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The Free Market Can Fix Healthcare

You may have read in the news that the Obama administration is delaying implementation of portions of Obamacare because they are too complicated and are simply not ready to go into practice on the timelines originally passed in the law.

While some portions are being delayed, other parts of the law are in full effect already. Now I’m just wondering; have you seen your health care costs decline? I know I haven’t. I tried to find data on the subject but it seems like liberal website are saying costs are declining (or at least increasing less than they were pre-Obamacare) and conservative websites are saying they are going up. Since I don’t know who to trust, I’ll just go with my individual experience.

My insurance costs jumped substantially last year, and everyone else I know had the same experience.

Maybe big government isn’t the solution to every problem. Maybe the free market can fix something, even as complicated as health care, better than government can.

Enter the free market.

A Free Market Approach to Health Care

In Oklahoma, a new surgery center posted prices online and refused to accept Medicare or Medicaid (not because they have anything against people that use those government programs, but because those programs do not reimburse hospitals if they post their prices online).

And guess what: these prices aren’t just a little cheaper than traditional hospitals. Take a look at some of the examples from this article:

  • Mercy Hospital charged $16, 244 for a breast biopsy; the procedure will cost $3,500 at Surgery Center of Oklahoma.
  • OU Medical Center billed $20,456 for the open repair of a fracture; the procedure will cost $4,855 at Surgery Center of Oklahoma.
  • OU Medical Center billed $21,556 for a gall bladder removal surgery; the procedure will cost $5,865 at Surgery Center of Oklahoma.
  • OU Medical Center billed $23,934 for an ankle arthroscopy; the procedure will cost $3,740 at Surgery Center of Oklahoma.
  • Integris Baptist billed $37,174 for a hysterectomy; the surgery costs $8,000 at Surgery Center of Oklahoma.
hospital
photo credit: Fotos GOVBA

This place is charging less than 25% of what other hospitals charge! Imagine how much wealthier we would be as a country (and how much wealthier you would be individually) if we could eliminate 75% of our nations health care costs.

PBS reports that the total average health care costs for each individual in the US is $8,233 per person. If we reduce that by 75%, that means every person in the country has another $6,000 to spend on something else.

Sure some hospitals and insurance companies would go out of business because they are inefficient and people would lose their jobs. But imagine how many other jobs would be created in different sectors if people had extra money to spend or invest elsewhere.

But They Are Just Servicing Rich People…

The main criticism of this type of medical facility is obvious. It would sound something like this:

“The difference between this place and other hospitals is that you’d be turned away if you couldn’t pay. At most hospitals, they overcharge the paying customers because they still service the people who can’t pay. If all hospitals did this, what would happen to poor people who can’t afford thousands of dollars for surgery?”

First: many working class people would be able to afford that kind of surgery if they weren’t paying so much for medical insurance. Instead of paying an insurance company $5,000 a year (who keeps the money if you stay healthy), people can save $5,000 a year and only use it if they need to.

Second: the more hospitals that do this, the lower prices would go. Hospitals would have to start competing for business (which has already started happening in Oklahoma) and everyone would lower their prices. Health care becomes even cheaper.

Third: for those who still can’t pay, there is charity. According to Wikipedia,

In 2012, the [Catholic] church operated 12.6% of hospitals in the USA, accounting for 15.6% of all admissions, and around 14.5% of hospital expenses (c. 98.6 billion dollars). Compared to the public system, the church provided greater financial assistance or free care to poor patients, and was a leading provider of various low-profit health services such as breast cancer screenings, nutrition programs, trauma, and care of the elderly.

When the nation is wealthier because we save hundred of billions of dollars on healthcare, people and churches can donate even more money to charitable hospitals.

Sticker Shock is Helpful

When people don’t see how much something costs, they don’t care what it costs. When I get my annual physical, I don’t care if my doctor charges my insurance $10 or $10,000, as long as I don’t pay anything out of pocket.

But when I have to pay for it myself, I care immensely. So does everyone else.

When consumers demand lower prices, businesses compete. Costs get lower.

