Since 1970, the health care industry has undergone a revolutionary change. Before that time people were overwhelmingly (about 70%) in traditional indemnity plans where patients pay a certain percentage of health care costs. With the passage of the Health Maintenance Organization Act written by Ted Kennedy (D-Mass), very quickly over 70% of Americans were covered by HMOs.
The structure of HMOs was also largely different than traditional indemnity plans. HMOs require primary care physicians to act as gatekeepers of advanced care and it empowered insurance companies to challenge the medical judgment of doctors. It restricted choice to those doctors and providers “in the network” and any care provided by outside providers, care that didn’t follow the right regulations or didn’t have the right referrals was simply not paid.
It is indisputable that we are currently in a health care crisis with skyrocketing costs and extreme customer dissatisfaction. It is never a good sign when medical providers have to market themselves on customer service. No other industry has to try to convince consumers that “we won’t abuse you” and that “you matter to us”. The current argument is that health care needs to be socialized because the free market hasn’t worked.
First, the central principle of the free market is that the individual parties of a transaction are able to negotiate the terms of that transaction themselves. For instance, if I want to buy a car, I can negotiate with the dealer the terms of the transaction and the dealer can do likewise. If neither of us wishes to proceed, we can move on. Without free choice on both the provider and consumer in deciding terms of the transaction, there is no free market. There is no free market without choice.
The health care system in this country, developed by Democrat Ted Kennedy who now campaigns against his own creation, all but eliminates choice in both doctors and patients.
Limiting the Choice of Patients
Let’s say you, Joe Consumer, want health insurance. Because of the structure of the tax system that enforces what is basically an historical accident, you will probably get this through your employer. Your employer is limited by tax law to only let you make decisions about your health insurance provider at certain times, basically when you are hired and once a year thereafter. You will likely get a few choices, an HMO with higher deductibles and lower premiums, an HMO with lower deductibles and higher premiums (from the same company), and a traditional indemnity plan. If your employer chooses Blue Cross Blue Shield, you’re only going to be able to choose Blue Cross Blue Shield.
Employers decided which insurance company to work with. Their motivation is clear, to save money. As a secondary objective, they want happy employees. However, the insurance company is selling insurance to your employer, not you. So they craft policies that are lucrative to your employer. Maybe 60% of employees are happy with what they get, but the other 40% are pretty much hosed. If they want a different insurance company they need to pay full price and the employer is not allowed to compensate the employee on what their portion might have been. End result: consumers do not choose their insurance company, their employer does. If they want to change their insurance, they can’t until the next benefit choice period dictated by the IRS.
Now you, Joe Consumer, want to go to the doctor. You take your handy dandy provider directory (or go online) and you select from the list of doctors your HMO allows you to go see. You may know you need an orthopedic doctor to deal with your knee problems but that’s too bad, you need to go to a primary care physician first (and pay for that useless appointment that you don’t need). This primary care physician’s job is to limit the amount of advanced care patients receive. In fact, in some cases, primary care physicians get a bonus based on how few referrals they give.
Let’s say you do get a referral. Then you go to where the HMO tells you to go to with even more limited choices in the provider directory. Let’s change the scenario, let’s say instead of knee problems you have cancer. You hear good things about the Mayo Clinic and you want to get care there. Too bad, you need to go where your HMO tells you to go to. You may have a better shot at survival at Mayo, it doesn’t matter.
You may wish to explore alternative treatments, however, your doctor who knows what your insurance company will and will not pay for better than you ever will, simply will limit you to those choices which your insurance company has already decided you will have. He knows that they won’t pay (and he probably won’t get paid) if his plan of care deviates from the dictates of the insurance company’s accountants. These people have never seen you, have no information about you but have near complete control over your health care decisions based on some sparse paperwork sent back and forth. The patient will never get the opportunity to talk to much less negotiate with these people.
Lastly, you want to choose a doctor among the choices that are provided to you in your provider directory. If you want to “price shop”, well, you aren’t provided pricing before hand. This may be difficult in some cases, but patients simply have no pricing information with which to judge before they’ve already committed themselves to care (some exceptions, not many).
