My beloved dentist Dr. M retired after 45 years (see Staying In Your Job After Financial Independence). A new dentist who only graduated dental school 3 years ago took over (bought?) his practice. I met this new dentist in a routine cleaning-and-exam appointment last month.
The new dentist was very friendly. After a thorough exam, he recommended that I get a night guard to prevent damages from night time grinding or clenching. Because I have some gum recession, he also recommended gum line fillings for 5 teeth. These issues never came up before with Dr. M. The gum recessions had been there for many years. Dr. M told me if the teeth were sensitive he could desensitize them but otherwise I didn’t have to do anything.
I understand different medical professionals have different treatment approaches. I’m not saying the new dentist must be wrong but this interaction also revealed how health insurance affects our healthcare consumption and how our healthcare decisions affect health insurance.
Among different branches of healthcare, dental services are very transparent in prices. You get a treatment plan with itemized prices up front. If you have insurance, the amount covered by insurance will be estimated quite accurately. You don’t get into a situation where the doctor recommends something but nobody can tell you how much it will cost until you actually do it. You know up front what your out-of-pocket cost will be. You then decide whether to proceed. If all healthcare works like dental services we will have much less headache.
As usual, the dental office gave me an itemized treatment plan with my expected out-of-pocket cost. I was reminded that my dental insurance covers 80% for the treatments. If I don’t have dental insurance, I probably wouldn’t go for those treatments because they look like marginal value to me. But at 80% off? Yes?
And that’s a problem.
Before I buy insurance, I wouldn’t pay for treatments that offer only marginal value. After I buy insurance, I have a strong incentive to go for those treatments because I already paid for insurance and the incremental costs to me are substantially lower (80% off!). If I don’t get the treatments I still pay the same insurance premium.
When insurance pays for those treatments of marginal value, the costs are just included in the premiums. Health insurance gets expensive because health insurance covers expensive treatments. Treatments are expensive because once you have health insurance you don’t care how expensive the treatments are. After you satisfy the annual deductible, additional services cost substantially less. After you blow past your out-of-pocket maximum, everything is free!
Dental insurance actually has the least problem because it usually has a low annual cap. My dental insurance pays maximum $2,000/year. This problem is much more pronounced in medical insurance. I have seen many ads for devices that prominently mention they are covered by Medicare. As in the popular saying, “Why rob a bank? Because the money is there!” billing insurance through price-insensitive consumers is a game simply because the money is there.
Some highlights from the book:
1. We give healthcare a pass and treat it as if it’s on its own island where the economic laws for everything else don’t apply.
We talk about healthcare cost not healthcare prices, accepting the cost for what it is. We talk about healthcare benefits, thinking someone else is paying for us, when we collectively must pay everything for everyone.
2. We think health insurance is the only way to cover healthcare.
We have true catastrophic risks in healthcare (getting cancer, serious injury, …) and we have expected expenses (child birth, non-catastrophic illness, …), but we use a single tool — health insurance — to handle both. Outside healthcare we use insurance for unpredictable catastrophic risks and we use saving and borrowing for expected expenses.
3. We think healthcare is the best way to achieve good health.
Education, income, diet, exercise, etc. all affect health but the government earmarks huge spending only on healthcare. Through Medicare, Medicaid, and tax subsidies for health insurance, citizens become the conduit to funnel money to the healthcare industry. Spending on healthcare crowds out spending on other things that improve people’s lives.
4. Let consumers drive their healthcare spending.
Collectively we already spend a lot of money on health insurance, including Medicare and Medicaid. Expanding health insurance only makes healthcare more expensive. If we just give the money to people and let people drive their healthcare spending, we might achieve better results at a much lower cost.
Before you read the book or listen to the audiobook, you can also watch this interview of the author by Malcolm Gladwell.
David Goldhill’s suggested policy solutions may be politically infeasible at the moment but I like his economic analysis of why healthcare and health insurance are so expensive. Before public policies change, consider getting the least expensive insurance and saving the difference for out of pocket expenses. As I discovered recently, it’s less expensive to pay my doctor out of pocket than paying the extra insurance premium to have her in-network.
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Bill Marshall says
Regarding dental insurance…I find that paying $1000/yr for a policy that has a maximum benefit of $1000/yr is crazy. But I find that, at least for my dentist of the last several years, the “in-network” rates have a discount far more than 10% of the out-of-network rates. So when we both retire and lose our dental insurance coverage, I plan to buy a minimal-cost plan that provides no benefits other than group membership. First cleaning it will pay for itself. And that’s also crazy.
