I buy collision and comprehensive insurance on my car, but after talking to my State Farm agent, it might as well be called collision and incomprehensible. With seven layers of coverage, most of it is as clear to me as the details of health insurance are to many others. But it has two aspects I do understand. First, it doesn’t cover gasoline, oil changes, or worn-out tires. Those are predictable, normally affordable consumer purchases. Even if I could buy such coverage, I wouldn’t. It’s not worth the added insurer overhead and profit—not to mention the cost inflation on gas and tires once sellers discover their customers no longer care about price. I’m better off shopping around for reliable service, low price, and credit card convenience.
The other part I understand is the deductible. If my car gets accident damage, I pay the first $2,000 to fix it. Insurance pays the rest. I could get a $100-deductible option, but that costs an extra $183 per year. I’d rather save the money and drive more carefully—even if the two gents who’ve run into me during the past 40 years didn’t. I’m still way ahead.
Health insurance ought to work the same way. It shouldn’t have to cover normal maintenance services (otherwise called primary and preventive health care), and everyone should be allowed to accept deductibles as high as they can comfortably afford. Then we could all rest easy knowing our insurers would pay for unexpected, unaffordable medical costs, while we would regain the ability and responsibility to shop for the best and lowest-priced providers for all the ordinary doctor visits, lab tests, and low-cost prescription drugs we know we’re going to need during the next year or two. Not only would this significantly cut insurance premiums, but doctors, labs, and drug companies would have the mirror ability and responsibility to compete for consumers with transparent prices and quality. Innovations would abound in both.
Take my doctor’s current billing system…please. Every time I see him for a periodic physical or minor injury, he bills my insurance company about 250% of what he will actually collect. I have a substantial deductible that always leaves me paying the full and final amount due, but he doesn’t have a clue about how much to charge me when I see him. Instead, we both have to wait for the tango to conclude between his billing people and the insurer’s paying people, culminating in the amount I must pay—a value-subtracting process that consumes an astonishing 31% of all medical costs.
Why not drop primary and preventive care from insurance coverage? Then my doctor could tell me his price before (or immediately after) my visit and I could pay with a credit card—with transaction costs an order-of-magnitude lower than with the corrosive current system. If he could do that, he would immediately see a big increase in take-home pay, having rid himself of all those billing clerks, consultants, computer systems, and financing costs he now has to pay just to collect fees averaging less than $100 each.
But provider competition and reduced transaction costs are merely the start. Medicare is the 800-pound gorilla that controls the current doctor-fee structure that every insurer has to use. If we could throw that out, then doctors would be free to figure out even more efficient ways to charge their patients so that both sides win. The simplest may be to directly charge prepaid patient subscription fees that include everything the doctor does.
What would that cost patients? Here’s what practicing family doctor Benjamin Brewer, M.D. said in The Wall Street Journal in 2008: “What’s missing in the debate over our nation’s health-care crisis is that primary care is cheap. Cheaper than your cell phone bill. Cheaper than a tank of gas. Cheaper than dinner and a movie. It’s so cheap the average person doesn’t value it properly. I could have covered my salary for 2007 and the costs of all my staff and overhead for less than $20 per patient per month, including maternity and hospital care. My practice covers 80% to 90% of what the average person will ever need a doctor for. Compare that to what you or your employer is paying for health coverage, and you’ll find that the high costs are due largely to catastrophic illnesses, hospital charges and money going to middlemen.”
You may have heard that primary care providers like Dr. Brewer are an endangered species because of low reimbursement rates mandated by Medicare (if not, see my previous article). But what if doctors could throw out fee-for-service billing altogether and directly charge their patients (or, for the poor, Medicaid), say, $30 per month? My guess is that family practice would suddenly become the most popular specialty in doctordom and primary care doctor shortages would soon be mentioned only in history books.
This doesn’t mean insurers should be forbidden to cover primary and preventive care, only that they shouldn’t be forced to as they are now. Some organizations, such as Kaiser’s HMO plans, efficiently provide it by paying their physicians on a per-capita basis with no fee-for-service billing complications.
It’s time to redefine health insurance as protection against unaffordable costs of unexpected, necessary medical care. We—and our medical providers—will figure out the rest, thank you very much.