November 16, 2006

Emergency Room Usage is Sort of the Problem, But a Part that Could be Fixed

Carroll Andrew Morse

Commenter “Andy” (no relation, as far as I know) tries to provide a signature example of how emergency room overuse contributes to rising healthcare costs...

If an uninsured person has no primary care provider, they are less likely to seek help if they have (to take a silly example) a chronic stomach ache. Let's say, for the sake of argument, the stomach ache is the result of an ulcer. If the uninsured goes to a clinic early on, it seems to me that it is a relatively quick and inexpensive fix. If, however, the uninsured does nothing until the ulcer burns a hole in the stomach (or whatever it is that ulcers do - I am not a doctor) and then goes to the ER, then the uninsured will need surgery, which is a significant cost that can be recovered by driving up premiums/costs for the insured population.
It is true that Andy’s example describes a situation, if frequent enough, that would drive up insurance rates for everyone. The longer people wait before seeking care, the more intensive care they are likely to need. More intensive care for more people means (assuming a traditional insurance model) that everyone’s insurance premiums go up.

Still, Andy’s example does not support the conjecture that the real cost of providing care at an ER is any greater than the real cost of providing care at a walk-in clinic or other type of facility. It�s the waiting that drives costs up, regardless of where care is finally delivered. However, for the rest of this posting at least, we can let this distinction pass, and focus on the issue that too many people waiting until they feel sick enough to go to a healthcare provider of last resort could be driving up healthcare costs for everyone.

Solving this problem takes us back to the paradox that universal care advocates generally want to avoid. Preventative care would catch some, maybe many, illnesses early, obviating the need for more expensive treatments. Yet there is no way, if we really want everyone to take advantage of preventative care programs, that it is rational to pay for them through an insurance-style system (full argument here). For preventative care, it makes much more sense to eliminate the middleman and pay doctors directly.

So what do we do?

The answer, in part, is to separate healthcare events into two categories, rare events (accidents, major illnesses) paid for through insurance, and routine events (regular check-up, initial examinations of aches and pains) paid for through direct reimbursement of doctors. Then, we give everyone the option of a health-savings-account plan for paying for the routine events. And then, knowing that regular check-ups and establishing a relationship with a general practitioner reduces the odds that someone will need intensive care, we sell health insurance at two different rates. Those who use some of their HSA money each year for a preventive care regimen get a slightly lower rate, because there are less likely to need major care in the future. Those who don’t pay a higher insurance rate for the same coverage.

Note that aspects of the over-regulation of health insurance, things like “community rating” systems, make this kind of common sense approach illegal in many places. It is deeply frustrating when government throws up regulatory barriers that prevent people from acting rationally and then says the only solution is a total-government takeover of the system that government mucked up in the first place.