In his July 25 Radio Address, President Obama offered a new goal to health care reform—“And we’ll limit the amount your insurance company can force you to pay out of your own pocket.” By laying this out as one of the goals of reform, he contradicts the major theme of the Address.
The Address began with a quote from a small businessman from New Jersey—“I am not looking for free health care, I would just like to get my premiums reduced enough to be able to afford it.” Here are the conflicts between what the small businessman knows and what the President proposes:
- The less a person pays out-of-pocket, the more it appears to be “free.”
- The small businessman intuitively knows that when something is “free,” utilization will go up. He understands that if he offered his product or service for free, he certainly would have more customers in the short-term but he might not survive financially until the end of the day.
- Premiums are based, in part, on how much out-of-pocket spending is expected. When out-of-pocket spending goes down, premiums go up. Insurance is supposed to be protection against an unforeseen, future event. First dollar coverage (the absence of out-of-pocket spending) means insurance is no longer insurance.
The President attempts to construct an argument that the insurance companies are forcing you or me to pay more out-of-pocket, so we need reform to save us. Nonsense.
- Out-of-pocket spending as a source of health care expenditures has been falling for decades, which may be part of our problem in health care financing. In 1970, out-of-pocket spending accounted for one-third of all national health care expenditures. In 2000, out-of-pocket spending accounted for 14 percent of total spending. By 2018, only one in ten dollars spent on health care will be out-of-pocket. So out-of-pocket spending as a share of total spending will continue to decline without reform.
- Compared to last year, out-of-pocket spending grew just 1.4 percent compared to the 8.0 percent increase in Medicare and 9.6 percent increase in Medicaid. Perhaps there is a lesson to be learned here.
- A person may choose to buy a policy that has greater cost-sharing but a lower premium, because he believes his total cost will be less. Apparently, taking away this option is now one of the goals of health care reform.