When healthcare is cheaper, we all have more money to save for retirement, buy a new house, or whatever else we want to do to meet our financial goals.

Readers: Do you believe the free market can fix healthcare?

12 thoughts on “The Free Market Can Fix Healthcare”

  1. I love this. I completely agree that the lack of pricing transparency and direct payments by the consumers are driving up prices.

    A flu shot could cost a $1 billion, but if it’s paid by insurance, no one is going to give it a second thought until they have to pay it out of pocket.

    If you go to the website of that surgery center and go to the blog, the Dr. posts rebuttals to potential hospital rebuttals. It’s a good read.

  2. I believe that’s what the healthcare system is like in Japan. Dr’s fight for the patient by advertising their outcomes and great prices, just like any other business. I would love that. I spent many years in benefits administration in the private sector. It’s amazing what it would be like for companies if they didn’t have that large dollar spend if insurance was unnecessary.

  3. Mark from PersonalFinancely.com

    You are for every healthcare provider in the US to take cash only and everybody else ask the church for charity?

    It’s a no brainer that if you cut out the insurance middle man and take cash only the prices will be cheaper.

    Seeing how much cheaper “cash only” can be only shines a light on the existing corruption and waste in the system and screams for regulation 😉

    1. Sorry Mark, but regulation isn’t going to fix anything. Regulation is the problem, and there is plenty of data to prove it.

      First of all, I’m not against insurance. Catastrophic insurance is necessary. I think it’s ridiculous that “insurance” covers everything including a basic check up, and much of that is because of GOVERNMENT standards that require insurance plans to cover everything.

      Second, in 2011 government (federal and local) spending on healthcare was just under 10% of our GDP, and that only covered seniors and poor people, which amounts to about 27.8% of our total population. Read that again: the government uses 10% of GDP for the health care of less than 30% of its citizens.

      In 2011, total health care spending (government AND private) was 9.5% in Italy, 9.4% in Spain, Ireland, and Sweden, 9.3% in the United Kingdom and Japan.

      Are you telling me that you want our government, the same government that uses 10% of GDP to pay for less than 30% of the population’s health care (where other developed countries provide health care to 100% of their citizens for less) to have MORE involvement in the health care system?

      1. Mark from PersonalFinancely.com

        There is plenty of data that shows regulation does help things.

        Maryland has “rate limiting” on their hospitals and most parties agree helps save billions of dollars and is a good thing.

        1. If you spend $30,000 on something that should cost $10,000, and then you cut the $30,000 down to $25,000, the government calls that a $5,000 savings and a reasonable human being calls it a $15,000 waste.

          Again, our government provides healthcare for less than 30% of the population for 10% of GDP. That proves they have no business being involved in healthcare.

          1. Mark from PersonalFinancely.com

            no government involvement and it costs me 30,000

            government involvement and it costs me 25,000

            I’ll take the government involvement please 😉

            Of course if I pay cash I get the 10,000 price but that ain’t gonna happen for most people.

            The government has no place in health care? They run one of the best health care systems on the planet, the one that takes care of our military.

            I’ll agree to disagree on this one 😉 Cheers.

            Mark

  4. My guess is that though they are billing those much higher rates, what hospitals actually receive are amounts probably right around what the ‘Surgery Center’ is charging, so in actuality it’s probably revenue neutral.

    I don’t think regulation is going to fix anything but I also don’t think insurance companies can be trusted to 100% free markets. I guess I look at it that for a number of decades, things seemed to work pretty well all around: employers were able to provide insurance and usually at rates where employees didn’t have to contribute, employees had good coverage, and insurance companies made money. Now insurance companies claim they can’t make any money unless they charge enormous rates with increases outpacing inflation by 5x, employers claim they can’t afford it so it comes out of employers pockets. All this extra money has to be going somewhere, so where?

