Jerry Seinfeld tells a funny joke about public speaking. He noted that a recent survey asked Americans what they were most afraid of, and death came in at number 2. Number 1 was public speaking. So if you’re at a funeral, Seinfeld summarizes, most people would rather be the one in the coffin than the one giving the eulogy.
I’m sure if you surveyed Americans on the most aversive experiences, going to the dentist would rank pretty high on the list. Well today was the last day of Open Enrollment, and it occurred to me that I would rather go to the dentist than spend another second studying, trying to understand, and deciding which dental insurance plan I wanted.
I’ve written about medical insurance before, and my recent experience only confirms my disdain for what our insurance system has become over the past four decades. Namely, a horrendous mess. Because dental procedures are typically less expensive than medical procedures, and because many dental procedures are a good bit more elective than many medical procedures, the absurdity of our dental coverage system is probably even easier to demonstrate.
1. Insurance companies win, you lose
One can’t start a reasonable analysis of any kind of insurance without first coming to grips with the over-riding, undeniable fact: between your premiums, co-pays, deductibles, and non-covered expenses, you will (on average) pay more for dental care if you carry insurance than if you do not.
How do I know this? Because insurance companies could not exist if this were not the case. Of course insurance companies must collect (in premiums) more than they pay out. And this is worse than it sounds. Since pay outs are not the only expense an insurance company has (it must also buy office space, computers, and software, to say nothing of paying salary – and, ironically, benefits – to its staff), insurance companies must make sure they pay significantly less in claims than they collect in premiums. This means your individual odds of beating the insurance company (getting more benefit than you’ve paid in premiums over a lifetime) are very small indeed.
(Although I’m not sure I’d call you a winner if you had so much dental work over your life that you actually beat the insurance company at its own game!)
Of course, losing out financially is not necessarily a bad deal. Many people are perfectly willing to pay a larger total amount for services or property if, by doing so, they can have immediate access to (or possession of) something otherwise unaffordable. A family making a modest income (say $60,000 a year) will usually willingly agree to spend $386,000 on a $200,000 home (the total cost of a 30-year fixed rate mortgage at 5% APR). The transaction allows the family to live in the home 30 years before they actually own it outright by making affordable payments of $1,100 every month.
Dental coverage likewise allows us to obtain expensive treatments – braces, a root canal, false teeth – immediately, rather than having to save up, and in return for a fixed monthly rate (the premiums), rather than a lump sum. For some, this may be worth it. But I wonder – if one could get a loan for a set of braces at 5% APR (or, is there such a thing as a bridge loan for bridge work?) – pay for them in the same way one pays for a new car – I suspect the total bill would be much cheaper.
2. We’ve bought the myth that preventative care lowers our expenses
If you want to sound smart when talking to your smart friends about health care, say something like this: “Government should encourage insurance companies to pay for preventive care. If you discourage people from getting preventive care, they won’t see a doctor or dentist until things get really bad, and then it really costs a lot of money.” If you say that, you’ll get big smiles and a pat on the back from all of your intellectual pals. And if everybody says that, we’ll all get insurance premiums going through the roof. Oh wait, that happened already.
If you’ve got kids between the ages of 11 and 14, you’re probably spending big bucks at the dentist. If you’re in your early 40s and took lousy care of your teeth all your life, you’re probably spending big bucks at the dentist. If you’re 68 and your gums have finally given up the fight, you’re probably spending big bucks at the dentist. If you’re anybody else, your dental expenses are probably pretty minor – maybe a checkup every year or two.
If you’re like me, though, your employer provides you only a couple of options for coverage, and those probably emphasize preventative care. You may be shelling out $600 a year in premiums for the luxury of paying nothing when you go to get a $100 check up. Do that for 5 years and you’re burning money. If you add in your employer’s contribution to your dental coverage – money that might presumably have been a salary increase – and things are getting pretty serious. (When people tell you that wages have been stagnant for a decade, they forget to tell you that the blame isn’t greedy capitalists but rather the fact that your benefits are costing your employer so much money each year that they have nothing left over to increase your wages with.) Even this calculation is insufficient to capture the amount of waste, because the only reason a check up can cost $100 in the first place is because the demand for preventative care went up when insurance companies began to fully cover the costs. When dentists can’t find room for you until next month, rather than later this week, they have the freedom to charge a lot more. That’s what conservatives mean when they say medical pricing has been dissociated from market forces.
