Watching a cable news debate over
the rising cost of healthcare, I could barely contain my indignation when I
heard a pundit claiming the free market had failed us, implying it was now time
to unleash the heavy hand of government into our healthcare. Only government
intervention could counter the spiraling costs, and on our own we had failed.
It was for our own good. I asked myself, how could this person fail to see the
downward price affect the free market has had? Had he not read his history? Has
he not seen what has happened to the prices of cars, phones, and computers? In
the past, these were only play things of the wealthiest among us but now
commonplace household items. I now have
the answer and the proof to verify. The solution won’t come from heaps on
ineffective federal subsides carelessly tossed at our problems with cult like
vigor and a blind faith in a future that never has and never will be. The
answer comes from the bottom up and the middleman out and not from the top
down. It comes from the free market. It is from the innovativeness of our entrepreneurs—something
which has been lacking in the health debates. It comes from surgery centers and other medical
clinics which don’t accept insurance, be they government or private. It is
because they only accept out of pocket payment from their patients or their
employers. It comes from direct medical expense pay.
In
Oklahoma City, the local hospital, Integris Medical Center primarily receives
its revenue from health insurance reimbursements. It charges $7,542 to perform
a routine carpel tunnel surgery. In the exact same city, the Oklahoma Surgery
Center, that doesn’t take health insurance only out of pocket or out of the
employer’s pocket, charges for the same operation $2,750—1/3 the price. In
addition, the Surgery center has full price transparency. The cost for the
procedure and all other procedures are posted on their website. The clinic
works with the Kempton Group, a health care administration firm. The Kempton
Group works with companies that pay their employees’ healthcare benefits
directly out of their revenue instead of through insurance. The companies working
with Kempton agree to wave all copays if employees agree to be treated at the
Surgery Center. This is completely unprecedented given that most companies
provide their employees’ healthcare through insurance.
Integris,
other hospitals, and clinics, which primarily obtain revenue from private or
government insurance, are notorious for outrageous mark ups. For example, the
hospital charged over $300 for a steroid that only costs 0.75 cents and over
$100 for a pain killer that only costs $1.50 whole sale. Moreover, they are not
up front with their prices. The high price inflation puts medical care out of
the reach of those who don’t have insurance. Since most Americans receive
health insurance through their jobs, it leaves the lion’s share of the 12.3
million unemployed and their families out in the cold.
The
reason the traditional health insurance centered care is so expensive is that
patients never see the bill; therefore, there is never any sticker shock. There
is a whole host of perverse incentives at work. The health insurance wants to
pay out at little as possible. They don’t make money when you’re cured. They
make money when you pay your premium. The hospital wants to maximize their share
of the insurance reimbursement, and the patient wants to get as much service as
possible. It is like an employee at a Vegas restaurant with the company credit
card. What is his incentive to just purchase a modest meal? What is the
restaurant’s incentive to provide it for a reasonable price? The employee
doesn’t lose out if the restaurant over charges him. Meanwhile, the company
isn’t the one eating the meal. Their concern is the bottom line. The copay
spreads around the burden of payment between the employer, employee, insurance
firms, and the government. Most employers receive tax credits for providing
healthcare insurance to their employees. The shared cost leaves no one fully
responsible for the overall price, diminishing the incentive for cost efficiency.
Sadly the consumer loses out, and we’re left with massive inefficiencies.
The
middle man in the health care system aggravates the inefficiencies in hospitals
and traditional insurance taking clinics. Hospitals already have to deal with
in-patient, out-patient, and emergency care. A portion of the emergency and
routine care must be provided for free for clients unable to pay leaving the
burden of cost on those who do. Instead of specializing and focusing in one particular
area, the hospitals are spread thin. The multiple levels of service require
expensive administrators everywhere who often earn 6 digit salaries. For
example, at Integris the top 18 administrators earn $413,000 a year. The Oklahoma Surgery Center doesn’t have numerous
types of services to provide. It only provides surgery and can focus and
innovate on their particular facet of the health care industry. It doesn’t have
to pay large salaries of administrators to run complex maze of interlocking
health care services. It low prices forced it to streamlined it administrative
bureaucracy. It only has one level of service: surgery. The center is so
efficient it is often able to perform almost twice the amount of surgeries than
Integris Hospital.
