I am intrigued with the concept of “mental accounting” – probably because I do it more than I should, even though I’m supposed to know better (and, frankly, I really do know better).
For example, my son’s pre-school has a fund-raising program where I can pre-purchase “grocery dollars” – basically gift cards for the local grocery stores. For every $100 gift card I purchase, the school gets 5%. I buy several cards every few months, because I know I will spend at least that much in groceries, and purchasing grocery dollars helps the school. No-brainer, right?
Here’s the interesting thing – once I have purchased the cards, they don’t feel like part of the grocery budget anymore. One of the cards I bought is for a nearby “specialty” grocery store, and I often find myself treating us to special things there, because it feels like I am getting them for free.
Here’s the problem: I strongly suspect that if I were to look at my total grocery expenses (including using these gift cards) I would find that I am overspending against my total grocery budget. (For obvious reasons, I’ve avoided looking too hard at the facts….)
I think many of us do the same kind of mental accounting with our health insurance. We have a tendency to put premium in one account, and our out-of-pocket expenses for healthcare in another account.
Once we have paid our premium, we don’t factor it into our overall healthcare budget – at least not throughout the year. We may be relatively happy about paying a small copayment when we go to the doctor or pick up a prescription….it’s not exactly “free” like my gift card purchases, but it is nowhere near the “full price”.
I bet many of us would find that if we add up our healthcare premium and out-of-pocket expenses over the year, we are paying a lot more than we could be if we weren’t treating these two expenses as if they were in separate accounts – if instead we thought of them all as part of the same “What My Healthcare Costs Me” account.
And, in fact, this is just what I discovered when I looked at my own situation recently. It’s just this kind of thinking that drives ConnectedHealth’s approach in helping consumers to shift their thinking to a broader financial perspective.
Now if I could only change the way I think about my grocery dollars!