Who Should Spend Your Precious Health Care Dollars?
This year, an average American family will expend $31,065 on health care costs, 39 percent of median take-home pay. But the family won't spend that money. Someone else will spend your money — a third party. Is that what Americans want? To have nameless, faceless persons who never heard of you deciding how to spend your precious health care dollars?
In every market except healthcare, the consumer is the buyer who pays the seller. Purchasing a product or a service, the buyer chooses which seller to buy from and pays the price set by the seller. Competition among sellers for buyers' dollars keeps prices low. Since buyers are spending their own money, they have a strong incentive to spend less, to economize.
That is everyday commerce for all goods and services, except in healthcare, where decisions are made by neither the buyer (patient) nor the seller (provider, facility, or manufacturer). A third party — government and/or insurance — chooses the services and products the buyer will receive: what, when, where, by whom, and even if. A third party dictates to the seller what will be paid, without regard for the seller's charge or price.
Healthcare is the opposite of a free market, where buyer and seller decide how they interact. Healthcare is a centrally controlled market where third parties, following federal rules and regulations, make all decisions. Buyers and sellers — patients and providers — are pawns.
What if healthcare truly were a free market?
Start with the buyer "spending' $31,065 this year on healthcare costs. In fact, $25,783 (83 percent) is compensation the employee never received, which the employer paid — tax-advantaged — to an insurance company for the employee's coverage. Suppose the employee is paid the $25,783 (also tax-advantaged) and puts all $31,065 into a large HSA with no limits in time or amount contributed. The only restriction would be that HSA money must be used for medical (health/sickness) expenditures.
People as buyers would shop for care providers and medical goods based on their personal value calculation of price and quality. As the vast majority are healthy, they would expend only a small fraction of the HSA. After a few years of contributing $31,065 each year, the family would have a very large medical nest egg.
Sellers, whether providers or facilities, would compete with other sellers by advertising both prices and medical outcomes. Those who choose not to compete or who report their medical results incomprehensibly to average persons would soon be out of business. Competition would drive down prices and raise the quality of service. Doctors who have a four-month wait to see patients would quickly have no patients.
Price reduction through competition in health care is not merely wishful thinking. Experience with direct-pay primary care as well as cash-only medical and surgical practices shows dramatic reductions in consumer prices, generally well below the amount of money in most family HSAs. Relieved of the government regulatory burden and insurance administrative hassle, providers have much greater professional satisfaction. They can now spend time with patients, which increases patient satisfaction. Providers in direct-pay make more money, get paid promptly, and don't pay huge sums for their billing services.
In 2021, the U.S. spent $4.3 trillion on its healthcare system. Roughly half of that enormous expenditure went to bureaucracy, administration, rules, regulations, compliance, and oversight — i.e., not to medical care for Americans. With a true market in health care, essentially all of these unnecessary expenses would disappear. Americans could recoup $2 trillion either as tax savings or in quicker, better, more affordable medical care.
Two objections would surely be raised to such a "wild west" free market for health care: how to pay for very expensive care such as a transplant or major trauma, and what about the medically vulnerable?
Procedures that are prohibitively expensive in the current insurance-based system are easily affordable from a large family HSA with direct-pay, such as hernia repair ($3,532), shoulder ligament repair ($7,172), even hip replacement ($17,579). There are, however, medical events like transplants or major trauma, where cost will exceed $30,000 to $50,000. For those rare occurrences, people can purchase very high–deductible — viz., $10,000 or $20,000 — catastrophic insurance for extremely low premium cost.
For the impoverished and medically vulnerable, there are several workable options for state-based, not federal, safety nets. What doesn't work is a Washington-controlled, one-size-fits-all, dollar-inefficient programs like Medicaid or Medicare, which will be insolvent in less than six years.
Washington politicians and bureaucrats will forcefully resist a true market in health care for obvious reasons.
If healthcare were structured as above, as a true free market, Washington would cede control of one sixth of the U.S. economy, as well as millions of votes from federal bureaucrats beholden to Washington for their jobs, and special interests, such as Big Pharma and insurance companies, for their exorbitant profits.
A true free market is the way Americans will have timely, affordable medical care. Only a massive public groundswell will force Washington to do what is the public's best interest rather than politicians' re-election campaigns.
Deane Waldman, M.D., MBA is professor emeritus of pediatrics, pathology, and decision science; former director of the Center for Healthcare Policy at Texas Public Policy Foundation; and author of the multi-award winning book Curing the Cancer in U.S. Healthcare: StatesCare and Market-Based Medicine.