Direct primary care can rein in America’s out-of-control healthcare costs

Direct primary care can rein in America’s out-of-control healthcare costs

Dr. Lee S. Gross, M.D. has written an Op-Ed in The Washington Examiner about how Direct primary care can rein in America’s out-of-control healthcare costs.  He Challenges Congress to make changes that will make it easier for Americans to utilize Direct Primary Care while still insuring against unpredictable, unforeseen, rare catastrophic costs.  Dr. Lee Gross has been a revolutionary in the Direct Primary Care movement, and he has had the opportunity to speak to lawmakers about the advantages of Direct Primary Care.

Reforming America’s Healthcare System Through Choice & Competition

Reforming America’s Healthcare System Through Choice & Competition

I would like to encourage my followers to read today’s release of the U.S. Department of Health and Human Services (HSS)  Whitepaper about how to reform the American healthcare system through choice and competition.

The document explores the following topics where reform can lead to improvements:

  • Health Care Workforce and Labor Markets
  • Health Care Provider Markets
  • Health Care Insurance Markets
  • Expansion of HSAs and HRAs (Consumer-Driven Health Care)

When Did Healthcare Become For-Profit in America?

When Did Healthcare Become For-Profit in America?

With all of this talk about healthcare reform, the American populace is finally beginning to become curious about the history of healthcare, which is a good thing! Whenever we are faced with a crossroad, we want to learn as much as we can, so we can make a difference in finding the solution to the problem.  What better way to find the solution than look to the mistakes of the past and learn from them? Unfortunately, Americans are constantly bombarded with very biased information coming from the news media and others with polarized political viewpoints. The terms “Healthcare” and “Health Insurance” are often conflated, when in reality, they mean two very different things.  When someone asks, “When did healthcare become for-profit?”, they usually mean, “When did health insurance become for-profit?” Before people began using health insurance to pay for healthcare, consumers simply paid their doctors either directly or via charity, and the providers of the healthcare earned a “profit” (“profit” simply means that revenue exceeds the cost of doing business).

Non profit status doesn’t save substantial amounts of money on the cost of insurance, nor on the cost of healthcare.   In Dr. Keith Smith’s Blog Post, “The Evil Profit Motive, Dr. Smith describes how profit motive ultimately leads to both higher quality and reduction in cost. Profit is not the root cause of rising healthcare costs. It has always been legal to earn a profit in the healthcare industry. In fact, when state legislators gave The Blues non-profit status and a competitive advantage over other insurers in the late 1930s, this was a disaster in the making.  The Blues were not only able to avoid the tax requirements of other insurance companies, but also the reserve requirements that were imposed on other insurance companies. By the 1950s, The Blues were the largest health insurer in America. The Blues pre-paid healthcare model, now the standard of today’s insurance models, “covered” even minor healthcare costs, minimizing incentives for insured customers to comparison shop for non-emergent medical services, and minimizing the incentives for doctors and hospitals to compete on price. This was the beginning of the end of free markets in medicine. It wasn’t the beginning of “for profit”  healthcare, but rather the unfair non-profit status given to The Blues that led to today’s rampant healthcare inflation.

The driver of healthcare costs is simple to identify. The less the actual consumer of the care is aware of the cost of care, the more care is utilized, and the more expensive care becomes.  This is true whether the care is paid for via private insurance or via the government.

The only true way to lower both over-utilization and the cost of healthcare is to remove payment of routine, preventive and predictable healthcare costs from third parties. When this happens, providers of the care are suddenly faced with the need to compete for and please their clientele by increasing quality, lowering prices and making prices transparent. Mounds of bureaucratic cost and red tape are removed from the healthcare provider’s bottom line, allowing them to charge reasonable prices that the vast majority of people can afford, while still earning a profit. This is true with primary care, imaging, and even major medical care such as surgery.



The visual example in the above Table depicts a massive rise in USA healthcare spending after 1970.  Given this information, what historical events occurred before and after 1970 that caused this phenomenon?

