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.

This entry was posted in Health Costs, Health Insurance, Health Reform Goals, Medical Quality, Prevention and tagged , , , , . Bookmark the permalink.


  1. Randy Dipner says:

    The logic of your article is indisputable. However, we need to consider the fact that some procedures are very expensive (perhaps they shouldn’t be so expensive but they are) while they are far from catastrophic care. For example, a single diagnostic angiogram often used in the process of high blood pressure care will completely consume the deductible on even most high deductible plans.

    Once that deductible is reached, all the other medical costs for the year (the gas and oil costs) get paid by the insurance. This can lead to abuse and waste.

  2. Steve Hyde says:

    Steve’s reply: That’s certainly true for existing health insurance plans that define consumer out-of-pocket expenses just in terms of deductibles, coinsurance, and co-pays. What I’m talking about is health insurance that doesn’t cover normally affordable primary and preventive care AT ALL. In other words, it would be a benefit exclusion, not subject to any deductibles.

    As for big-ticket covered items like angiograms, insurers should be allowed to provide other kinds of incentives for consumers so they always seek the lowest priced provider with acceptable quality. For example, if angiograms of appropriate quality were priced in a range from, say, $5,000 to $15,000, and the insurer’s average payment has been $12,000, the insurer might offer to share any savings below $12,000 with the patient. Thus, the consumer who obtains the $5000 procedure might get a check (or HSA contribution) from the insurer for $3,500, or half the $7,000 savings. Thus, the consumer makes out, the insurer becomes more profitable and/or competitive, and the most competitive provider succeeds in gaining market share.

    My book (Cured! The Insider’s Handbook of Health Care Reform) is now available for preview online at Google Books. If you’re interested in a more detailed example of how such positive incentives could bring down health care costs, I invite you to read the free book excerpt at

  3. John Sweeney says:

    How about the option to email your articles to friends?

  4. Stephen Hyde says:

    Steve’s reply: If you sign up for my newsletter, you’ll get the articles by email which you can forward. Many thanks!

  5. Stephen Hyde says:

    This piece ( )ran on Ira Stoll’s “Future of Capitalism” site on 19 Jan. I think Mr. Stoll’s argument is irrefutable. But, then, I would.

    I thought you might want to mention it to your readers.

    I especially enjoyed his pointing out the moronic argument made by the Boston Globe who thinks we shouldn’t let highly-skilled foreigners immigrate to the U.S.

    Why? Because it wouldn’t be fair to their native lands. (That part they state explicitly).

    But, Why? Because, um, well, the talents and skills of people are the property of whatever state they happen to be born in. It wouldn’t be fair to that state to let their property just wander away, now would it? (This part they only imply; but, what else could it possibly mean?)

    We had a similar problem 150 years ago. We solved it with the Fugitive Slave Act. Valuable cotton-pickers had to be returned to their legal owners forthwith.

    The Globe wants us to take the same attitude today. Sort of a professional courtesy owed by one slave-master to another.

  6. Charlie Crowder says:

    The point is; only the patient should decide whether they want a plan that covers preventive care or not, or whether they have a deductible or not, etc.. Admittedly, it will be more expensive but if that is what he or she feels he or she wants then let him or her buy it. I’ve seen people pay $50 more a month in premium to avoid having an up an up-front $500 deductible. I explain the math to him but it doesn’t matter. It doesn’t make financial sense to me but it is what that person felt like they needed, maybe it’s the emotional aspect of having first dollar coverage, maybe it’s a family members life was saved with an early diagnosis caught during a routine physical and he doesn’t want to have the cost prevent him from getting the care, maybe he knows he’ll never have $500.00 at one time if something happens. It should be his choice.
    Eventually the market will work all of this out, but the market can’t and won’t until we get the patient buying either the care or coverage as an individual. That might even mean an individual voluntarily joins an association at his, church, or in his neighborhood, whatever, as long as he is making the choice. The patient needs to evaluate the services covered, who are the physicians, hospitals, (network) delivering the care, the quality of the service being provided, the amount of cost sharing involved and the premium; then make their own decision.

  7. Daniel says:

    I work for the largest private health insurance company in America, so I know at least a thing or two about this.

    In regard to high-deductible health plans, they definitely have their place. (I don’t think they’re right for me, but they can be good for people who are healthier and/or wealthier.) But our HDHPs have 100% coverage for preventive care. You can debate the merits of that if you want.

    But the value that a lot of our members find is that they get huge discounts for using in-network providers. As you point out, the doctor charges 250% of what he will actually collect…because the insurer requires him to accept less. But what if there were no insurer requiring that? Then YOU would get stuck with the full charge. This happens to uninsured people all the time. How would your proposal resolve that?

    Also, one of the more important things we do as a company is to enforce standards of care. But if insurance companies excluded primary and preventive care coverage altogether, then there would be no enforcement and doctors could just do whatever they wanted (and whatever they wanted to charge for). I have talked to enough patients to know that they trust their doctors implicitly…sometimes at their own peril. And patients rarely understand standards of care. So where would we find the checks and balances? How would we measure quality? etc. etc. etc.

  8. Daniel says:

    I don’t think the analogy to auto insurance is a good comparison. Car insurance is in place primarily to handle collisions. State Farm does not care if your car’s engine stops working or if you need a new transmission. They only care if you crash your car. No wonder they don’t cover preventive maintenance.

    I think you could liken health insurance more to a combination of your State Farm policy and your manufacturer’s warranty. Now of course your warranty does not cover gasoline, but there are a lot of auto manufacturers who do cover the cost of scheduled maintenance for, let’s say, 30,000 miles.

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