In a rational world, deductibles and copayments serve an economic purpose.  Where it is appropriate and desirable for patients to make choices (e.g., primary care, small-dollar services), out-of-pocket cost sharing allows patients to bear some or all of the costs and reap some or all of the benefits of the choices they make.  Where patient choice is not appropriate or desirable (e.g., on a hospital gurney, large-dollar services), we would not expect to see cost sharing.  At least these are the principles that govern other insurance markets. 

Yet in the market for health insurance, those principles are increasingly being turned upside down.  In the small group market a typical plan covers primary care visits from the first dollar, but imposes high deductibles and copayments for inpatient hospital care.  And whereas tiered pricing for drugs once encouraged generics over more expensive brand names, today tiered pricing is being used to impose thousands of dollars of cost on patients who must take expensive drugs with no generic substitutes.  (See The New York Times article.) 

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In response to my Wall Street Journal op ed, a number of people have asked me to clarify my position on Health Savings Accounts (HSAs).  Here goes.

Suppose we passed a law tomorrow prohibiting all insurance companies (including Medicare and Medicaid) from paying any medical bills less than $5,000.  What would happen? Continue reading »