Over a five year time period, based on better analytics, and where everybody win (except drug companies, doctors and hospitals).

Most analytic models to reduce health care costs are focusing on having insurance companies, doctors, drug companies to improve and optimize a number of metrics. Here, we propose an original approach, that will work even if the main actors fail to optimize. We first review the cost, then explain our solution.

1. Healthcare costs: statistics

Health expenditures per capita, in US, were $8,233 according to a 2010 OECD report, representing 17.6% of GPD. Other sources (WHO) offer similar numbers. In contrast, per capita health expenditures were $4,338 (11.4% of GPD) in Germany and $2,071 (7.5% of GPD) in Israel.

It is clear from these numbers that we could cut healthcare costs by 50% in US, with the right strategy. This very high cost does not come with better health indicators: Americans don't live longer than Germans, and they are not in better shape, from a health point of view.

Another interesting study by the Center for Medicare and Medicaid Services (in 2011) estimates the total (annual) healthcare expenditures in US at $2.7 trillion, that is, $8,680 per person. The same study claims that out of these $2.7 trillion, $307 billion were paid out-of-pocket, either by the 40 million uninsured (a subset of them actually) that pay in cash, or for services not fully covered by insurance. 

I do not have the total amount paid by insurance companies. However, Medicare paid $554 billion, and Medicaid paid $407 million. This leaves us with $1.4 trillion unexplained ($1.4 trillion = $2.7 trillion - $307 billion - $554 billion - $407 billion). We can reasonably say that most of these $1.4 trillion, certainly more than $1 trillion, are paid by health insurance companies (the remaining paid directly by employers and other sources, as well as expenses caused by uninsured people showing up in ER and unable to pay).

The premium on health insurance is 13%, according to the same document. So if insurances paid $1 trillion in health expenditures, they must have charged $1.13 trillion. Assuming everyone gets health insurance paid by an employer (this is far from being true), and assuming employers pay 80% of the cost of health insurance on average, it means that 20% of $1.13 trillion, that is $226 billion, is paid out-of-pocket for health insurance coverage, by individuals like you and me (this represents about $2,000 per household per year, paid out-of-pocket, after deducting the portion paid by the employer, that is, $166/month per family - and it does include people not sponsored by an employer).

2. A bold statement

I claim that $200 billion per year can be eliminated by just focusing on the following two numbers:

• The $307 billion out-of-pocket paid by individuals, for health care
• The $226 billion out-of-pocket paid by individuals, for health insurance

The way to achieve this goal is simply by telling people how to do it, in short, educate people about a few analytic concepts such as pricing or risk management. In this sense, this optimization is very different from all other approaches, which try optimizing processes used by companies involved in delivering health care or insurance.

This has the big advantage of offering maximum flexibility: you can decide to reduce your cost either by 5%, by 20% or 60%, it's entirely up to you. The more you save, the more you can spend on other things (boosting the economy or your savings), or get a better insurance for your kids or your partner!

