Of Third Party Payer Systems

By the time I turned 16 years old I had learned what is still probably one of the most important lessons of my life – the middle man always gets his cut. He might increase the price, he might dilute the quality, or he might lessen the quantity, but make no mistake he gets his. And that’s okay, he’s providing a service, connecting the person with the demand to the person with the supply. It’s a vital role, but it’s best to cut him out if possible.

Since my wife become pregnant about 9 or so months ago and my daughter was born less than two weeks ago I have been in more doctor’s offices and more hospitals than I have in my entire 32 year life up to that point. My experiences have been mostly good. Care is adequate, although seeing the same doctor in a large clinic from appointment to appointment seems a near impossibility. And they are always late, which is really frustrating. When I make an appointment with someone I keep it. I expect the same. But overall the care we have received is good.

Thing is we were walking out of the pediatrician’s office a few days ago and I was looking at the slip of paper the nurse gave us to check out with. It said that we had racked up $377 worth of charges. And that didn’t even include the current appointment. Wow! They saw my daughter in the hospital, a basic checkup that took less than 30 minutes. Then we came in to their office 2 days later. They weighed her, measured her, and talked with us. Then we came back about a week later and they did it all again. Only at the hospital did we see an MD, the other two times we saw a Nurse Practitioner. We were in the presence of a professional for a combined total of, dare I say, 1.5 hour tops. All for the low low price of $377.

But that’s okay the insurance company is going to get it.

Well I suppose that ‘s okay, but it occurs to me, this is all routine stuff. All newborns have these types of appointments. What are we insuring against?

Insurance is a tool to pool risk. For example, if 2 random individuals out of 100 are going to suffer some fate then each of the 100 can contribute a small  amount of money (in proportion to how much each would need to have if he were one of the 2 unlucky ones) to a pool to ensure that the 2 people who will experience the insurable event will be taken care of when said event occurs. This is insurance. It’s spreads risk. It allows us to account for random events.

Newborn checkups are not random events. Pretty much all newborns have them. All newborns should… (No, we didn’t have the Hepatitis-B vaccine for those who are wondering. The CDC has some wonderfully scary propaganda with respect to that one, but that’s another story for another day. We’ll be getting many of the other vaccines.) In any case, all of this stuff is predictable. Insurance just doesn’t make sense. And yet insurance companies cover these things. Why?

If something has a near 100% chance of happening and I pay a third party to “insure” me against its happening, am I not just cutting a middle man into the action? I pay the insurance company, I go to the doctor, the insurance company pays the doctor. Well it’s not that simple. The doctor has billing agents to deal with the insurance companies, and the insurance companies have droves of clerks, managers, executives, and such. All of these people must be paid. And of course, the insurance company itself should make a profit for its shareholders. I do not begrudge them that, but that’s one fat ass middle man.

So wouldn’t it be better if I just paid the doctor cash myself? If all of us did? At least for routine things?

But why would I? My insurance covers it and I pay for my insurance. Then there’s the fact that the insurance is often subsidized or discounted through an employer, and there’s tax benefits to getting it through an employer and they are required by law to provide plans that cover certain things, like newborn visits.

So we pay for the insurance and we use it. I haven’t done any rigorous calculation about what it would take to drop the current insurance, buy a true insurance policy, pay the extra taxes on the money previously used to buy the employer provided insurance, and then find a doctor that was willing to take cash. Of course said doctor would have to be charging a lot less than $150+ per visit. I haven’t figured all of that out. Whatever, given the current system, I am not so sure that it would be cheaper. If my time is worth anything it is especially questionable.

The insurance companies (HMOs) got a hell of a scam going. Granted they still insure in the traditional sense, but they take money on policies and pay for routine things and make (probably a lot of) money doing it. They are just leeches in this process. We don’t need them for this type of stuff. Cutting them out of routine care has the potential to save a boat load of money.

But the deck is stacked against us. Regulations prevent employer’s from offering stripped down policies (it’s a funny thing insurance companies support these regulations), doctors are not in the habit of providing cash discounts (if you don’t use the middle man you shouldn’t have to pay for the middle man), or taking cash at all really. And of course if I buy health insurance on my own I have to pay taxes on the money used to buy it, while on the other hand if I buy it through my employer I get to buy it tax free. That’s a big incentive to buy it through my employer…

So the newborn visits are covered. In this rigged game I have no real incentive to change my behavior. That is, given the rules of the game I’m probably making the best decision possible.

If only we could change the rules to allow for a little more liberty, a little more personal responsibility.  As it it now we have been corralled into a horribly inefficient situation.

But it could be worse, the wonderfully craptacular federal government could be the third party payer.

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  1. #1 by rob stehlin on Sunday, August 30, 2009 - 07:19

    how about “Cash For Doctors” – screw the cars, lets get healthy. Just maybe would could fix health care. The money is wasted on the small bills (processing and wasted over use) up to the tune of 400 billion per year. Americans need to start paying cash to doctors and we could fix this problem.

  1. Week in review « Craig W. Wright

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