Better Copays

To continue in the same vein of trying to find ways to decrease health care costs, I want to address another issue - copays. Copays are designed to share the cost of a doctor's visit or a drug prescription between the patient and the insurance company. This (slightly) helps a person think twice before going to the doctor over something trivial or having a prescription filled that they may not really need. Have you ever had a precautionary script given to you? Just in case you need it you can have it available to you. If it wasn't for the copay, you might just fill it and let it sit on your shelf for two years.

But the problem comes when it is time to shop around for your prescription. Who does this? Not me. I like my pharmacist, so I go to him. It costs me the same $10, $30, or $55 irregardless of who fills it - my favorite pharmacist or some other one down the street. I almost never know the actual cost of the medicine (what the insurance company pays). It might cost less at another pharmacist, but I don't know because I don't ask and I don't shop around. It's all the same to me - just the copay!

Now if my portion of the copay was tied to the actual cost of the drug, if I could save money because one pharmacist charged less for the medicine than another, then I would be very inclined to go to the cheaper pharmacist or ask for less expensive drugs. Simple market dynamics in action. So, instead of having fixed copays, I think we should pay fixed percentages of the cost of the medicine. Example: if my insurance plan had a 20% copay for drugs, then I would certainly shop around and buy the drugs at the store with the lowest price. I would even ask my doctor before he writes the script about options that cost less than the latest and greatest high dollar drug that he is probably getting a kick-back on.

Case in point - I can get my generic drugs at my local pharmacy for a simple $10 copay or I can go to Walmart (and now other places) to get a $4 generic. Guess what? I will endure the hassle of going to Walmart to save $6 per prescription! Why? Am I cheap? Maybe cost suddenly matters when it affects my wallet! I've even brought Walmart's list of $4 drugs to my doctor and asked him if there was anything on the list that would work for what was ailing me! It works!

Likewise, if a doctor's visit copay was a fixed percentage of the actual costs instead of a fixed dollar amount, then I would seriously consider my doctor's costs and shop around to see if his billing is reasonable. Right now, I never ask because it's all the same to me - either $20 or $40.

I really think that insurance companies with their current plan designs have done a disservice to health care costs because they have removed and isolated the patient (consumer) from the costs of their care. While at first this seems nice and comfortable, a great way to get health care at predictable prices for the consumer, it completely removes any initiative for saving money. Anywhere! The patient never makes a decision based on their actual cost of care. The insurance companies have fixed pricing contracts with providers and only pay what's in the contract. Since when has fixed pricing ever resulted in a free market or lower costs? Let the airlines be an example many years ago.

There must be a simple connection between the cost of services and the patient's/consumer's wallet.Then natural market forces would then begin working on the prices that doctors and companies charge and the services that patients request. It just might be a better way.

A Better Health Plan

The President elect has begun asking for ideas on how to make our health care system better. I have a few thoughts on the topic, but they may be naive. They're also not fully complete, but are just ideas being formed. Maybe you readers can help fill in some of the gaps. I also admit that I barely understand the complex nature of the health care system. I do know it is very controversial - but we need new ideas. Also, these ideas are my own and do not necessarily represent the ideas of anyone else, including my employer...

The first thing that must be considered when you think of a new plan is understanding what is it that is broken that needs to be fixed? In my understanding of the national dialog, the two issues are 1) that many people don't have health coverage and 2) the health costs are climbing too fast. So the solution must provide a means to keep the costs down and a means to provide for those who don't have insurance. If I understand it right, the biggest reason that people don't have health insurance is that they can't afford it. Therefore, if the costs were brought down, then the number of people with coverage would naturally go up.

So when I think about how to address these issues, the following things come to mind:

• Don't nationalize it. Just look at Canada and their costs. I can't think of any good models of nationalized health care.
• Move away from the group health insurance model to an individual health insurance model.
• Under this model, people shop around and purchase their health insurance like they do for their auto or home. This will provide free market forces and competition, which means lower prices.
• Employers would provide health insurance premium vouchers to allow their employees to purchase whatever plan they choose on the open market. If the employer is currently paying $600/mo per family for health premiums, their voucher value would then be the same $600/mo.
• Provide tax incentives for employers who currently provide health insurance to their employees to continue with the vouchers for their employees.
• Provide incentives for employers who don't currently provide insurance to start providing vouchers of some value. Tax rebates or credits might do the trick.
• We are required by law to carry auto insurance. Is this going too far for health insurance?
  
• Provide incentives for people to save money themselves with their health care. One way could be high deductible insurance plans with tax exempt medical spending accounts to cover the deductible. Remove the copay for an office visit. Then each individual will begin asking how much a doctor will charge for services and maybe even shopping around for better rates. There are still the Dr./patient relationships that enter the equation and would make changing tough. But certainly for lab work, this would be easy! Then, if there is money left over in the spending account at the end of the year, it goes back to the individual as simple taxable income. Don't punish people by making it a use it or loose it endeavor (like current medical spending accounts are). Reward people for saving.
• Provide incentives for good personal health. People who smoke and people who are overweight are shown to be at high risk for lots of medical problems and expenses. These are two things that people can (usually) control themselves if they want to. Therefore, if there were incentives to quit smoking and to exercise regularly and eat right, there would be huge future payoffs in both longevity and lower heath care costs. I think the best way to do this is through significant insurance premium discounts for non-smokers and those who can show they exercise regularly.
• Structuring the health insurance industry like the rest of the insurance industry - on a risk assessment basis. The auto insurance industry charges higher premiums for those with a higher risk - like teenagers and those with previous accidents or tickets. They lower your premiums if you haven't had any claims for 5 years or if you are in a low risk age group (married and over 25). If you have extra safety devices in your car, you qualify for premium discounts. Home owners insurance premiums go up when you have a previous claim. They go down if you have a security system. These are simple risk calculations. What if the health insurance industry had similar risk factors calculated into individual premiums? Smokers would pay more than non-smokers. People who exercised regularly would pay less than those who don't, etc. People who get an annual physical get discounts on their premiums. People with lots of previous claims would have to pay a higher premium than those with no claims.
• What about people who are not employed? Their biggest front burner issue is lack of income. So they are probably on unemployment or welfare. While they are on these programs, the government could probably provide a voucher for their health insurance. I don't like this idea as a long term solution, but for a short term solution, it is palatable.

