay, or have already reached your 100% coverage, how can I convince someone to go three miles out of his way to get the lower-cost prescription? How do I get him to even ask the question?

Another argument I hear frequently when I ask customers to identify the problems with healthcare: “Isn’t it the insurance company’s job to control cost? Don’t companies set up networks for this very purpose?”

Yes, they certainly do. But look at what really matters. Walmart started a list of $4 prescriptions. Many other pharmacies quickly followed suit. Try showing your insurance ID card for one of those drugs next time you go. In most cases, you’ll find the insurance company would pay a significantly higher price. Why? Because you have much more power than the insurance company does. Having you be willing to spend your money at a store is far more compelling to the business than anything an insurance company can negotiate.

We treat our own health like a discount haircut. We basically know as much about the professionals and facilities charged with saving our lives as we do with the stylists at Supercuts. It’s an insanely ill-informed way to manage the most important thing we have.

What can I leave you with in terms of possible solutions? They do exist, even though the Affordable Care Act limits some options.

What needs to happen is we have to encourage patients to care about the quality AND costs of the care they receive.

I envision a day when I can go on my smartphone and, using a basic app, find all the suitable places for replacing my hip, how well they’re rated, how often they do the operation and, of course, how much they charge. How many of us would walk into a new restaurant without the benefit of any word-of-mouth or knowing anything about the specialties, pick from a menu but only find out the price when you get your check? We do that every day with sprained wrists, broken bones, personal addictions, genetic illnesses, respiratory issues and even open-heart surgery,

The bigger picture here is really using our consumer dollars to force providers — meaning hospitals, doctors, drug manufacturers, pharmacies, etc. – to compete on the cost and quality of the services they provide, like nearly every other provider of any products or service we buy.

We’ve seen it work: In areas of healthcare that insurance typically doesn’t cover, like laser eye surgery or even cosmetic surgery, the change is already happening. The costs in those areas have gone down considerably while the quality has increased.

Naturally, I recognize that making the comparisons available and getting consumers to use them would be a huge challenge. What can we do in the meantime?

Well, some tools do exist. There is an online service called MediBid that allows hospitals and providers to actually bid on your medical care. When providers respond, patients can compare costs and quality among those providers.

Another possible solution: Instead of an annual deductible of, say, $2,500, we could have a monthly resettable deductible of something like $200. How would that help? Well, it would give us, as consumers, a little skin in the game year-round. It would encourage us to participate in lowering overall costs by not applying the car dealership model to an already bloated and wasteful system.

Another push, an indirect result of the ACA, is more self-insured products. Many times, these are appropriate for smaller businesses. Not only does the self-insured employer have significantly more transparency on costs but also, more importantly, has real incentive to control those costs.

Some employers negotiate reasonable pricing and, if they use a service like MediBid and it results in a significant savings, may offer to pay the employee’s deductible and even cover any travel expenses.

One innovative carrier has actually tied physical activity to a patient’s out-of-pocket cost. Any adult on the plan can opt-in to wear a step tracker, like a Fitbit. If certain goals are met, people can earn as much as $4 a day, or $1,000 a year, off their deductible and out-of-pocket.

Which brings up the topic of wellness, which has become a real buzzword in the last five years or so. While I do agree that getting “well” can translate into consuming less care, wellness programs don’t address the fact that nearly all people will consume care at some point in their lives and that many diseases are completely unrelated to lifestyle. My approach, the one I believe in: More transparency on the healthcare process and a community of well-informed consumers can help lower costs and improve quality on all care.

Conclusion

I believe that 90% of our problems would right themselves fairly quickly if only patients had the right incentives. If only information were made readily accessible. If only patients were allowed to be consumers, to shop for based on quality AND cost, just as we do with nearly everything else we buy.

This change would naturally force providers to improve their quality and lower their costs at a far more rapid pace. The pattern of unnecessary and duplicate testing would go down. Prices would quickly become far more competitive, as they should be.

And I believe Americans would start to see a more direct link between their financial picture and the decisions they make about their own health. If all this happened, if we had the transparency we need, then that dollar menu at McDonald’s might not seem so affordable once we understand the health and cost impact a double-cheeseburger really has down the road.