Encouraging Cost-Saving Innovations in Health Care by Redistributive Health Savings Accounts

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The progress of medical understanding means that more and more diagnoses and treatments are routine. With supportive government policy, everything that is routine in health care can be hived off from hospitals and regular doctors offices to specialized health care providers who only do those routine things. And that specialization allows productivity improvements that bring down costs. This is already happening: the number of health treatments you can get at your local pharmacy has been increasing. For example, many people have gotten some of their Covid vaccinations at the drug store rather than in a doctor’s office. These pharmacy-based health treatments are generally quite inexpensive.

This is path of hope for lower health care costs mapped out by Clay Christensen and his coauthors in an excellent books The Innovator’s Prescription. I wrote a series of posts a while back inspired by that book. See:

• Clay Christensen, Jeffrey Flier and Vineeta Vijayaraghavan on How to Make Health Care More Cost Effective

• Clay Christensen, Jerome Grossman and Jason Hwang on the Agenda for the Transformation of Health Care

• Clay Christensen, Jerome Grossman and Jason Hwang on How the History of Other Industries Gives Hope for Health Care

• Clay Christensen, Jerome Grossman and Jason Hwang on Intuitive Medicine vs. Precision Medicine

• Clay Christensen, Jerome Grossman and Jason Hwang on the Three Basic Types of Business Models

• Clay Christensen, Jerome Grossman and Jason Hwang: How to Divide and Conquer Our Health Care Problems

As it is, pharmacies have to negotiate with insurance companies. One way to encourage even more hiving off of routine health diagnoses and treatments to pharmacies (beyond regulations that allow it) is give people money for health care that is otherwise unrestricted.

Currently, there is a lot of activism in favor of a bit of basic income. For example, child allowances may become standard policy in the US. If some of that reasonable urge toward redistribution could give people money in health savings accounts, it could encourage the development of more low-cost medical care because people would do some comparison shopping across different pharmacies to conserve their health-savings account dollars.

As things stand, health-savings accounts mainly benefit those who are quite savvy about getting legal tax breaks. Health savings accounts could become something that benefitted the poor greatly if they had government transfers directly into those accounts. Inexpensive treatments could be dropped from Medicaid and the poor would still be better off because of the better choices they would have.

Some of the extra choices people would get from having health savings account funds from the government would come from a political dynamic of lobbying for more types of health treatments to be payable from those health savings accounts. The argument that it is people’s own money would likely lead by this political gravitation to more choices for use of the health savings accounts than the choices available through Medicaid. For example, Medicaid doesn’t always cover nutritional counseling (it depends on the state and on the particular health maintenance organization), despite how many chronic diseases are caused by bad eating habits. I would be surprised if people weren’t ultimately allowed to use funds from health savings accounts to pay for nutritional counseling. And Medicaid does not cover chiropractic care as freely as I think is optimal as a policy matter. With government transfers into health savings accounts of a fixed size, people could be given that freedom with the government having to worry about out-of-control explosion of extra spending from people getting valuable chiropractic care.

Many people have an almost inborn urge to want to control other people. We should always be on the lookout for this urge in the public policy arena. Freedom is good. We policy wonks should act like it. The blessings of freedom don’t always override other concerns, but they should weigh a lot in the balance.