Today, I don't shop around for my family's health care - because the cost of a Dr's visit doesn't matter to me. My insurance company picks it up no matter what. This is the inherent problem and biggest disconnect in health care today. The person who chooses the provider is not the person who is paying. If we where to remove this disconnection so that each individual is connected to the cost of service and has incentives to save money and live healthy, then I think this would be a better way.

Thoughts?

The Auto Industry Microsoft Bailout

Here's an idea just for fun - what if Microsoft did the auto industry bailout instead of the feds? Not by loaning them money, but by simply buying the companies outright. Microsoft has enough cash and short term investments to buy Ford, GM, and probably Chrysler outright at their current stock prices (notwithstanding the Trade Commission and Monopoly fouls)! Then they could run them the Microsoft way.

So then I started thinking - what would a car be like that was made by Microsoft? Here might be the results:

1) You start your car by pressing Ctrl->Alt->Del

2) You get free upgrades each week to fix the bugs. New starters, new wipers, a new radio, etc. just shows up if you enable "Automatic Updates."

3) Sometimes, you can get a new service pack if you need to - but you really don't know why you need them.

4) When it isn't running right, just shut it off and restart it. No problem...

5) You would buy a "Home" version for personal use and a "Pro" version for driving to work.

6) You have to periodically take your car to the shop to remove all the ads and junk that just shows up in the trunk. You don't know how it all got there and it's too hard to remove yourself. But it weighs the car down so much it just can't hardly be driven anymore.

7) After 2 or 3 years, it just doesn't go as fast as it used to. It now takes 20 secs to go from zero to 60.

8) It comes with all sorts of free features and accessories from the factory, but you don't use them because the aftermarket parts work 3 times better.

9) You have to have a signature on the car somewhere to make sure it is genuine and not an illegal version.

10) It becomes uncool to drive the car instead of whatever Apple is selling.

11) When you buy a new house, you can get a new Microsoft car installed in your garage at little cost compared to their price at a store.

12) When you shut the car off, you will need to wait about a minute for it to finish.

Hmmmm. Just a few thoughts. Maybe the auto companies need to keep beggin' the feds....

An Emergency Fund

One of the first things that we all need to learn from the uncertainty in this economy is to be ready for bumps in the road. If you're a fan of Dave Ramsey like me, then you are well aware of the baby steps he sets out. The first and third steps are about starting and then fully funding an emergency savings account for - you guessed it - emergencies. Like this one.

The first and largest obstacle to building an emergency fund is wanting it. We have to really, really want it! If we want things more than an emergency fund, then we will never have one. Some might say that they can't afford to save, but I think that those who actually can't afford to would be a tiny minority. You would need to be at or below the poverty level to not be able to save something. Most folks simply spend as much as they earn or more and then don't have anything left to save. Living like you make $70K/yr when you only make $60k/yr is a recipe for disaster.

The second obstacle to building that emergency fund is having a budget and sticking to it. Many folks will simply balk at the word "Budget" and run! But I want to tell you about an easy and incredibly effective way to do it. And when the method is easy combined with desire - you've got success!

I've been using Mvelopes Money Manager by Finicity for years. It's way better than Quicken, MS Money, or even a spreadsheet in my opinion. For a small monthly fee, you can have instant visibility to your spending and know exactly how much you have left for any given budget area. Do you have enough to eat out tonight? Just a quick check and you can answer yes or no. And if yes, you can do it with no guilt or worry about what it will do to your other bills. You've already planned for them and know that you will have enough when those bills come in later in the month.

Budgeting, when done right, actually provides peace and security to your finances, not grief and stress. Stress is doing your finances the same way you've always been doing them and expecting them to turn out differently next time. Wrong! Try Mvelopes and see why I so highly recommend it. It automatically goes out to your bank(s) and credit card(s) each night and fetches your transactions. They show up the next day and you simply drag and drop them to the appropriate envelope. Whey you buy gas, you drag that purchase to the fuel envelope. Groceries to the food envelope and gift purchases to the gift envelope, etc.

Did I say gift? How would you like to actually to have money available to buy gifts for Christmas and not stress about it? It comes around every year whether you plan for it or not. So start planning for it and you will enjoy it much more. Simply set aside some money each month and when December rolls around, you're ready to go shopping without that credit card!

Will the car need new tires next year? Plan for it by setting aside some money each month in one of the envelopes and when next year comes around - presto! You can pay cash for those tires instead of putting them on a credit card and worry about when you can afford to pay for them. It's amazing!

When you get paid, you simply fund your envelopes according to your saved plan. Simple. Need to make an adjustment this paycheck? No problem. Just tweak your allocations slightly on a per paycheck basis.

I manage my budget in about 5-10 minutes every 2-3 days. That's all! Really! I can check it from any computer or mobile device and I can find out how much is left in any envelope very quickly. I even manage my own escrow for my house with it. Are you tired of your mortgage company adjusting your payment each year because of tax or insurance estimates being wrong? Do it yourself next time. It really works well!

Mvelopes Money Manager is helping me meet my financial goals and live a stress free financial life. I really believe it's a better way.