Not
only does direct pay healthcare bring down the cost but provides an answer to
the question Conservatives have not adequately answered: What to do about those who are denied healthcare
insurance due to pre-existing conditions. Because the direct pay cuts out the
middle man of insurance, there is no longer any need to worry about being
denied insurance for pre-existing conditions. The fact that the Oklahoma
Surgery Center can save patients 2/3 or more compared to the traditional
insurance based healthcare answers the question: How do we provide affordable
healthcare to the middle class? For example, a Complex Sinus Surgery at
Integris hospital costs $33,505 while it is $5,885 at the Oklahoma Surgery
Center. Because not every type of healthcare provided requires surgery, the
direct pay model could easily be adapted to general physician clinics and
specialists. This could even be extended to dentistry and eye care.
The only question is what to do
about Americans in poverty? Former Utah State Senator Dan Liljenquist had the
right answer. He crafted legislation which provided Medicaid patients with a
fixed amount to spend on healthcare. This brought cost as close to home as
possible for Medicaid users and their doctors, cutting out the middleman. This
would have provided better care for many Medicaid patients who were winding up
in the emergency room because of the inability to find doctors accepting
Medicare. It would have also saved Utah tax payer money because paying for an
emergency room visit is much more expensive that paying for a general physician.
Unfortunately, the legislation depended on a federal waiver request which the
Obama Administration denied. Congressional Republicans have long championed
healthcare savings accounts which could easily be adapted to work the direct
pay system. Healthcare savings accounts need to be more privatized. Employers
could easily provide defined contribution healthcare savings accounts.
Employees would provide a set percentage of their pay toward the accounts;
employers would match, and if the employee wished, he could invest funds similar
IRA or 401K. The employee would then choose how risky or safe the nature of his
investments would be.
Does this mean that insurance
companies will no longer play a role in providing healthcare? No, insurance
companies where created to insure against catastrophic events; therefore, they
are often good for emergency care but not always good for day to day care given
that catastrophic events are uncommon while everyone eventually gets sick. To
bring down the cost of insurance, changes need to be made. Health insurance
companies need to be able to compete across state lines. Because they can’t, in
the majority of states only two major healthcare insurance companies provide
the lion’s share of care and that leaves little competition thus driving up
prices. Insurance companies also need the leeway to base charges off of their
clients’ lifestyle. They should be able to charge the coach potato employee who
overeats, smokes, drinks heavily, and exercises little more than the marathon
runner employee who takes care of himself, so that the healthy employee doesn’t
have to subsidize the healthcare of the unhealthy one. Safeway has done just
that, and it has allowed them to keep healthcare insurance rates low and flat,
according to the WSJ.
The idea of direct medical pay is
already on the table and the proof of its practicality is already out there. The
question is now: how do we implement it? The biggest obstacle is that few
people know of it. Everyone know the Democrats’ plan in that Obamacare forces
American citizens to buy insurance to pay fines and forces health insurance
providers to cover those with pre-existing conditions. Most people know that
the Right opposes Obamacare because of the cost, but few people understand what
the Right wants to replace Obamacare with. Their ideas are not that clear. We
must get the word out about the Oklahoma Surgery Center’s direct pay system. We
must tell our friends and family members. This article is based on a ReasonTV
video called OklahomaDoctors vs Obamacare. Share it with friends on Social Media such as
Facebook and Twitter. Healthcare Administration Companies must move away from
insurance toward direct pay. The political and pundit class must start speaking
out in order to win back control of the debate. The worst thing we can do is
subsidize it in some form or another such as a tax credit lest we end up in the
same place we started.
