In our present Healthcare payment system, pre-paid first-dollar benefit health plans masquerade as insurance products. What we call health insurance is more accurately called healthcare “insulation” due to the way it mitigates consumer pressure on prices and creates artificial demand at the same time. This distortion and misuse of insurance has lead to a situation where insurance premiums have become a surrogate for health care prices, as opposed to prices being related to the true cost of rendering care directly.
Here is the irony: It is these same high premiums that keep costs high because it is the tool that finances the entire third-party payment system! Dr. Stan Lee, orthopedist at Lucent Spine, says: “The price discrepancy between the charge master (billed charges) and the insurance discounted price is artificial. The insurers have created this gap and compel consumers to buy into their networks in order to obtain the ‘discounts.’ “
It is kind of like a mob boss that tells the business owner what to charge his customers, limits competition and then takes the profit off the top! But in the case of healthcare, it is all very legal; sanctioned, encouraged and even financed in part by the government.
To be fair, physicians & healthcare provider in general have to take some of the blame here too. The upward inflation spiral caused by the cycle of raising reasonable and customary charges leading to increasing reimbursements by payers has also contributed to the price points we see now.
So what will it take to get out of this cycle and move away from these cartel-like networks we’ve allowed to spring up? Let’s break this down to see how it all works and why it is important to move in a different direction.
Here is an illustrative, but true story of my cardiology bill.
I had a high deductible plan with an HSA (health savings account) at the time of my visit to the cardiologist, following an ER visit the day before for some atypical chest symptoms. I had a thorough evaluation including about 30 minutes with the cardiologist, an EKG, Echo, and a stress cardiolite nuclear scan. My total bill was just shy of $1,900. After the EoB cycled through and the “allowable charges” were discounted the bill came down to $1,310. Not too bad. So, once I received my EoB with final amount owed, I called the cardiologist’s office and asked them if the offered any cash discounts for high-deductible or uninsured patient. The response was “yes, if you pay half then we pay half”. I asked her to clarify and basically if I paid 50% then they wrote off or zeroed out the remainder.
So basically my $1,900 bill turned into $655. Presto! The real cost of care!
My cardiology bill is perfect illustration of the role that the CPT /third-party payment system has had on price inflation and how disconnected the billed charges are from the true cost of rendering care.
This is why moving away from, not toward, more third-party paid care is the solution.
Focusing on “coverage” rather than a cost-effective primary care model, is what has got us into this mess in the first place. Trying to make coverage “affordable” by using someone else’s money to subsidize it creates an illusion of affordability. It also kicks the reform can further down the road for someone else to deal with while enriching the Government-Medical industrial complex that stands to benefit from maintaining the status quo.
So how do we get to price transparency and restore financial sanity to the Healthcare market? Here are some paradigms that will need to be accepted and acted upon in order to get there.
1. Believe in the sovereignty and good judgment of the individual patient to seek care as they see fit at a transparent price, known in advance in most cases, and in the absence of insurance network constraints.
2. Understand that quality medical care starts with an unencumbered Doctor-Patient relationship.
3. Acknowledge that a doctor serves their patient’s needs better if they work directly for the patient, and not within the constraints, mandates or barriers of a provider contract with a third party.
4. Realize that only by creating free-agents of both physicians and patients will we bring together the stakeholders for a meaningful exchange of value, thus substantially lowering medical costs in the outpatient arena.
5. Acknowledge that the main driver of health care costs in the outpatient arena is not malpractice costs, but rather expensive third party prepaid policies that utilize “first dollar” benefits for virtually any physician interaction, regardless of how minor.
6. Realize that to gain control of spiraling medical costs in the U.S, that health plan “coverage” needs to become a true “insurance” policy such that it only insures unexpected losses that we otherwise couldn’t afford on our own.
7. Embrace the concept that health insurance works best when it is portable, personal, private and not linked to employment, nor zoned by networks. This approach would allow insurance policies to be tailored to individual needs, cut down on the number of uninsured due to job changes and other life events, thus obviating the need for expensive COBRA coverage.
8. Understand that the true costs of medical care is much lower than that reflected by the cost of a co-pay based health insurance policies offered in the workplace today.
9. Embrace the economic realization that only by creating free agent of physicians and patients will the economic forces of supply and demand exert their desired effect, thus determining the fair market value of routine medical services.
10. Empower the idea that better informed consumers make better patients and unrestricted patients make better consumers.
These are not cerebral concepts or mental constructs. Medical care is being delivered within the framework described above all over this country in small pockets of free-markets from coast to coast. Buyers and sellers are coming together without profit-seeking middlemen or government coercion; with no price controls or mandates. The effect of transacting business in an upfront, transparent manner like most other industries has resulted in a deflationary effect of healthcare prices and marked improvements in access and efficiency.
Read more about this solution and real-life examples of how it is playing out:
Robert W. Nelson, MD