I was listening to the Adam and Drew Podcast the other day, as I often do, and during that episode Adam brought to light an important economic concept. I’m not sure if it was intentional or not on his part, but the concept he alluded to is something that would apply to many areas of life. And one of those areas happens to be government dental insurance.
“Skin in the game” economics
During the podcast episode he and Drew were reminiscing about their MTV Loveline days, which included many, many performances at colleges and universities across the U.S. Adam mentioned a specific incident during that particular episode that stuck in my mind. I don’t remember the exact details, but this is the gist of it. The person coordinating the performance at one of the colleges told Adam, with excitement, that the college was not going to charge the students anything to watch the show so as to maximize attendance. Adam did not respond with the same excitement. He highly encouraged that person to charge something, anything, even $1. Adam did not care about the money. He just cared about the transaction and how it affected the experience for everyone. Adam had learned over those years that when entrance was free, the engagement of the crowds was significantly lower than the crowds that had paid to get in. He also made it very clear that the actual ticket price didn’t really matter. All that mattered was that there was an actual ticket price. The point is this. When people have skin in the game, it tends to positively increase their engagement. That’s the concept. So how does this concept apply to government dental insurance?
Medicaid – All or nothing
Back in 2010, MassHealth (Massachusetts’ version of Medicaid) cut adult dental benefits across the board. The state left a few benefits; exams, radiographs, prophies, and extractions, but that’s it. Before the cut, MassHealth had pretty comprehensive coverage of general dental procedures (FYI, as of 2016 most coverage has returned). This all or nothing approach never made sense to me. From the state’s point of view, the state either pays 100% for you or they pay nothing at all. But if the state’s goal at the time was to cut the budget then why not just share the cost with the beneficiary instead? Studies show that cost sharing will reduce spending. Any percentage is better than 0% from the beneficiary’s perspective. When cutting state budgets in relation to basic services like healthcare the benefits should be reduced like you were turning down a dimmer switch, not like an on/off switch, which leaves the beneficiaries completely in the dark. Sharing the cost would both cut the budget and maintain the same benefits with only a slightly higher cost to the beneficiary. It’s the win, win option.
Cost sharing changes the conversation
I work in a clinic that sees both MassHealth and commercial insurance patients with the majority being MassHealth (~70%). MassHealth patients pay 0% for all covered procedures. Commercial patients (e.g. Delta Dental), on the other hand, pay different cost sharing percentages. Generally speaking, the percentages are typically 0% for preventive procedures (e.g. sealants), 20% for basic treatments (e.g. restorations, a.k.a. “fillings”), and 50% for more advance treatments (e.g. orthodontics, a.k.a. “braces”). When the cost goes from 0% to anything above 0% the conversation, in my experience, changes. Patients ask more questions. What will this cost me? Do I really need this? What are the alternatives? What are the risks of delaying this? This change in conversation is no doubt one of the reasons why cost sharing reduces overall spending by all parties (government, private insurance, and patients).
Prices are very important
Too many people underestimate the role of prices in healthcare, and the economy in general. Prices provide vital pieces of information. Prices tell us the relative value of each product and service in the economy. Prices are created, and this is key, by the trillions of daily transactions that happen everyday among people. Without these transactions, accurate prices (a.k.a. information about value) could not exist. Prices cannot be created from the top down. They can only be created from the ground up. This is one of the major problems I see with the concept of large third party payers (especially in very regulated industries like healthcare and insurance). You have a large third party, more often than not, deciding what the price will be for the first and second parties even though the first and second parties are the ones making the actual value exchange (e.g. dentist and patient). The more you move away from first party and second party only transactions and more towards large third party transactions, the less accurate prices become. That in turn will make healthcare decisions much less informed about the real market value of dental services. That is a problem. Adding cost sharing to MassHealth is not perfect in this sense, since large third parties are still involved, but having the second party (the patient) pay a percentage of the price is a good way to embed, to some extent, beneficial market forces into a government program.
Should MassHeath implement cost sharing? Absolutely. What should the cost sharing percentage be? I don’t know, but as Adam Carolla said about ticket prices, it should be something, anything. I say, let’s start from there.