The United States has fantastic healthcare. We have all of the latest machines and gadgets. You can get in and see a doctor often the same day, but certainly within a couple of days if needed. There are also starting to be walk-in clinics at drug stores and other places where you can go without an appointment for simple things like ear infections and poison ivy rashes. There are readily available hospitals and emergency rooms for more serious events. Finally, there are all sorts of new drugs coming out all of the time that treat virtually everything that makes ailments that were once considered just part of growing older a thing of the past. Certainly the care available is among the best in the world.
The issue is not healthcare, but the way in which payment has been made for healthcare for the last 40 years or so that has made the sticker price very high and the amount that people are paying increase faster than inflation. The issue is that prepaid healthcare, in the form of cover-all health insurance plans, has become a standard benefit at work. It has also become a common benefit provided by the government for those who don’t work or who have jobs that don’t provide health insurance.
Insurance is a good thing to buy and part of a free-enterprise market. Most people don’t have an extra $50,000 in the bank to pay for their and someone else’s car and injuries should they get into a car accident, so they buy car insurance that covers the costs should it happen. People also don’t have an extra $200,000 to replace their home should a tornado wipe it out, so they have home insurance. In both cases people don’t pay the full price of a car accident or a home each year when they buy the insurance – they pay a small fraction of the price based on the amount that the insurance would pay should an event occur and the likelihood that it would occur in any given year. Insurance works well for events that are unlikely to happen, but that would be financially devastating should they occur. This keeps the cost affordable but makes sure the money is available for the few people who use it each year.
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What is called health insurance in the US includes an element of insurance that covers things like liver transplants and hospital stays that are unusual, but it also covers doctor’s visits, prescriptions, and labs that will happen for most people each year. This means you are paying the full cost of these procedures, plus a bit extra to cover administrative fees and profit for the insurance company. Plus, since people are paying for everything regardless, and it will cost the same whether you go to the doctor fifty times or three times, and whether you get the name brand drugs that see for $500 per month or the generics that sell for $15 per month, people tend to use healthcare more and not take cost into consideration in their choices. This then causes the cost of insurance to rise.
Another factor is that health insurance makes pricing very opaque. The sticker price for a doctor’s visit might be $150, but the doctor might have an arrangement with the insurance company that they’ll take $40. An x-ray might have a sticker price of $500, but the insurance pays $75. If you ask the doctor, you might get similar prices, or pay just a little more or a little less, if you’re paying cash. If you’re dealing with a hospital it is more difficult to negotiate since they’re trying to get as much as they can to of each patient, so their willingness to cut a deal will be based in part on their expectations of whether you’d be able to pay the full amount. Because a lot of people pay nothing at the hospital, or the hospital gets less than the cost of care from the government Medicaid or Medicare programs, they charge others more to make up the difference. They then claim that the ones who don’t pay are getting “charity care” from the hospital, when really the patients who pay out-of-pocket or use insurance are paying the their bills, and they don’t even get to deduct the gifts from their taxes.
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Free-markets, where there are many consumers and many providers trading with each other, would work with health care just as it works with everything else. If everyone just paid out-of-pocket and didn’t use insurance except for major events, the costs would immediately drop to be in line with what the insurance companies pay or even less since the doctor’s would no longer need to spend time and money sending in insurance claims. If everyone were paying for themselves, costs would decline since you wouldn’t be paying the costs that others didn’t pay, just as it would be a lot more expensive to go out to eat if you were paying for the tables around you rather than just the cost of your food. Prices would also start to be more transparent, as medical centers started to advertise their prices and specials to attract customers. Those that didn’t provide their real pricing would lose customers since people wouldn’t put up with not knowing the price before they bought things and being surprised at the end just as they wouldn’t shop in stores that had no prices until they got to the register. Prices would drop as providers looked for ways to be more efficient and cut their costs to avoid being undercut by other providers. Manufacturers of medical devices and drugs would also look for ways to cut costs if they were competing for consumer dollars rather being able to bill insurance companies since they would not be able to sell drugs that cost $100 per pill.
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Despite the vast evidence that free-enterprise makes markets more efficient, lowers prices, and improves customer satisfaction, Republicans are scared to go to a free-market system. Rather than simply repealing Obamacare and shifting to a market system over a reasonable transition period as they’ve said they wanted to do for the last six years, they want to go to some sort of Obamacare 2.0 that still has all of the collective payment for care but without the things that sort of make Obamacare work like the requirement that everyone get insurance. We could be on the road to a great system where anyone who works a regular job would worry about getting healthcare no more than they worry about getting food. Why the fear?
The answer is simple:
- Eliminate the tax break for providing insurance through work to encourage employers to simply pay their employees money and separate healthcare from work.
- Require everyone to put away money into a health savings account so that they have the money needed for healthcare so that others don’t get stuck with their bill.
- Make the health insurance market free, allowing insurers to sell anywhere they wish rather than being confined to certain states.
Do these things and watch healthcare costs drop as the free-enterprise system does its magic. There is no reason to fear.
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.