Bruce Wilson says
Harry,
Have you given thought on how you will handle health insurance when you turn 65?
Medicare only, Medicare and medigap insurance, Medicare Advantage ?
If you do medigap would you choose a more comprehensive plan like F or G, or a minimal plan like L or A?
Harry Sit says
It’s still far away for me. In general I’m in favor of minimum insurance.
Bruce Wilson says
Harry, I will be curious how you handle the Medicare maze. We decided on Traditional Medicare with medigap insurance plan G. G is pretty comprehensive insurance, but there are some catches in the system. We bought it thru United Health Care who is the largest insurer in the field. I was thinking of your general advice of “safety in numbers” in choosing UHC!
Harry Sit says
If I choose traditional Medicare I would buy the least expensive Medigap policy, not the most comprehensive and the most expensive one. As long as I have an out-of-pocket maximum, I’m good.
FinancialDave says
Harry,
I too sometimes wondered if some fillings were necessary, but the alternative is waiting too long and ending up with a more expensive proceedure so I always gave the benefit to the dentist, however my dentist was always very open about discussing whether I could wait on a proceedure or not and that built up a lot of trust over the years. That dentist recently retired and I will miss him, and after having one visit with the new dentist decided the fit was not right for me. I took the “life event” as a time to seek out another very qualified dentist that I think will be a good fit.
One item I will never regret is the night guard. I have had it for many years and never leave home without it. I am convinced it adds years to your teeth from damaging “teeth grinding” that usually goes on while you are sleeping.
One thing I miss is “employer dental” which was much better than the Medicare version of dental coverage. While is costs about $480 a year, like you note, that is more than the cost of normal preventative care twice a year, but like most insurance it is there for the big stuff. My Medicare Complete does cover 50% of most proceedures and some of the preventative. There also doesn’t seem to be much difference in-network or out.
Dr. Mo says
Brilliant post – as always. The fear of the unknown in medicine and healthcare can put blinders on customers. And you’re right – healthcare talks about costs and patients, not prices and customers.
There is a fear that referring to prices and customers will lead to what we see now in the traditional consumer market, mass-produced garbage which will end up in landfills. With organizations such as Kaiser or other large HMO’s funneling a ton of patients through and sprinkling them with lifestyle medications, we have already entered the space of poor care for a cheaper price.
I am a physician and I don’t have health insurance. I shop for my dentist and even though I have moved a lot, I try to make the best decision when choosing my dentist. I even appreciate the occasional upsells but find that I can have a frank discussion and still make my own decisions which my dentist will respect.
In regard to healthcare – catastrophic insurance is important only because there is no transparency in cost in a hospital nor in the science-based aspect of cancer treatment or trauma treatment.
Getting chemo and radiation for 1-2 extra years of life for an out-of-pocket cost of $150,000 may not be something I want as a consumer if it means that I will be tied to an infusion center for the next 2 years. But such conversations aren’t had with patients because the fear of cancer is so high, the fear of not affording the care is so great, all logic is overshadowed and health insurance and healthcare access becomes the focus.
If I was a health advocate for a friend who suffered a major trauma in a bike accident and had a pelvic fracture and a brain bleed, I would let the surgeons operate and do their best. I would move my friend out of the hospital and hire in-home nurses and rent a hospital bed and have their care continued there. I would pay physician cash to do a home visit and pay a medical transport company to chauffeur my friend to the hospital for any imaging studies. But that’s because I know how to navigate the system. Everyone else is kept in the dark and health insurance promotes more of the same.
I have no solution to sell nor any agenda to push. But every physician is also a patient and paying $300/month as a 40-yo no longer makes sense when my healthcare spending is maybe $250/year.
Avi says
Healthcare is very much unlike other common marketplaces – between the wide information asymmetry, high price inelasticity and social value associated with having a healthy populace (not to mention general sense of equity when it comes to these things) it both should and inevitably will be treated differently by society.
I’m not saying the current system in the US is the best, or even a particularly good, solution – but the notion that a ‘free market’ in healthcare will lead to an outcome that would be accepted by society is fairly trite.
kj says
I will retire soon and need to make decisions. I have come to believe that insurance and health care is for profit and filthy.
I must pay for Medicare A(hospital care), then I am supposed to pay for Part B (dr visits, tests, etc). My part B will be greatly subsidized by my employer as a retiree benefit.
What about Direct Primary Care basically the same cost as part B?
Do you have an opinion on dropping Part B and just buying DPC? What is the risk if Part B is dropped? As a part B covered patient I will just be a part of the assembly line that has been developed to process patients (this is literally true where I live). Maybe DPC is a chance at competency.
