Cutting Out the Middleman

Last week we pointed out tax code reform as one way to address the rising costs of health care. Here is another: Cut out the middleman.

True story:

A couple of years ago, I decided to have Lasik eye surgery. I was living in a small city of about 150,000 people, and there were three or four doctors performing the procedure. I called them up to find out how much each doctor charged, and received widely differing estimates, from $1,900 to $4,000. I was actually quite surprised at the prices since Lasik used to be a lot more expensive.

Last year, I had to have a small but somewhat expensive procedure performed. I was living in the same city, with numerous doctors and three major hospitals. Even though I had insurance that would cover most of the cost, I wanted to know what my tab was going to be beforehand. Imagine my frustration when calling my doctor’s office and the hospital for the cost only to find that they could not give me an estimate of how much they would charge me because the price depended on my insurance. In other words, my bill would be determined by what the insurance companies and providers had negotiated behind closed doors.

Imagine for a moment if that was the case, say, when you bought a car. You’d walk onto the lot, look around, and spot a couple of promising cars, or maybe you already have a model in mind. Either way, there are no price tags anywhere. The salesman approaches you and asks what kind of car you are interested in. Pointing out the ones you are considering, you ask about the prices. The salesman replies: “Oh, I couldn’t tell you. We’ll have to discuss that with your car insurance provider after you buy one!”

This scenario sounds so ridiculous because we expect to be able to directly negotiate prices and services for the things we purchase. Only in health care is the consumer totally left out of the process of price determination. Why? Because third-party payers—insurance companies and the government, which, through Medicare and Medicaid, is the largest payer in U.S. health care—negotiate prices with providers, not patients like you and me.

In order to cut down health care costs we need to return price control back to the patient by taking out the middleman. (Rest assured that is the only form of “price control” I ever endorse!). The only reason why I was able to shop around for my Lasik procedure and why it was so affordable is because it is often not covered by insurance. Without insurance covering the tab, patients pay for their care out of their own pockets. Thus, patients become savvy shoppers, thereby creating competition among providers hoping to win business.

Let’s leave insurance for truly catastrophic illnesses and expensive long-term care. When patients have to pay for routine care and minor procedures themselves, they will try to seek out the best deals and think twice about how much health care they want to consume. That keeps prices down for everybody in the long run.

Cutting out the middleman in health care, be it insurance companies or the government, is an essential step to stemming the current rise in health care costs. We need to put ourselves back in charge of our pocketbooks. We do not accept being unable to control our spending in any other matter, so why should we with respect to health care?