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 system. 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 of 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 innovation of our entrepreneurs—something which has been lacking in the healthcare 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, which 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 co-pays 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 as well as 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 insurer 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 overcharges him. Meanwhile, the company isn’t the one eating the meal. Their concern is the bottom line. The co-pay 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. Its 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 as 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 do we do about those who are denied healthcare insurance due to pre-existing conditions? Since the direct-pay cuts out the middle man, 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 taxpayer 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 knows 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 Oklahoma Doctors 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.
Christian Rodier is a Political Activist with a BA in Political Science and is currently a student of Economics at SLCC.