While insurance companies like Aetna ( AET), UnitedHealth ( UNH) and Cigna ( CI) negotiate lower rates from doctors in their networks, they aren't as well positioned to do so as consumers are. For starters, insurance companies are interested in keeping costs down -- but only up to a point. Then they make up their increased expenses by increasing customer premiums. Moreover, insurance companies can't incite doctors within their network to compete against one another in making their practices more efficient. A consumer actively seeking out the best deal would naturally force health-care providers, even in the same network, into the state of competition upon which free market principles depend. Lastly, comparison-shopping can more efficiently control prices for medical treatment than can an insurance company, which must deal with large unified national groups of health-care providers. By being hands on, the individual seeking health care necessarily avoids the problems of collective bargaining. In fact, consumers involved in medical-price comparisons, acting en masse, would create a workforce that places constant and organic downward pressure on medical costs. In a recent interview, Ken Schachmut, a senior vice president at Safeway ( SWY), described how the company overhauled its health-care system and reduced per-capita spending by 13%. His method relied on the foolproof free-market notion that between two similar alternatives, consumers will purchase the least expensive. His company offered to pay an amount equal to what it considered an average cost for procedures as a reimbursement, leaving the patient responsible for the remaining costs. According to Schachmut: "We found the cost for a colonoscopy within a 30-mile radius of our headquarters building ranged from under $1,000 to almost $6,000 -- without, as far as we can discern, any difference in outcomes or quality." What the limited reimbursement did, in this case, was to encourage Safeway workers to shop around.
A similar consumer incentive will be a necessary component for success, no matter which health-care plan rises out of current discussions. I also realize that there are those who will bristle at the idea of out-of-pocket expenses when it comes to universal health care, especially for those who live below the poverty line. Exceptions will need to be made but, without free-market incentives, the system is in danger of not working at all. One possible solution might be for the government to offer zero percent interest medical loans to cover expenses that exceed a deductible. The loans would need to be repaid if the patient's income becomes higher in the future. However you spin it, the system that exists now, under which the insured are never asked to shop around for their health care, causes costs to rise. In the end, consumers pay for these expenses through increased insurance premiums and limitations to coverage. The way to keep costs low is not through a government-run health-insurance plan, through insurance companies, or through the "commitments" that health-care providers have made to President Obama. Consumers are in the best position to perform comparison-shopping and, as a result, rein in the excesses of health-care costs.