Rising health care costs and the tax preference for employer-based health insurance

by Robert Berry, MD

In his column, David Brooks of The New York Times effectively compares our rapidly rising health care costs to “a stampede of big ugly rhinos.” What he ignores, however, is the huge elephant in the room that is largely responsible for this rhino stampede – the tax preference for employer-based health insurance.

This tax preference – enjoyed primarily by employees of large businesses and government at the expense of small businesses and the uninsured – promotes the purchase of low co-pay, low deductible health insurance so that most Americans do not feel the true cost of the decisions they make about their routine, outpatient care. This elicits a trickle of expensive individual responses that collectively swell into a cascade of costly decisions for the nation as a whole.

If this tax-favored majority had to pay full price for non-catastrophic and non-emergency care, they would become more economical in their decisions without any loss in quality. They would question health care professionals about the value and cost of tests and treatments and forego the ones they judge to be of marginal value. For example, if patients with back pain had to pay for their $1,000 MRI’s, more would make the effort to learn that this test rarely affects treatment and is usually unnecessary. Loud snorers who are sleepy during the day would use an inexpensive, in-home screening test or a trial of CPAP before undergoing expensive studies in a sleep lab. For heartburn, patients would try generic Zantac at $4 per month before buying Nexium or Prevacid for $120.

Patients would require their medical providers – doctors, hospitals, pharmacists, durable medical equipment companies, etc. – to make their prices readily available up front (as they are, for example, at my practice). One insured patient of mine assumed his insurance company would pay for the lab tests I had informed him would cost $95 at my practice. So he decided to have them done at a local hospital instead from which he received a bill for $600 several months later, because his insurance company refused to pay. Abolishing the health insurance tax preference would eliminate this confusion. Patients would know from the start that they are responsible for paying for everyday lab tests, and they would insist that medical providers be transparent in their pricing.

Having provided nearly 30,000 office visits for the uninsured and patients with high deductibles in my insurance-free practice over the last nine years, I could relate many more ways my patients and I have discovered to cut cost. But given these, I believe it would be reasonable to estimate that at least $100 could be saved per outpatient visit if a similar mindset were applied during each encounter. With over a half billion such visits per year, the U.S. could save more than $50 billion annually simply by giving both doctors and patients the incentive to make cost effective decisions at the point of care.

It could also significantly cut medical office overhead as well. Dr. Brian Forrest, a family physician in Apex, North Carolina, does not file insurance, and as a result his annual operating expenses are only $80,000 – as compared to an average of $330,000 for family docs who do. Other cash practices (including mine) have demonstrated similar cost reductions. With approximately 300,000 primary care physicians in this country, $75 billion could be saved each year if Americans paid for their non-catastrophic care directly. Billions more could be saved annually by employers, hospitals, pharmacists, private insurers, and government for not having to settle hundreds of billions of small medical claims.

Dr. Forrest’s practice enables us to determine just how much it costs a doctor to file insurance for an outpatient visit. With $250,000 in additional overhead and approximately 5,000 patient visits per year, family physicians pay about $50 to settle each claim. Without this overhead, Dr. Forrest can afford to allot an average of 30 minutes per patient visit and charge about what it costs other family docs to bill insurance for their 10 minute visits. Little wonder that Mr. Brooks’ rhinos are stampeding. Situations this ridiculous can occur only when elephants are ignored.

Some might object that visits to primary care physicians are too expensive and must be insured. That’s because most Americans have no clue how much such visits cost and how that compares to other purchases they make. According to the Medical Group Management Association, family practitioners on average receive about $300 in revenue per patient per year, most of that through insurance payment. According to the Bureau of Labor Statistics, each year Americans spend on average $9,000 for transportation and $3,000 for entertainment. It appears, therefore, that paying physicians directly is less about price than about changing our priorities.

If patients had to pay for non-emergency treatment out of their own pockets, fewer would choose ER’s for such care. If there were 25% fewer ER visits, we could potentially save another $10 to $20 billion annually while providing relief to our overburdened ER’s.

Without the health insurance tax preference, it would no longer made economic sense for large businesses and government to buy expensive low co-pay, low deductible policies – the type that pays most of these ER costs for routine medical care. These organizations could then pass on thousands of dollars a year in premium savings to each employee rather than giving that money to insurance companies to ration their care.

Adding up all of the money we could be save by being more economical at the point of service would probably yield over $200 billion per year – not an insignificant sum, even by Washington standards.

We are at a critical juncture in our republic’s history. Mr. Brooks is right – the rapidly increasing costs of our health care system are not sustainable and will likely bankrupt us. It is obvious from this month’s townhall meetings that most Americans do not want a government takeover. However, simply rejecting Obamacare will not solve our health care financing problem. We can check these soaring costs by changing the tax code so as to promote direct payment for non-catastrophic care. Or we can choose to pay federal bureaucrats to cut costs for us by rationing this care in a single payer system.

In other words, to avoid getting trampled by the rhinos we must first get rid of the elephant – the tax preference for employer-based health insurance.

Robert S. Berry is an internal medicine and emergency physician.

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