Out-of-Pocket Change

As health-care costs rise, first-party payments decline.

Let's say you have a wealthy uncle (perhaps named Sam) who tells you that, for every baseball, hot dog, apple pie, or Chevrolet you buy, he will pay 65 percent of the bill. As far as you're concerned, a $1.00 hot dog suddenly costs only 35 cents. Chances are, you'll buy more hot dogs more often, with less regard for cutting costs.

A similar dynamic applies to health-care costs. Fewer and fewer dollars spent on health care come from the user's pocket at the point of purchase, precisely the place where the decision to economize is apt to be made most efficiently. Employers who pay all or most of their workers' insurance premiums, as well as state and federal governments, which currently pick up better than 40 cents of each health-care dollar spent, play the role of the wealthy uncle. Interestingly, ClintonCare, under the guise of "creating incentives for cost-conscious choice" among health-care consumers, would expressly limit co-payments and deductibles while mandating that employers pick up 80 percent of insurance premiums.