Indiana's Example on Health Care

In Commentary via Real Clear Politics:

Bending the Cost Curve Down

John Steele Gordon - 03.02.2010 - 10:03 AM

As Jennifer pointed out this morning Warren Buffett thinks the Obama administration should “come up with new [health care] legislation that deals with the ‘cost, cost, cost,’ that he calls a ‘tapeworm eating at American competitiveness.’” So does everyone else who thinks health-care reform should be about reforming the wildly distorted health-care economics in this country and about not expanding government control over it — which is the sole purpose of ObamaCare.

If you want a textbook example of how to “bend the cost curve down,” I recommend taking a look at the state of Indiana and how it funds health care for its employees. The governor, Mitch Daniels, explained it yesterday in the Wall Street Journal. The state of Indiana puts $2,750 into a medical savings account for every state employee who signs up for this sort of coverage. (When it started five years ago, 4 percent signed up; this year 70 percent signed up.) The employee then pays all medical expenses out of that account. If there is money left over at the end of the year, it’s the employee’s to keep. If expenses exceed that sum, the state shares expenses up to an out-of-pocket maximum of $8,000 and covers all expenses above that sum.

The program has been a huge success, saving millions for both employees and the state. Why? As Governor Daniels explains,

It turns out that, when someone is spending his own money alone for routine expenses, he is far more likely to ask the questions he would ask if purchasing any other good or service: “Is there a generic version of that drug?” “Didn’t I take that same test just recently?” “Where can I get the colonoscopy at the best price?”

In other words, a system that incentivizes health-care consumers (that’s everybody) to ask the magic question, “How much is this going to cost?” will drain billions of wasted money out of the health-care system, as Indiana has already demonstrated.

The “great mentioner” is increasingly mentioning Governor Daniels as a possible 2012 Republican nominee for president. Michael Barone explains why. He’s a man to watch.