By way of introduction, I offer these two precepts:
1. Before the 1970s, and certainly before Medicare (1965), the notion of “health insurance” (or, as it was more commonly called then “medical insurance”) usually implied coverage limited to extraordinary or catastrophic events. Few policies existed that paid for routine doctor’s office visits, and coverage for drug prescriptions was all but unknown.
As the baby boomers entered the workforce, and in wake of the wage and price controls set by President Nixon in 1971, “perks” (short for perquisites) became a common means of increasing an employee’s compensation, while leaving his wages unchanged. Enhanced medical coverage was introduced as a popular perk--expanding on what had been done during World War II, to get around that era’s wage and price controls. By the 1980s, covered services would grow, and instead of insurance being arranged to compensate the policyholder for services already rendered, it morphed into an ad hoc direct payment system to providers.
2. By the 1990s, it became clear that healthcare would be largely defined by the extent that services and procedures were covered by insurance. And, as the discussions began that would lead to the Affordable Care Act (2010), the terms “health insurance” and “healthcare” became virtually synonymous. More’s the pity that most physicians still won’t admit that they work for insurance companies.
Which brings us to one of Holtorf’s key points:
Insurance is designed to function for unexpected events and emergencies. It has never worked in any industry as a means to provide for services that are routine and expected. This is because it is excessively bureaucratic, and its only method of controlling costs is to deny or limit coverage, using complex reimbursement formulas. However, this sort of cost control fails utterly, and simply leads to ever more creative ways of billing, thus driving costs all the higher.
Unfortunately, draconian regulations intended to stem this tide only increase costs, stifle smaller businesses that can ill afford the new measures, and create a truly insidious vicious cycle: A greater regulatory burden results in more corruption and collusion, further increasing costs. Ironically, no amount of regulation and enforcement can fix the system, because every “improvement” will invariably lower efficiency and raise overhead.
We segue to another of Holtorf’s points. In what other industry do you not know the cost before you agree to buy a product or service? Try thinking of anything else you might purchase, and then requesting the price, only to be asked what kind of insurance you have--and that’s the full reply. Even in insurance-covered auto collision repair, the price is always quoted first, along with how much comes out of your pocket. The only surprise--and this would be rare--would be due to hidden damage not seen at the original estimate.
But in the world of healthcare, most people are just fine with the unknown cost paradigm. And that’s because for the past 50 years, the bureaucrats and politicians have convinced us that the best healthcare is the one we don’t have to pay for (at least directly). Ah, but we do pay for it...big time. The US boasts the highest per capita healthcare costs in the world, with only mediocre outcomes. With almost no mechanism to compare costs, the hospitals and Big Pharma can rip off the system in countless ways, contributing to an annual waste of $750 billion.
Holtorf says that prices for all services must be made public, to which no penalty would incur if the amount were paid at time of service. Why shouldn’t a patient be able to compare the cost for, say, a hip replacement between various hospitals? Free market principles...what a concept.
He reminds us of the absurd current anti-market situation whereby providers cannot charge cash-paying patients less than the amount set by Medicare. Not surprisingly, this regulation has been gamed and adopted by private insurance and other agencies, leading to rampant abuse and escalating costs.
Further reforms would increase the ridiculously low allowable deposit to healthcare savings accounts, and remove all cash payment penalties for using HSAs in the first place. Clearly, knowing prices would greatly benefit the utility of HSAs.
If insurance returns to its original purpose, and free market principles are applied to pricing, the current practice of “over-billing the insurance company to see how much we can get” will disappear, costs will drop dramatically, and then we can move on to real healthcare reform, which means fixing our lamentable outcomes. Reform would also include taking care of the true hard cases. Thus, replacing one awful insurance-based model with a less awful insurance-based model will cease to be a viable option.
We will be presenting more of Holtorf’s ideas in subsequent articles.
Michael D. Shaw
[email protected]How To Fundamentally Transform The National Healthcare System