The net balance of all of this is that in every single step of the health care system, the consumer is removed from the decision-making loop. The only health care decision the consumer gets to make is whether to have the insurance company pay or to do what they think is right and pay full price out-of-pocket and risk bankruptcy, even if it is the right decision.
Limiting the Choice of Doctors
On the other side of the transaction we have doctors that also have their choices restricted and taken out of the equation. Before a doctor sees his first patient, before he gets an office or buys any equipment, he needs liability insurance. The premium he is charged will be identical to other providers with similar practices no matter what training, experience, qualifications or differences exist between them. A Saturday-night hack artist pays the same as a doctor who has won the Nobel Prize. In Illinois, the premium for an OB-GYN before they see their first patients is about $240,000. In surrounding states it is about one-fourth as much which is why Illinois in particular has a health care crisis. Providers are fleeing the state. Take a look near any state border and you will see a thriving health care practice just on the other side of the Illinois border with that state.
The terms of this insurance policy (in addition to the price) are non-negotiable and designed to do one thing, prevent lawsuits or make them easier to win. For OB-GYN’s the terms are the most notorious. For instance, a woman who has had 2 children already without complications, is having a third low-risk pregnancy needs to go through the same regimen of care as a first pregnancy. If you’ve had children you know how this works. Started second trimester or so, you go for bi-weekly checkups (that become weekly as you get closer to birth). You pee on a stick, you get weighed and they ask you if you have any questions. There’s an ultrasound in there and a couple of blood tests.
With my first child, after a few of these appointments, I began to wonder what was the point. We didn’t have questions. In, out, 15 minutes: that’s $50 (the copay in this case). Why do I bring up this story? Because if you, the patient, decide that these visits are superfluous, your provider is required to drop you as a patient. You may have no complications, you may have no questions and there may be absolutely no reason for these visits, but your provider is required to mandate that you go, regardless of medical need or you can’t be their patient anymore. By the way, you, the patient, pay for this decision made not by your doctor, but by some lawyers at a liability insurance company. The United States has the highest C-section rate in the developed world because liability insurance companies insist that if anything is “abnormal” a C-section must be performed. Not because of medical need, but because of “limiting liability”.
In addition to liability insurance companies dictating the terms of care, doctors then have to deal with health insurance companies (or even worse, Medicaid). About 30% of medical bills sent to private individuals (not insurance companies) are paid. Doctors know that they are being paid by the insurance companies, not the patient. They know that if the insurance company isn’t going to pay them, they probably won’t be paid. The only exception to this is patients who walk into an emergency room or doctor’s office with a Platinum American Express card. Providers know these people are paying cash and they get treated with far more respect than insurance carrying patients do.
Before the question of the “bonus checks” for limiting referrals even comes in to play, doctors know that the insurance company is calling the shots. They know they won’t get patients without joining a “network” of some providers in a given insurance company. The insurance company will then dictate what rates they can charge, what services they can provide, what drugs they can prescribe and in some cases how many patients they can see.
A doctor that practices without taking a major insurance policy will have a hard if not impossible time earning a living. A doctor that practices without a liability insurance policy (even in places where that’s legal to do and that isn’t many) can be considered certifiably insane.
Both doctors and patients have their choices and ability to negotiate their health care severely limited. There is some competition in a very limited sense where employers can choose from a small selection of HMO companies. Doctors can choose too and there is a small subset of liability insurance companies they can choose from as well. One of the major plans for “health care reform” is to simply have the government serve as the HMO instead of private companies. It is unfathomable to believe that taking away the trivial amount of choice in the health care system that is left will result in a better system that is more responsive to patients.
The solution to the health care system is to let those who are part of the transaction, doctors and patients, have the freedom and latitude to decide their own plan of care. Removing the patient from the decision-making loop has only created a health care system that thinks of the patient last. Let’s give the free-market and freedom of choice a chance.