  5. As a doc, surgery centers are great and I’m all for transparency, but there may be more to it than that. You might get the same product at TJ Maxx or Nordstrom, but TJs won’t be air conditioned, there will be little sales help available, and you’ll rummage through disorganized clothing hoping to find your size. Similarly, if your surgery goes anything less than perfect at a surgery center, there’s no high level back-up of trauma surgeons or specialists, nor any of the critical safety factors. That’s why limited surgeries happen in such places to begin with. Up to you to gamble, and probably reasonable for an ankle scope, but not most surgeries, so the paradigm would partially fix (good start).
    Hard to compare socialized European countries individually to US. Note a more reasonable comparison would be Sweden to Minnesota. Minnesota is about half the landmass and half the population with a similar demographic and natural resource base and climate. And yet in our system Minnesota beats out Sweden in nearly every category from infant mortality rates to death rates treatment for cancer and the like. Similarly, they spend less and you will get less, though everyone equally (except those who go outside to pay cash). A former professor of mine left Univ BC in Canada as govt gave him monies for about 1/2 the surgeries he needed per month. The rest go on the never list to nowhere. My best buddy lives in Washington and he estimates 1/2 his practice comes from Canada (and he treats CANCER!). There just aren’t enough resources to get everything they might want. Afterall, we are treating emergencies and cancers, but what about knee replacements and ankle scopes? No one dying from that, though they may suffer, some more than others. Is everyone entitled to equal opportunity to those things irrespective of their suffering? Can we just all pay for what we want depending on how bad our elective medical issue is for us, no different than the level of car or television that we purchase?
    What about pay for perfirmance? my most important case is spinal cord compression. no one gets much better, but they stop getting worse after surgery. can’t get a nice postop improvement outcome there like fir no -critical sciatica or neuropathy. can you say docs will start cherry-picking and leaving those important high risk no pay cases alone? Food for thought. Wish utopia were real. It’s not now nor ever will be. I will continue to help best I can whatever system prevails. Or the evils of a socialized system or those of a free market one. Pick your poison. It ‘s a death and taxes issue, no escape.

  6. Australia has government supported health care for all the population, and cost is 9.0% of their GDP. And this for a country who’s span far outweighs its population.

    I think commenter Kevin nailed a lot of good points. The major ones for me are:
    — The danger of a fully free market is the cherry picking problem as Kevin noted. Expensive and rare procedures/specailities/diseases would go untreated or be very hard to obtain in all markets. The same way rural locations would go unserviced if we deregulated telephony networks.
    — yes, cost transparency would be great. No reason that should not be allowed. Even when well informed procedures in US, you always get surprise costs (a service performed while you were under was performed by an out of network physician!) The White House released comparative cost information for medical procedures conducted by hospitals all over the country: http://www.hhs.gov/news/press/2013pres/05/20130508a.html
    — it seems fallacious to use that sample space as a basis for “75% savings!” calculations. That’s a pretty small sample of one non-full service surgical center. Allowing this sort of competition seems fine, but it would not be a panacea.
    — Health insurance would not go away because of the disaster scenario. Not until I can get a full round of cancer treatment for $5000 also.
    — I trust health insurance companies less than the government. They don’t care about me, because I am not usually the one shopping them for business (my employer must). That may change a little with the insurance marketplace, but generally they have one purpose after friendly marketing: to try and find a way to not pay. It’s a race to the bottom.

    Health care (more correctly, sickness care, as insuracne companies cover less and less preventative care) is usually not a consumer free choice like the “free market” model suggests. It is often forced action, topics that can be difficult to self-educate on, and with difficult timelines.

  7. Kevin, have you seen the flowchart for Obamacare? The original was a poster about six feet by four and it is like the wiring diagram of a 747. Visit my FB and request it, and I will put it up for a couple of days, even though I shouldn’t really go so far off topic. I used to have a plain Facebook identity to do these things, but seeing as I have a dispute with the IRS pending, and we have all seen the sort of operation they have begun to run, I pulled it down. Thus, I am in the Witless Protection Plan and my name no longer appears.

  8. Since we’re rolling with anecdotes here, my monthly premiums increased very, very slightly, and my monthly birth control copay went from $25 to $0, saving me $300/yr, so I came out ahead. However, I don’t think the point of the law was really to help people like me (great job in the oil and gas industry, already had great benefits)…

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