The hidden costs of health care

A doctor cares for a patient at a hospital in Panorama City, Calif.

TEXT OF STORY

TESS VIGELAND: In his speech to Congress this week, President Barack Obama said he's not the first president to try to reform the nation's healthcare system, but he intends to be the last. Everyone in Washington says they want to contain the cost of healthcare. But all of the plans under discussion -- from the public option, to non-profit co-ops, to the status quo -- have one thing in common. They all hide the real cost of healthcare from consumers.

Joel Rose reports.


Joel Rose: If you're like most Americans, you probably get health insurance through your employer. And you probably have no idea what that coverage actually costs.

USC economist Darius Lakdawalla says most people only know how much they have to pay out of pocket.

Darius Lakdawalla: They'll go to the drug store, they'll get charged 20 bucks or 40 bucks for their prescriptions. Those kinds of things employees are going to tend to know about. Oftentimes, they don't really know how much the employer is paying for the health insurance premium.

That's because you generally pay part of the cost and your employer pays the rest. And your contribution is probably lifted out of your paycheck before you even get it, so you don't miss it. But you may be missing something else.

Henry Aaron is an economist at the Brookings Institution.

Henry Aaron: In the end, workers end up paying for the health insurance through lower cash wages or other fringe benefits.

But that connection isn't obvious, which may be one reason an overwhelming majority of Americans say they're satisfied with their insurance. And economists say employer-based plans may have other hidden costs, too.

Jon Gruber teaches at MIT. Too often, Gruber says, these plans tend to insulate workers from the real cost of the healthcare they're consuming.

Jon Gruber: That gives no incentive for providers to treat you cost effectively, or necessarily, for you to shop for the most cost effective insurance. Part of why we have the world's highest costs and they're rising rapidly.

In a world where you health insurance isn't tied to your job, the argument goes, consumers would be free to shop around. That would force insurance companies to compete for your business, which in turn would rein in prices. That's what happens in other markets, like automobile insurance.

Trixie, in Geico ad: Don't worry Speed, I have good news!

Speed Racer: Tell me, Trixie!

Trixie: I just saved a bunch of money by switching to Geico!

But some economists think there's a limit to how much difference competition would make in health insurance. The Brookings Institution's Henry Aaron says it's just the nature of health insurance plans to encourage higher spending.

Aaron: The great majority of our healthcare spending occurs during high-cost episodes. Any system of insurance, whether it's provided through employers or by a government plan, is going to protect workers from those costs.

Still, Aaron says more information and more choice in the insurance market would help. That's why he supports the idea of insurance exchanges -- government-regulated marketplaces where consumers can compare different insurance plans. Exchanges are being talked about as a possible part of the healthcare overhaul. But according to the legislation taking shape now, if your employer offers healthcare benefits, you wouldn't be eligible for the exchanges.

I'm Joel Rose for Marketplace Money.

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