Looking at yesterday’s Wall Street Journal editorial article on Indiana’s health care approach, I wondered why no one refers to incentive when assessing alternative legislation.
Indiana offers a Health Savings Account (HSA) option to state employees. Here is how it works: In an account overseen by the employee, the state deposits $2750 for health care bills and pays the premium for the account. Any money not used for health care belongs to the HSA participant. If the entire account is used for health expenses, then the state will share additional health costs. Maximum out-of-pocket is $8,000. Increasingly popular, the HSA had a 70 percent sign-up this year.
Indiana’s incentives had these results:
1. People were more likely to use generic drugs.
2. People visited physicians and emergency rooms 67 percent less frequently than those with traditional health care plans.
3. Overall, it appeared that while participants sought necessary procedures and doctor visits, they also thought more about cost.
4. Unused funds averaged $2,000 per employee.
5. There is no evidence that appropriate health care is being sacrificed.
Looking at Congressional proposals, I hope that someone will identify the incentives. By recognizing the impact of incentives, we can all decide whether we approve of how new legislation encourages us to act.
The Economic Life
At the heart of economics, incentives shape our behavior. On the demand side of markets, buyers have the incentive to spend less. On the supply side, producers have the incentive to charge more. New laws will shape the behavior of buyers and sellers through the incentives they create.