People are largely in agreement that Obamacare needs to go. Even its supporters concede that it is broken, although they recommend repair rather than repeal. And God help the Republicans; they have had seven years to come up with a viable alternative and the best replacement they can come up with, the American Health Care Act (AHCA), is being dubbed “Obamacare-lite.” To add insult to injury, according to the Congressional Budget Office, less people would lose coverage under a full repeal of Obamacare than under the replacement plan being championed by House Speaker Paul Ryan.
So what is the answer? It’s easy: return doctors and hospitals to the free market. Health Insurance is not the Solution to our Problem; Health Insurance is the Problem.
Note that I did not say return “healthcare” to the free market, but “doctors and hospitals.” That is because returning health insurance to the marketplace would not be a solution but rather would return us to the system we had before Obamacare. Both then and now, bandages you could buy in a store for pennies cost $200 in a hospital. The astronomical costs of receiving healthcare are not due to Obamacare, (although it has certainly made the problems inherent in the system worse). They are due to the current Three-Party Consumer-Insurer-Provider model.
Think of it like this: How does every other market function? How do you choose a grocery store? You have multiple options which you compare by convenience, quality and price. If a store is too expensive, you go somewhere else. If the store does not respond to the market by lowering prices or increasing quality so as to justify the higher price, they go out of business. This applies to all markets.
Some would argue that this model does not apply to doctors and hospitals because they provide such a vital service. Some even go so far as to say that healthcare is a right and cannot be left to the whims of a market environment. However, attorneys provide a service arguably as vital as doctors, and in criminal cases, a legal defense by an attorney is a right recognized under the law. They represent clients facing life in prison or the death penalty and have civil cases where the outcome will seriously affect the rest of the parties’ lives. Nonetheless, we do not force people to get lawyer insurance. The legal community operates just fine in the free market. If you cannot afford a private attorney, you get a public defender. Conversely, if you have the resources to afford an attorney, you have to pay for one or go without
In this environment, attorneys’ prices have to be responsive to the market. Prospective clients often shop around and one of the first questions they usually ask is “how much will this cost?” As with the grocery store example, they do not necessarily go with the cheapest attorney, but they do usually choose based on a combination of price and confidence in the attorney’s skill.
Now ask yourself this: when was the last time you asked a doctor how much his services would cost? If you have insurance, the answer is probably never. The reason is that you are not paying directly, so price is not a priority. Thus appears the perversion of the Three-Party Consumer-Insurer-Provider model and why any solution that involves health insurance is going to fail.
The Downward Spiral
I believe we all intuitively know the problem with health insurance; namely that the person agreeing to the transaction is not the same as the person paying. To illustrate this, we will hypothetically place insurance in a new, but familiar environment: a grocery store.
You come to an agreement with United Grocery Insurance Company (UGIC) to pay them $200 per month and they will pay for all of your groceries. How are you going to respond to this coverage? Well, you are probably going to throw out your grocery budget and if you clipped coupons before you got insurance, you will stop wasting time with that. You will likely start eating steak and lobster at least once a week, if not more. You will buy name brand and pretty much stop exercising any restraint at all. In short, this is a great deal for you. So arises Problem 1: Your choices no longer have financial repercussions
Naturally, you will tell your friends and they will leap at the opportunity to get this same agreement. Soon, 90% of groceries sold are paid for by UGIC and its competitors. That is Problem 2: Insurance Customers dominate the market.
For the grocery stores, this is a dream scenario. Their customers are no longer concerned with the prices of the merchandise. As a result, the grocery stores remove the price tags in their stores, raise prices and push for the up-sell. They are now billing the insurance companies directly. Therein you find Problem 3: The providers respond to the new market reality by raising prices.
You want bigger, more and better, and the grocery stores are happy to give it to you. Money is no object! After all, what difference do the prices make to you? You are not paying, right? Well, actually you are. You see, you have been costing UGIC more than you are paying for coverage. UGIC is, after all, a for-profit company with shareholders and a board of directors. So naturally, UGIC and its competitors have to raise premiums. Your new monthly premium goes up from $200 per month to $500 per month. And so appears Problem 4: The insurers raise their premiums.
As with UGIC, your grocery store is also a for-profit company. So naturally, they continue taking advantage of this new arrangement. With 90% of its customers buying with insurance, they continue raising prices. A loaf of bread costs $15 now. A gallon of milk costs $20. UGIC is under contract with you to pay, so they have to accept the new prices. Because of the skyrocketing prices, you can no longer afford groceries without insurance. The insurance industry is now entrenched. That is Problem 5: Consumers become hopelessly dependent on insurers.