The other problem with the preventative care argument is that no one gets credit for the most effective preventative care. Sure, getting routine physicals, breast exams, and prostrate screenings may lower your lifetime costs (though there is still plenty of debate on this), but the best way to lower your lifetime health care expenses are to exercise, eat a low-calorie diet, get sufficient sleep, stay intellectually engaged, brush your teeth twice a day, apply sun screen, floss, etc. The irony is that people who do these things benefit far less from insurance coverage than people who do not – the premiums of the healthy pay for the expensive costs of the unhealthy.
3. The best part of my medical/dental plan
I do like one thing – exactly one thing – about my benefits package. My employer contributes to a health reimbursement account for my family. (Read: my employer uses some of the money it might otherwise have spent on a raise in my base salary.) This HRA is pre-tax dollars and never goes away at the end of a plan year (unlike a somewhat less useful flexible spending account). This money builds up every month, and I can draw from it to pay for any uncovered health-related expenses. Naturally, I have to be somewhat conservative with this money. I might want to use it to scrape away some of the painfully misplaced cartilage in my left knee, or I may want to hold off on that and apply it instead towards braces for my kid. I’ll have to make strategic choices and consider the risks/rewards of making a particular purchase over another.
The solution: Unleashing the power of the marketplace
Imagine for a moment, though, that all of my premiums went into this account instead. The $1,300 I spend a year on dental coverage, the $6,000 I spend on medical – added to the $2,100 employer contribution to the HRA that is already a part of my benefits package. In fact, if you add the employer contributions to my premiums as well, that might be another $6,000. I would have nearly $15,000 in pretax money to spend on medical and dental expenses each year. When my family and I are young, our expenses would be relatively low, and we’d leverage our time and our heath to build up an impressive medical war chest.
If we believed that preventative care would reduce our lifetime medical and dental expenses, we’d use some of the money strategically on regular cleanings, orthodontics, physicals, and eye exams. If everyone used the HRA system rather than insurance, we’d be purchasing these services in a marketplace sensitive to the finite and strategic resource utilization of individual consumers. Doctors and dentists would have to discuss pricing with consumers up front (a custom for virtually every financial transaction in this world except dental and medical services). There would be no “networks” of providers, but there might very well be networks of consumers sharing information about quality and affordability of different practitioners. Power to the people, indeed.
When I was in college, I injured my knee and the doctor recommended an MRI. I was uninsured at the time, so rather than shell out $1000 on the knee scan I opted for paying $10 at the student clinic to have the fluid in my knee drained by syringe. I got better in a week. I suppose if I hadn’t, I’d have gotten the MRI. When you’re insured, you’re not quoted the price of anything and you get the expensive test because hey! You’ve already paid the premiums, you might as well get the test. When you’re managing your own funds, you become a wise consumer, and you make choices based on all of the relevant factors.
My solution isn’t a utopia. I’m in a salaried position where my employer provides a benefits package. We’d need something different for hourly workers or for the indigent. My solution also leverages the fact that I have been relatively healthy – I have no chronic conditions, I have good teeth, and I escaped disaster when I was young. But there are “winners” in the current system – people who would be dead without coverage, people whose medical needs would have drained an HRA, even in a world of sensible pricing I’m envisioning – in no time. But it would be a system that adequately met the needs of most people, and it seems to me this is where the discussion should start. It’s not only a better utilization of resources, it’s one that returns dignity to the patient. Right now we’re mostly powerless at the hands of our employers, our insurers, our health care providers, and our government. Rather than being the fifth most important entity in that pentagon, we’d be the first.