3. Fourteen ways for individuals to accomplish these savings

• Eliminate redundant insurances (if you are insured simultaneously by your employer and your spouse's employer)
• Get an insurance with a very high deductible
• Always ask for generic drugs or the cheaper drugs
• Always ask if a medical procedure is necessary, and what it will cost. Do comparison shopping. Refuse treatment if nobody can tell you how much it will cost.
• Learn about medicine (buy books), use crowd-sourcing for diagnosis or cure (identify sources that you can trust). This can reduce by more than 50% the visits to the doctor.
• Preventive health: eliminate sugar, reduce fat consumption. 
• If you are a 30 year old woman, pretend that you are a man when filling health insurance forms, to avoid the "pregnancy penalty" (except of course, if you plan on being pregnant and on using health insurance dollars to pay for it)
• Similarly, lie about your smoking status (unless you believe you might have a smoking-related disease). Maybe you can even lie about your age. Since you never know if your health data will be shared with your employer, better not telling the truth. Of course by very far the best solution if you smoke, is to stop smoking.
• Do not buy three months worth of time (to extend your lifespan) for terminal cancer, if this intensive care will ruin your finances (instead, give this money to your kids for their education)
• Have a tooth ache? Wait 4-5 days. If it gets worse fix it. In my case, they always vanish without any treatment (except old antibiotics that I find in a drawer), and they come back 3 years later. Not enough to justify a visit to the dentist.
• Use drugs for multiple purposes: I used a tube of vaginal cream (obviously not prescribed for me since I am a man) to cure some sort of fungus on my face, and a ringworm on my son's shoulder. Never visited a doctor nor bought a drug for these issues, and they were fixed rather quickly.
• Be uninsured 3 months a year
• Extreme solution for some small business owners: eliminate health insurance altogether.
• If you are insured and have some issue that might get you red-flagged or cause a big premium increase (say for instance you drink too much and want to stop drinking), use an alternate doctor, have an anonymous visit and pay in cash to leave no trail. If your insurance company learns that you are trying to fix a drinking or smoking problem or you practice a dangerous sport and just had an accident, you might have a bad surprise. You want to avoid that.

Under Obama-care, you would have to join an approved religion to be allowed to refuse health insurance without paying taxes (the so-called penalty which is 2.5% of my revenue, well above $10,000 for me). In my case, my refusal is not based on religious beliefs (except for the fact that I am not allowed to contribute to any system that is run very inefficiently), but on the fact that I use alternate healthcare. I'm not fully opposed to using official healthcare, I sometimes do, it's just that I want to use it far less and far more efficiently than the average American. Despite being 47 years old, my health expenditures (they've always been very low) are decreasing recently, not increasing. I think everyone should be able to control and smartly manage these costs - especially people with an analytic mind.

Finally, learn about risk management. The right way to manage risks is by having a much better lifestyle, driving safely and spending much less on health insurance or health expenditures. Most people do the exact opposite, I guess because we have been addicted since being a kid to using these expensive services (health care was much more efficient and cheaper 30 years ago), and addicted to sugar. 

It would be interesting to do a study to compare two groups of healthy people of the same age:

• Test group: people who agree not to spend more than $10k in health expenditures over the next 10 years
• Control group: people with no such restriction

Of course, it will be difficult to recruit people for the test group (I am a candidate though). It's very challenging from a design of experiment point of view: how to make sure people in the test group comply with the $10k limit, and what to do if someone bails out? Also how do you measure the success? Survival after 10 years would be one metric, but overall happiness and quality of life should also be considered.

Most people believe that being uninsured (or having a finite budget for health care) will make them worried all the time, but that's not true. You will be worried maybe for a few weeks, but eventually, things look much better than before. But to a large extent, it also depends on your personality. Not knowing all the false alarms that medical visits trigger (because I almost never visit a doctor) makes my life less stressful, and possibly makes me stronger to cope with various ailments - some I am not even aware of. For some people, the opposite is true. But even if people like me represents only 30% of the US population, we can significantly contribute to reducing costs. In my case, the reduction is far more than $166 per month. And rather than saying that I'm crazy, you should thank me for having an health insurance (through my wife employer) that I will never use, because I make everyone's health insurance cost goes down. And some of my close relatives who thought that I was crazy, have eventually followed my path: not as extensively as me, but they eventually reduced doctor and hospital visits by more than 50%. As for me, the percentage is close to 90-95%. It started when I turned down medical visits for a number of reasons (too expensive for a root canal - never did it; another time I had to wait too long in the waiting room for emergency care and walked away never came back), when the opposite happened to my friends (a visit to the dentist turned out to be 4 visits and lots of wasted time; an hospital visit was a waste of time and money; a non necessary exam for which we were billed $7,000 and spent tons of time contesting, eventually winning).

I've actually been thinking organizing an analytic competition, to reward people who manage cutting their current health care budget by the largest amount. Indeed it could be a competition managed by health insurance companies, as they would be big beneficiaries!

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