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September 25, 2005
The power of price competition created by Health Savings Accounts
To understand the impact competition and consumerism (created by health savings accounts) will have on the healthcare market, all you have to do is look at the cost of elective medical procedures.
A great example is laser surgery to correct near-sightedness. In the last 10 years, the cost of this operation has gone down by 50%. In contrast, average medical expenses have increased by over 50% in the past decade. The driving force that can explain this difference is that consumers generally pay for their own laser surgery. They shop around, compare prices, see which doctor has the best reputation, and then make a purchasing decision.
When a third party pays for the procedure, none of this usually happens. The consumer has no motivation to compare prices, and thus the providers have no motivation to offer competitive prices. Often, the providers don't even make their prices known - as is the case with most hospitals.
It will be interesting to see how long it takes for the adoption of Health Savings Accounts to have a serious impact on the price of healthcare.
Posted by Wiley Long at September 25, 2005 08:22 AM