How to Reduce the Cost of Health Care

I’ve written previously that one of the core problems with the cost of health care is OPM (“other people’s money”).  As long as a third party is covering all of the costs (whether it’s private insurance or government), the consumer is not concerned about the value or efficiency of the care.

A very interesting article in the Wall Street Journal about the success of Health Savings Accounts in Indiana…

In Indiana’s HSA, the state deposits $2,750 per year into an account controlled by the employee, out of which he pays all his health bills. Indiana covers the premium for the plan. The intent is that participants will become more cost-conscious and careful about overpayment or overutilization… State employees enrolled in the consumer-driven plan will save more than $8 million in 2010 compared to their coworkers in the old-fashioned preferred provider organization (PPO) alternative… The state is saving, too. In a time of severe budgetary stress, Indiana will save at least $20 million in 2010 because of our high HSA enrollment. Mercer calculates the state’s total costs are being reduced by 11% solely due to the HSA option.

This success in Indiana is in contrast to the lack of success in reducing the cost of health care in Massachusetts using a state-controlled management approach.

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