Endless reading and I do not know the answers. Who pays for cataract surgery? It is not a hospitalization. Who pays for biopsies? It seems there is not a way out of part A and B.
Thoughts?
Harry Sit says
The subsidies make it very difficult to seek alternatives. Your employer subsidizes Part B. You don’t get the subsidy money if you use something else. Part B itself is subsidized by taxpayers. You don’t get the subsidy money if you don’t sign up. You will also have a permanent late enrollment penalty if you decide to sign up later. All the incentives are pushing you to sign up for Part B.
Steve says
What about the “forced savings” aspect of the situation? Many, many people in the US can’t or won’t save up for big expenses. Babies are going to be conceived whether people have saved to pay for their birth or not.
What about the “an ounce of prevention is worth a pound of cure” aspect of the situation? Many problems are far cheaper to treat early or prevent altogether. But many consumers won’t talk to a doctor early if they have to come up with the money out of pocket to pay for it. So what could have been solved cheaply early, becomes a catastrophic event later.
Who knew health care could be so complicated.
kj says
There are also the millions of people who are made patients by the ‘health care’ they receive. Google says that 3.7 billion is spent on unnecessary biopsies. Some of those people get other procedure or infections.
People want unnecessary procedures because they do not pay for them, they are ‘covered’. Some do not want what will truly allow them to be healthy – vaccinations!
If anyone says the truth – that women under a certain age do not need annual mammograms some will scream ‘women will die’ and demand their right to unnecessary care. I know people like this. They do not ever think they will be harmed when in fact they are likely to be harmed.
Harry Sit says
Although I don’t agree 100% with David Goldhill’s book, I like how it challenges conventional assumptions. Insurance isn’t the only way to force savings. The government and employers can deposit their subsidies into a special account just for healthcare. When the money is already there, and when they know not treating something early only means it will cost them more later, people will naturally go for the more cost effective option. People already do oil changes for their cars because they don’t want to ruin the engine. Some go to the dealership; some go to Walmart; some do it themselves. Some do it every 3,000 miles; some do it every 6,000 miles. It’s all happening without any law requiring that all cars must include free oil changes.
KD says
Harry, Please help me understand “When insurance pays for those treatments of marginal value, the costs are just included in the premiums. Health insurance gets expensive because health insurance covers expensive treatments. Treatments are expensive because once you have health insurance you don’t care how expensive the treatments are. After you satisfy the annual deductible, additional services cost substantially less. After you blow past your out-of-pocket maximum, everything is free!”
Is it possible to separate gatekeeping of treatments from “insurance” aspect of healthcare? If I am a consumer of healthcare and I have paid my premiums, I am going hate gatekeeping and I would make a reductive conclusion that all insurance is sham.
I am still mystified that health insurance numbers are spoken in number of people covered. I would think it woul be talked in terms of “there would be a reduction in risk due to it being spread uniform in all population.” How much of a state’s risk (since this is the largest level risk aggregator that can be on ACA marketplace) has been neutered due to everyone getting health insurance. The self selection problem just does not go away no matter what.
In my previous megacorp job, the self-selection of health individuals was high and a HDHP plan had net employee premium of zero after accounting for employer HSA contribution. The employer contribution was just $3000 for a nationwide coverage. Before that, my small company premiums were $7000. See the difference?
This whole talk of how expensive is healthcare would go away if the bargaining pool was large enough. I am not yet an advocate of Medicare-for-all but it essentially points towards that direction of aggregating larger pools. This has other pitfalls too. But why not first get the low hanging fruit?
Harry Sit says
Gatekeeping of treatments is separated from “insurance” aspect when insurance only pays for catastrophes. Auto insurance doesn’t perform gatekeeping when I need to replace the brake pads. Shops compete for the brake jobs. I choose whether I want premium brake pads or value brake pads.
David Goldhill gave the example of defense purchasing. There’s only one bargaining pool: the federal government buys defense equipment and services for all citizens. Yet everything connected with defense purchasing is very expensive. The cost doesn’t come down.
R. J. Repoh says
I understand the article was about health insurance, cost benefits, etc., but the real problem was and is all about this new dentist that the author inherited.
Let’s face it, this new dentist just purchased a mature, thriving practice. The new dentist needs to pay this expensive purchase off and the most immediate way is to raise income — voila!, the author now has recessed gums, etc.
A money grab, IMHO, and little else.
Don’t get a second opinion, get a new dentist.