Once upon a time, the doctoring business was like most other businesses. Products and services were bought and sold for cash. Prices and terms were set by the market. This meant rich people could buy a lot more doctoring than poor people, though before the invention of penicillin it’s not clear that extra doctoring did a whole lot of good.
As medicine became less art and more science and doctoring grew more complex, certain treatments got more expensive, sometimes ruinously so. This worried surgeons, who banded together to start some of the first health insurance companies. In those early days health insurance really was insurance — an underwritten pooled risk management contract designed to protect premium-paying customers from rare and catastrophic events, much like fire insurance.
Then along came something called wage and price controls during the Second World War. Corporations were forbidden from offering higher pay to attract or retain workers. So companies got the clever idea of offering employees fringe benefits like health insurance. This gave them a competitive advantage without falling afoul of wage and price controls.
Wage and price controls long ago went the way of War Bonds, but thanks to the inherent tax advantages of fringe benefits compared to wages, company-provided health plans became even more widespread. And so, health insurance slowly evolved into a combination of catastrophic insurance and prepaid comprehensive medical care. Even so, market forces guided what employers could offer, and a wide variety of plans could be found in the private market for the self-employed.
Then along came Medicare and Medicaid, providing both health insurance and prepaid medical services as an age-tested or means-tested entitlement — paid for with OPM (Other People’s Money), which politicians adore.
Despite mighty efforts by certain politicians to expand these entitlement programs, many people still lacked employer-provided health coverage, were too young to get Medicare, or not poor enough to get Medicaid. So the pressure to get some OPM for them grew and grew.
And so, we got Obamacare, which takes a bit from everything that came before.
Obamacare is a Rube Goldberg amalgam of catastrophic insurance, pre-paid medical care, means-tested entitlements, and redistributed OPM, all bundled together with a raft of taxes, mandates, and penalties to bludgeon refuseniks who fail to sign up. It was hastily cobbled together to achieve the slimmest of Congressional majorities necessary to turn this grab bag into law.
Now we’re seeing the results. Larger and larger annual deductibles combined with narrower and narrower provider networks are becoming a common feature of Obamacare plans because that’s the only way to make the math work. These high deductibles are carefully set so that the vast majority of people forced to buy into Obamacare never satisfy those deductibles in any given year, regardless of whether they got subsidies to pay their premiums. Which takes us back full circle toward making more and more doctoring a cash business again. Who would have predicted that?
The problem is that the vast majority of both Obamacare and private employer health care contracts contain clauses that lock providers into a pricing schedule that forbids offering discounts to out-of-network individuals purchasing one-off procedures, forcing them to charge inflated list prices that bear little connection to those procedures’ actual cost.
Thankfully, entrepreneurs spotted an opportunity to create an Internet-based middleman matching cash-paying individuals with willing health care providers, negotiating bulk discounts designed to put customers on a level playing field with large health plan providers. Most importantly, customers could comparison shop for common procedures like MRIs and colonoscopies across the most cost effective providers nationwide. Think about it, who cares about the price of a plane ticket if you can save $5,000 on a procedure? By pre-paying online with a credit card customers would be guaranteed fixed up-front pricing, while happy providers could be paid promptly rather than wait months for reimbursement. To be even more consumer friendly, these entrepreneurs made arrangements with loan providers to offer installment payment plans for that must-have procedure.
Hence, MDSave was born. As the country returns to cash doctoring for more and more of its medical care, we’re likely to see more innovations of this sort. Who knows, one day dynamic market forces might even return to the health care industry, creating feedback loops to make medical services cheaper and cheaper every year, just the way prices usually decline in most unregulated technology-based markets.
Want to learn more? You can hear me interview Paul Ketchel, the founding CEO of MDSave, on RealClear Radio Hour here.