Unfortunately, these price increases are once again hitting UGIC’s bottom-line. You can probably guess what happens next. Your premiums go up to $750 per month. In addition, UGIC is in this business to make money not break even. So they institute some new rules when it comes time to renew your policy. First, you cannot use your old grocery store. They are no longer in your network. There is a cheaper store on the other side of town that you will be using from now on. Second, you cannot buy unlimited amounts of groceries. You are covered for one gallon of milk per month and two loaves of bread. Also, steak and lobster are no longer covered unless you purchase Gold Plan for $2,500 per month. Finally, you now have a $35 copay for each trip to the grocery store and a $500 deductible every month. And so we have Problem 6: You are paying more than you were before you got insurance but you are getting less
This is really something we could have anticipated from the beginning. As the old saying goes, there is no such thing as a free lunch. You cannot expect to pay $200 to a for-profit company for $500 worth of groceries from another for-profit company. The same holds true for medicine and doctor visits. You cannot pay $200 to a for-profit insurance company for $500 worth of services from a for-profit hospital or doctor’s practice. Somebody has to pay for the value you are receiving, and you can bet the insurance company, the hospital and the doctor will not be taking that loss for you
Two-Party Transactions v. Three-Party Transactions
As I said above, the problem is intuitively clear. While it was a two-party transaction, between you and the grocery store, the market worked as it is intended. The products were not free but they were affordable. You may not have been able to eat steak and shrimp every week, but you could feed your family. This is because you were responsible for both picking the grocery store and paying for the goods. You had accountability for your decisions and you in turn held your grocery stores accountable. This forced the grocery stores to keep their prices competitive or lose your business.
In the hypothetical, the introduction of the insurer to your transaction rendered the market ineffective. That is because, you picked the goods, but the insurance company was responsible for paying for them. This separation of choice and payment created a chain reaction wherein you lost the incentive to shop around and exercise moderation; then, the grocery store lost the incentive to keep prices low; and finally, the insurer was incentivized to raise premiums, add copays (raise prices), create provider networks and exclude or restrict products (reduce service).
Now imagine in the above hypothetical that a fictional president, let’s call him President Shmobama, institutes a new, national, grocerycare policy called the Affordable Grocery Act, Shmobamacare for short. Shmobamacare mandates that everyone must buy grocery insurance. Is that likely to fix the problems or make them worse? The answer is obvious when you are talking about groceries and it should be equally obvious when discussing healthcare. Requiring everyone to get insurance is the opposite of the real solution, which is to ban health insurance.
The Healthcare Solution
It is remarkable that the party that claims to champion capitalism and free market fundamentalism fails to see the market-based solution to this problem. It is no coincidence that capitalism works in every market except the one dominated by insurance. Given everything we have discussed in this article, the Obamacare Replacement should be as follows:
- No more health insurance. Doctors’ and hospitals’ earnings must be based on what their patients are willing and able to pay in a free and open market, not what an insurance company would pay for them. It works for grocery stores. It works for attorneys. It will work for doctors.
- The Government will pay for treatment of Catastrophic Illness. In the case of catastrophic illness, like cancer, we will take care of you. We provide food stamps for the hungry and public defenders for the indigent; we can provide chemo for cancer patients.
As Chief Justice Roberts opined in his majority opinion in the case that upheld the constitutionality of Obamacare, National Federation of Independent Business v. Sebelius, our health insurance premiums are now a de facto tax. We are paying every month to cover illness and injury we do not have, (and to line the coffers of the insurance companies). Catastrophic illness or injury is rare and it will cost less to pay for the actual illnesses or injuries when they occur through taxes than to pay the rising insurance premiums (aka de facto taxes) every month while healthy.
For everything non-catastrophic, the patient and doctor will have to figure out a fee that works for both of them in the marketplace.
- Bonus: Healthcare Only Bankruptcy
We could also create a new chapter in the Bankruptcy Code for medical-related debt. This chapter would allow a debtor to discharge his medical debt without discharging his banking industry debt, and thus avoid the consequences of a full bankruptcy filing. This would probably be unnecessary if 1 and 2 above were implemented but could be another cost controlling measure.
We would probably need a transitional period wherein the government would have to fix prices for a period of time while healthcare providers adjust to their new market. I would suspect somewhere between six months to two years. There may also be some unintended side effects. For instance, with doctors and hospitals being restricted to earning only what the market dictates, the yacht industry and golf resorts may see their profits shrink as a result of this new policy. Likewise, politicians and lobbyists who receive money from the insurance industry would also probably take a hit. I am willing to live with those consequences.
Once we got over the turbulence of removing insurance from the healthcare industry, I believe the response by our economy would be massive. Can you imagine the boon to the economy when millions of citizens no longer have to pay for insurance? Most of that money will become disposable income. Imagine the profits, wage increases and hiring when companies no longer have to provide billions of dollars in health insurance benefits to their employees! It would be the equivalent of massive tax cuts every year! That’s a benefit I think we can all agree on!
Robert Busbee is an attorney with Busbee Law Group, LLC, in Statesboro, a practice he founded out of his apartment in 2014 and has grown into a thriving business that is now located in Statesboro’s flourishing Market District. He specializes in Criminal Defense and Domestic Litigation. He was previously a member of the County Committee of the Bulloch County Republican Party. He is admitted to the State Bar of Georgia and the United States District Court for the Southern District of Georgia.