  • 1942 – The Stabilization Act passed as a means to allow employers to offer health insurance as a fringe benefit in light of wage controls. One year later the IRS decreed employer-sponsored health insurance a tax deductible benefit resulting in the explosive growth of employer-purchased health insurance. As explained by Dr. Paul Hsieh in Moral Healthcare vs. Universal Healthcare, “When employers pay for health insurance, employees tend to remain largely unaware of the costs involved. And even if they are aware of the costs, because the insurance is paid for with pretax dollars, employees cannot as easily compare its value to that of other benefits such as vacation time, personal days, or retirement savings. Further, because employer-paid health insurance premiums are not taxed as income, many employees come to think of them as a normal condition or an entitlement of employment and feel shortchanged when the employer tries to shift part of the cost to them.” When consumers are unaware of and not responsible for the cost of any product or service, they will use more of it.  Imagine how much food you’d buy if it was “covered” by food insurance supplied by your employer? The utilization of healthcare services should not be considered any differently. The same laws of supply and demand apply.
  • 1965 – The creation of Medicare & Medicaid – At the time of creation, Congress estimated that Medicare would cost about $12 billion by 1990. The actual cost in 1990 was $90 billion! The fee-for-service approach first introduced by The Blues and then copied by Medicare and Medicaid paid for even the most minor healthcare needs,  simultaneously removing the need for any competitive pricing models while encouraging healthcare providers to provide as many services as possible to maximize revenues.
  • 1970s and Early 1980s – In an effort to control explosive health care utilization, Congress passed Edward Kennedy’s HMO Act. HMOs limit utlilization by providing coverage only within a narrow network of participating healthcare providers. Healthy people gravitate to HMOs, while the sicker tend to gravitate towards plans that offer out of network benefits (PPOs).  In 1983, Medicare also turned to cost control measures in an effort to control utilization. But cost controls and low reimbursement levels to healthcare providers inevitably lead to shortages, as fewer physicians choose to participate, often having a negative effect on quality of care and timely accessibility.
  • 1985 – The Emergency Medical Treatment and Labor Act of 1985 (EMTALA) passed. EMTALA requires that hospitals accepting Medicare patients treat anyone who comes within two hundred feet of an ER, regardless of ability to pay.  The shortages of participating primary care providers created by the the Medicare and Medicaid systems have led to large numbers of people seeking care in the ER, even for the most minor health conditions. The passage of EMTALA made this behavior possible. Again, review the Table above to see the massive rise in healthcare expenditures between 1970 and 1990. After the passage of EMTALA, we see explosive growth in healthcare spending. Clearly, the use of expensive emergency services for minor healthcare treatment is the only way to explain this spending explosion.

I digress.  In 1939, only 6 percent of the population had health insurance, and only a small fraction of those insured had employer-sponsored health insurance. Most people simply paid their healthcare providers directly and the small percentage of those in need received hospital care via charity or pre-Medicare government programs. Yet, household out-of-pocket spending as a percentage of total household income remained relatively flat, despite all of the above mentioned government interventions. Essentially, all of the above mentioned interventions resulted in a massive increase in health care spending by third party insurance and government programs turning healthcare delivery into a bureaucratic nightmare of increased regulatory burden and cost, even for the most basic and minor healthcare needs.

Healthcare spending
Healthcare spending as a percentage of household income

Fast-forward to 2010 and the passage of the Affordable Care Act.  The primary reason for the ACA was to help those who could not afford health insurance to access healthcare affordably.  As you can imagine, the massive regulatory burden and increased costs created by earlier government interventions left larger numbers of people with no ability to afford healthcare unless they could have access to a third party payer.  The ACA expanded access to personal health insurance and Medicaid, allowing more people to access health care under a third party payment model. The consequence of the ACA, however, was to cause another massive increase in the cost of healthcare and reduced accessibility via narrow networks and limited drug formularies.  Today, government legislators are now proposing “Medicare for All” as the ultimate and final solution.  Isn’t it ironic that the government always proposes to double down on failed policies, instead of trying something radically American?

It’s clear that years and years of government intervention, not free markets, is what has broken our healthcare system.  It’s time to think about how we can return to the ways of days gone by, improving quality while reducing cost.  Physicians all over the United States of America are already joining the movement to make direct payment of healthcare affordable and accessible. How can health insurance be modified to allow for “wraparound” catastrophic coverage instead of the “cover everything” approach we use today? What can you do, as an American, to further the cause?