Meet Mr. Stick!

Have you ever heard the term “moral hazard”?   It refers to your behavior as it relates to risk. Your exposure to risk, whether high or low, will dictate your behavior to a certain degree. 

For example, you might drive a rental car like you were Al Unser Jr. or Tony Stewart, but would you drive your own car that way?  If something breaks on the rental, perhaps you had the foresight to purchase the insurance in advance. Or perhaps you just hoped you wouldn’t get caught.  In either case, the risk is low.  Not getting caught costs nothing, the insurance is maybe an extra couple of bucks. (I’m reminded of the scene from “Ferris Bueller’s Day Off” when the two parking attendants take Cameron’s car for a joyride around Chicago).

But what about your car?  Would you drive it the same way knowing that if it breaks, it’s your dime? Some would. Some most certainly would not.

Health care has its own form of moral hazard. Any guess as to what it is?

Here’s a hint – there’s a pretty good chance that the last time you had a doctor’s visit you had work done…blood work, x-rays, whatever.  These tests cost money.  And they are not cheap.  But do you care?  Do you tell your doctor to only conduct tests that are absolutely positively necessary and ask that a panel of board certified doctors review the care plan prior to issuing tests or ask that the suggested therapy follow the most up to date evidence based guidelines for your particular health condition? 

I’d be impressed if you did – and definitely surprised. 

If you’re like the rest of us, you might only pay a co-pay – maybe $20…maybe $25. But not a huge financial burden.  Low risk…and therefore you may not care what is done to you…or how much it costs. 

A couple of blogger’s notes: 

1) This example and others below focus mainly on commercial health insurance provided through the employer.

2) There is a degree of trust, albeit blind trust in some cases, that patients put in their physicians.  I’m not saying this is wrong.  Most individuals do not know enough about healthcare, billing, coding, etc. to make informed decisions about health, so we trust our physician to always act with our best interests in mind.  

From a strictly business standpoint, however, there is a flaw with this – most physicians are paid on a fee-for-service basis meaning they get paid for each and every test they provide, whether it’s needed or not needed. I’m not implying that all physicians order unnecessary tests. But how would you feel if your mechanic (another person in whom you might place blind trust) was paid on a fee-for-service basis and told you that your car needed $2000 worth of work when you took your car in for a routine oil change? 

This is another topic for another blog. Back to moral hazard and Mr. Stick…

The moral hazard in health care is that many individuals do not concern themselves with the cost of medical procedures and prescriptions because the risk is low – a small co-pay – despite the fact that the actual costs of the services may be quite high.  (I say many because this example isn’t as applicable to those in high deductible health plans, for example).

There are two reasons for this typically:

First, insured individuals have their health insurance premium removed from their paycheck before it hits their bank account (read: before they can spend it).  Because of this, the perception is not to count this expense the way one would count money coming directly from your actual pocket – an interesting behavioral phenomenon, by the way.

Second, they pay a small cost relative to the actual cost – usually in the form of a co-pay – for their health care services.  As such, the “risk” to you for getting $1000 worth of medical work done is….$20.

If you only have to pay a $20 co-pay, who cares if your doctor orders $1000 worth of tests and procedures, right? 

Wrong.

Without getting into the push and pull between providers and payors (providers get paid for what they order, so they order more…payors don’t want to pay more, so they try to control what is covered and what isn’t) and government’s role in all this, there is a fundamental piece that continues to fly quite far under the radar: 

What responsibility do you have for your own health care?

I would wager that many of us come from the school of “I pay a lot for health insurance, therefore, I’m going to use it when I need it!”  This includes getting it from the “best” hospitals even if it’s for the most routine procedures. (Best is purposely in quotes because without actually cost/quality data, or transparency, how do you measure the “best”? Another issue for another blog perhaps). 

Let me ask you this – would Dr. House want to operate on your appendix?  Unless your faulty appendix is causing you to play Beethoven in your sleep and bleed from your hair follicles, my guess is no. And he’d probably have some snide, sarcastic comment for you if you asked him to do such a thing. (Watching from my couch at home, I’d be laughing at his witty remark).

