I was thinking the other day about the American healthcare system and why it doesn’t seem to function like the other markets. I mean, there is really no issue with getting food – it is cheap and plentiful. Sure, people who make a lot of money are able to buy better quality food, or at least food that costs a lot of money in fancy restaurants, but anyone who is willing to work a little can get enough to feed their families, even if it is very little steak and a lot of ground beef and chicken. Clothing is also not an issue – you can pay $5,000 for a dress, but anyone who works can get can cloth themselves and their family.
The healthcare markets, however, are different. The cost of things can be very high, such that even someone who makes a good, middle class income can be bankrupted by a hospital stay. There are some ways to save money, but in general the premium price is almost always charged, particularly when things are urgent. Why is it the free enterprise works great for food and clothing – necessities of life – but not healthcare?
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Then I started thinking about it a bit and realized that healthcare is not operating under the free enterprise system like food, clothing, shelter, and virtually everything else. Healthcare is different for these reasons:
- Most people pay for buffet plans, then use as much as they want without concern for costs.
- Most services are provided without the consumer or the provider knowing what the price will be.
- The final price is decided after the product is consumed, and often the consumer and the person/entity that pays is different.
- Many people receive services and pay nothing.
Think about what it would be like if you went into a restaurant that had the same policies. You can already see what happens when you pay a fixed amount for unlimited food since there are buffet restaurants. People eat a lot more than they would if they were paying per item, and also tend to concentrate on the more expensive items. Very quickly the buffet restaurants learn how much they need to charge and earn a profit, and that tends to be a reasonable amount since there is only so much people can eat. But in the medical system prescriptions, devices, and services can be really pricey, so if people just keep consuming a little bit more it drives up costs, which is why premiums seem to rise every year.
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Think now what the effects of the second and third items – having services provided without knowing the cost and not even deciding on the final price until the product was consumed – would be in the restaurant industry. What if you walked into a restaurant and sat down and there were no prices on the menu. You ask the waiter about the price of a steak and he says that he’s not sure since it would depend on your insurance. You tell him you don’t have restaurant insurance and ask him what you would pay. He says he’s not sure since everyone pays with insurance. He might be able to tell you the list price was $500, but says you’d probably pay a lot less. You then go ahead and order meals for you and your family, sweating the whole time because you’re not sure what the meal was going to cost you.
At the end of the meal, the waiter comes out with the check – $3,455. You look through the bill and see that rolls were $30 each! You know you could have bought a whole pack of rolls across the street for $5. You say that there must be some sort of mistake. The waiter refers you to a manager who says that they could work out a payment plan. He also says that he’d be willing to cut $1,500 off of the bill. You’ve already consumed the food, so you can’t just say “No thanks!” and walk out the door.
Would you go to a restaurant like this? Maybe you would if you had a meal plan where you paid a fixed amount for food at the restaurant, but what if the price of that meal plan just went up every year until you were paying $5,000 per year for the plan? Would you be tempted to go to the restaurant more often? Would you get more food than you really needed, and insist on only the best food while you were there?
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And what if while you were at the restaurant, you saw the family next to you just walk out without paying a bill? They got the same food and the same service, but paid nothing. You ask the manager why they didn’t pay and he explains that they didn’t have any money to pay, so they just eat for free as part of the restaurant’s benevolence. Of course, you realize that the restaurant doesn’t have any source of money except for people like you who eat there and pay their bills, so you’re really paying for the bill of the family that eats free. Going to the lot you notice that they are stepping into a brand new Cadillac. You are getting into an old Honda because you want to save up some of your money to pay for things like food and can’t do that with a big car payment.
Obviously this is not the way that restaurants work. The prices are clearly printed on the menu in almost every restaurant and there is no negotiation. While you do not pay until after you’ve eaten, you have a good idea of what your bill will be and you choose restaurants based on what is in your wallet since you know that you’ll need to pay the bill after the meal or they’ll call the police. No one eats without paying, so the price fo your food is only based on what you eat. You’re not paying for other people. As a result, prices are reasonable and there is a wide variety in choices of restaurants. If eating at fancy places is your thing, you can put your money towards that and cut in other areas. If it is not, you don’t need to pay the same price as others who like fancy places when you do go out since you can pick a cheaper place. With medical care, especially when it is an emergency, there is little choice. Plus if you’re on insurance because you’re worried about a big bill, you end up paying premium prices whether you use your medical care often or not.
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So how do we fix the healthcare system in the US? Well, we start having people save up money for medical costs so people can pay for their own care for one. We make prices transparent for another and have consumers pay the bill and get reimbursed by insurance rather than having fifty different deals cut with insurance companies and having the consumer have no idea what things costs. We also get medical costs out there where people can see them rather than have everything so hidden. Maybe there is a tech entrepreneur out there who can take that last idea and run with it. Think about an app that tells you what the price of procedures are across your city and what that would do to medical care prices.
So what do you think? Please join the conversation and leave a comment. Contact me at [email protected].
Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.
