Buddy Davenport's State Farm understands the value of free market health savings

Paulette Tomlinson, a waitress at the Smyrna Steak House, like many citizens throughout the country have no clue what makes medical costs soar, when the 28-year-old responded: “I have no idea."

The first step in coming up with a solution is to recognize the main source of the problem. The main problem is simply that the free market is nearly non existent in most of medicine.

This point is emphasized by the fact that in the few areas where free markets have prevailed in medicine such as Lasik corrective eye surgery, cosmetic surgery, and veterinary medicine the costs are quite reasonable. In fact, in the last decade the Lasik surgery average cost has gone down from $2,200 per eye to $1,350 per eye. This is due to the competition in the market.

One of the best existing vehicles for getting the free market back into medicine is called Health Savings Accounts or HSAs. These combine high deductible medical disaster insurance with a savings account whose contents can be spent directly by the individual holder on his own health care expenses. The savings account is used to pay ordinary expected medical expenses while the insurance is to be used to handle large, unexpected medical expenses.

The money put into the HSA and interest paid on it is tax free. The medical payments paid out of HAS funds are tax free. Any HSA money not spent remains in the possession of the account holder rather than being taken away. The individual can also spend his health savings account on things other than medical care but he must pay taxes plus penalty on the amount spent.

This plan will change the medical market in some very significant ways.

Since the individual keeps his unspent funds, he considers that he is spending his own money. Therefore, he will only go for treatment when he thinks it is necessary and will shop for the most economical treatments. With people shopping for medical care the providers will be forced to find ways to cut costs and be more efficient.

Here in New Smyrna Beach, Rod Perry at Buddy Davenport’s State Farm Insurance Agency State Farm Insurance Agency reports that they have a HSA plan with a large number of participants. State Farm is pushing the HSAs because they are a great idea and are meeting increasing acceptance.

in her book, “Ten Myths Of the Health Care Crisis” Sally Pipes reported that as of 2008, there were about six million HSA plans in the United States . At present, an individual is allowed to put in a maximum of $2,900 tax free per year into a HAS while families are allowed $5,800 tax free. The number is growing every year as people realize the wisdom of this approach.

The companies now offering health coverage can shift their employees into HAS plans with minimal disturbance to the continuity of the employees health coverage.

HSAs are ways to open the marketplace, which spurs competition and reduces costs. Most medical costs are covered by indirect third party payers such as Medicare and medical insurance. This destroys any market action on prices since the persons receiving the care have no knowledge or concern about what it costs.

Under these conditions little or no effort is made to determine if the medical care is really necessary or how it can be obtained most economically. Since there is so little concern over costs by the customer the providers have little incentive to reduce their costs and improve efficiency.

It's no wonder then why the cost of medical treatment is going out of sight.

One other important effect of this indirect payment is that the payer has control of what treatments can be done and thus becomes an important player along with the patient and the doctor. The presence of the third party generates paperwork, delay, costs and often much anger and frustration to the process.

The best and only satisfactory answer to the cost problem is to restore the free market into medicine. This is much easier said than done.

The first step is to get people controlling their medical care and paying their own medical bills so they will realize that the money is coming from their pockets instead of from Santa Claus.

Altering the tax code so that individuals can deduct their medical expenses directly without going through their employer will get more people involved in the payment of their medical costs rather than have their employer handle it for them.

It is anticipated that over time the regulations governing HSA programs will be loosened to allow them to work even better. It should be noted in passing that Daytona State College has had great success in keeping health care costs down.

Daytona State's program is controlled by a board made up of a cross section of faculty and employees who determine the structure of their plan. They go to great effort to keep everyone constantly reminded that the health care money is theirs that they could be getting in salary if it didn’t go for health care. This approach has worked very well so far in this academic setting. Whether it would work as well somewhere else is not known because ownership of the health care money is indirect. I would expect Daytona State College to offer HSAs in the future.

Whatever steps are made to get the market back into medicine there will be a great need for deregulation and reform of all matters pertaining to medicine. This covers the gamut from insurance, to tort reform , to the FDA , etc

If we are to return medicine to where we would like it to be the answers are definitely contained in free market solutions. Any moves toward more government involvement of any kind will only make things worse.