Back to the point – when we choose to go to the perceived “best” hospitals for routine services…when we choose to go to the ER instead of calling our PCP (health check – do you have a PCP??) or instead of calling the 24-hr nurse lines that many insurance carriers provide today…when we choose to eat lousy, not exercise, smoke, and drink…we’re contributing to the double-digit premium increases. 

Your employer (assuming you have a job that provides health insurance) can only do so much to control healthcare costs.  They can carefully tweak plan designs (raise co-pays, raise deductibles, remove coverage of high cost services…considering they are self funded and aren’t prohibited by federal or state mandates) and offer wellness programs that ask you to complete a health risk assessment and maybe do a biometric screening (blood pressure, blood test, etc).  They may incent you to do this by funding your employer sponsored health reimbursement account (HRA) or by rewarding you with cash or a gift card for completing such activities. 

But they’re not the ones making the decisions about your health.  You are.

Before you stop reading because you’re thinking “Man, this guy is so preachy” let me tell you that I’m a former collegiate sprinter who, after a series of nasty injuries in my late 20s/early 30s and a few life events (two children born 15 months apart), has done next to nothing in the way of regular physical activity for over 2 years.  I’m just so busy. I get to work very early, work all day, then come home to spend time with my wife and play with the little ones before it’s time for their bedtime routine. After that it’s tidy the house and then unwind for an hour or so before I crash for the night.

I also love pizza and ice cream and have been known to tip back a few brewskies after eating a nice steak.

I am as guilty as the next person.

So why am I writing this?  First, I work in the health care/risk/insurance field and I find this stuff incredibly interesting – I suppose it’s a bit of a passion of mine (as cheesy as it sounds). I got into this field to make a difference and the more I read, the more I work, the more I dig into things…the more I see personal accountability entering into the equation. 

Do you agree? Perhaps not. Consider this however…employers have pulled a lot of levers to control healthcare costs with limited results. They’ve used the carrot.  Guess what’s next. 

Meet Mr. Stick!

The stick may come in the form of a premium “surcharge” if you’re a smoker.  The stick may come as even higher co-pays which reduces overall premium (think $300+ for an ER visit). The stick may come in the form of expanded cost sharing, whether as a higher deductible or less employer sponsorship of the insurance plan, meaning you’re picking up the slack. 

Still feel the same way about how you consume healthcare?  If yes, then maybe you’ll get along fine with Mr. Stick. 

I reckon that Mr. Stick has a big brother who has not yet been revealed, however.  And something tells me you might not get along with him as well.

Perhaps this sounds a little dire or dark. But let’s face facts.  Health care costs are out of control and there’s no indication that they’re going to go down or be controlled anytime soon. In addition to healthcare costs accounting for about 17% of the GDP (and rising), we’re also losing ground globally due to our employers footing an increasing healthcare cost burden and inability to compete because of this burden.  This is not something we can afford in a global economy.

I read a fantastic book recently by Gary Fradin called “Understanding Health Insurance”. In the book Fradin puts forth a hypothetical situation whereby the U.S. is so strangled by health costs (in addition to a depression caused by war, for example) that we need to reach out to our neighbors in other countries to borrow from their banks. As a provision of the loan, the foreign entity dictates that we do something drastic to control healthcare costs.  (I’m definitely taking some liberties with Fradin’s example, but I think the general point is coming across).

What would our U.S. Leaders need to do in order to secure the loan?  (Think Mr. Stick’s big brother…)

So what can we do? 

Prevention.  Upwards of 70% of health care costs are a result of lifestyle choices and are avoidable. This is where personal accountability comes in.

I’m no wellness expert, but I’m thinking about doing something simple. 

It is recommended that a person does 30 minutes of activity a day (walking, running, biking, yoga, etc).  Personally, I haven’t done 30 minutes of regular daily exercise in a long while.  Maybe I should start there?  I already take the stairs whenever I can – no elevators or escalators.  I’m thinking about parking farther away in the parking lot to increase my walk into the office. 

It’s little things that can get us on the path of wellness and personal accountability…because you need to start little to achieve big.  And because I don’t want to meet Mr. Stick…or his big brother!

Now if you’ll excuse me, I have to begin training for next year’s Boston Marathon.  Or maybe I’ll just take the stairs instead of the elevator.

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