A Health Care Parable
This was simply amazing to me. For years, I and others have said that putting more health care spending under insurance plans was going exactly the wrong direction, both from an individual choice as well as a system cost perspective. By eliminating the need or incentive to shop by the consumer of services, prices almost inevitably rise.
Here is a fabulous smoking gun example from my windshield repair today. I happen to have free windshield replacement in my insurance policy. I called the insurance company and said I had an auto glass claim. I was transferred to Safelite Auto Glass, who apparently (very intelligently) have a contract to process claims for my insurance company. They said I could use any provider, but would I like them to call out someone for me -- if I used their choice, the insurance company would guarantee the work.
Well, what did I care -- I wasn't paying for it -- so I had them make an appointment for me. Unsurprisingly, it was with Safelite Auto Glass.
I must add here that Safelite did an exceptional job, the guy who showed up at my workplace was friendly and competent. No complaints at all about the service or workmanship.
Anyway, I got a bill for which I owed zero dollars, which I suppose is heading right this minute for the insurance company. Before I show it to you, I was curious what I would have paid for this service if it hadn't been insured and I shopped around. I got just one quote - from the Safelite Auto Glass web site. This is a bit unrealistic because for a purchase this large, I would have gotten several quotes. But this was the only quote I needed. The charge to me if I bought the new glass service with my own money without insurance was$321.05 (click to enlarge).
And this was the bill I signed for the insurance company:
For a total of $710.40. Same service. Same car. Same customer. Same part. Probably the same repair guy. 2.2x higher price.
Now, I suppose I might be willing to believe there is some invoice pricing game here and the insurance company may get a discount over invoice, similar to car sales, though I am not sure what their incentive would be for this game -- it should be the opposite. In fact, we can be nearly positive they are marking up the price to insurance companies given a) the web quote says right up front it is not good for insurance work and b) I have already shown how glass companies give enormous consumer kickbacks for insurance work.
If I had cared, I would have eschewed the offer on the call to have them set up the appointment and shopped around for the best kickback. All a cross subsidy from those who don't use the insurance to those who do use the insurance. Talk about a terrible incentive.
I think the conclusion is pretty strong. Anything we shift to insurance from having individuals pay out of pocket gets substantially more expensive. And this doesn't even address my changing willingness to live with a small windshield crack and avoid this purchase altogether when I am paying the bills vs. when I am not.
