Author Archives: Sarah Fontenot

Will Market Driven Health Care Save Us?

Americans favor letting market forces control issues of pricing, access, and availability for all types of products, why not health care too?

Conservative voices have espoused “Market Driven Health Care” for decades, and as the GOP in Washington re-invests in becoming The Party of Healthcare we can expect more calls for the same.

Presumably, “Market Driven Health Care” is also the vision of life without ObamaCare for those who are supporting the challenge to the Affordable Care Act currently in Federal Appellate Court (which could lead to the eradication of the entire law).

Would a market controlled health care system be better?

Would it replace the High Deductible insurance policies so many Americans hate?

The Problem with Market-Driven Health Care

Our third-party payer systemdefined as when an entity (other than the patient or the health care provider) reimburses and manages health care expenses- is the antithesis of a Market Driven economy. Why?

Let’s start with a simple example of a Market Driven exchange between buyers and a seller.

A store has a product on its shelves. If the product is desirable to customers, they will buy it until the price outstrips the attractiveness, or it becomes out of their reach (regardless of how much the shoppers want it). If this happens frequently enough, the store owner will tweak the price down or will alter the product to address both its demand and its pricing. Ultimately market forces bring the product to the sweet spot where the customers will buy it, while the seller has maximized the amount of profit in the transaction.

Now lay that framework over a traditional encounter between a patient and a doctor. The consumer (the patient) is in his doctor’s office with a painful knee. His orthopedic surgeon examines his knee, conducts screening tests, and explains there are a couple of treatment options ranging from low impact exercise, rest, and heat packs- through to full knee replacement. Considering the pros and cons of all the options, and with his doctor’s recommendation, the patient decides to go forward with surgery.

Unlike the market example above, however, the conversation about choices does not include the price of each of those options. Speed of recovery, pain, effectiveness, and risk are all considered; cost does not dictate the patient’s decision.

In this traditional treatment decision, the party paying for the surgery is not even in the room.

The payer- whether a private insurance company, a self-insured employer, or the Government is far removed from the moment of decision making and is not even consulted.

When cost is not part of the decision-making process, it cannot be a Market Driven encounter.

In fact, the absence of any price-awareness in treatment decisions under our traditional medical model was a significant factor in the skyrocketing cost of medical care during the second half of the last century.

Bringing the Payer into the Exam Room

Three decades ago insurers started pushing back. With the evolution of “Managed Care” in the early 1990s preauthorization became the norm. Insurance companies demanded (through contracts) to be included in the decision-making process to a greater extent than they had been previously.

And Americans (and their doctors) hated it. The public was aghast that medical choices they made were denied payment; physicians bemoaned the loss of physician autonomy and independent professional decision making.

But even with insurance company’s significant involvement in treatment decisions (which Americans have been complaining about for three decades) costs continued to rise.

The Development of High Deductible Insurance Plans

During the 1990s, while preauthorization became common, insurance companies experimented with another way to bring accountability for cost into treatment choices.

Have the patient feel the economic burden of his own choices; give him a policy with a high deductible!

This method was more productive and became increasingly popular with employer-based insurance over the years (because these policies also have lower premiums). However, other parties buying insurance steered clear of High Deductible plans.

Then Along Came the Affordable Care Act (“ObamaCare”)

Years after High Deductible plans failed on the open market the Affordable Care Act passed.

Insurance companies entering the Obamacare marketplaces (“Exchanges”) knew that they would be insuring many more people, some with higher risks than traditional underwriting would allow. They also were required to offer a broader slate of care options (“Minimal Essential Benefits”) and had to keep their costs down to remain competitive and meet the ACA rules and expectations.

But Lo! High Deductible plans were waiting in the insurance industry wings as a perfect solution.

Neither created nor mandated by the law, High Deductible insurance policies became synonymous with Obamacare.

For the last ten years, Americans have felt the pain of those High Deductible plans.

And the public got angry- particularly towards Obamacare and the unprecedented out-of-pocket costs people now pay for health care- even with insurance. The two are connected in the minds of the public- and the insurance companies have been happy to support that misunderstanding.

Will Getting Rid of ObamaCare Get Us Market Driven Health Care (and Get Rid of High Deductible Plans?)

We don’t have the next wave of GOP proposals to replace Obamacare (assuming they are coming). The best resource we can use to project what the GOP will offer if Obamacare is defeated (either in Court or in Congress) is their only bill to successfully pass either House of Congress during the “Repeal and Replace” summer of 2017.

Under the leadership of Paul Ryan, the GOP controlled House of Representatives approved the “The American Health Care Act” [AHCA] on May 4, 2017. A party in the Rose Garden with President Trump followed that same day.

Was that acclaimed Bill the beginning- finally- of the “Market Driven Health Care” that the GOP had championed for decades? No.

Did it get rid of High Deductible Insurance policies? No. The AHCA didn’t even mention High Deductible plans. Or market forces for that matter.

If Not the GOP- Who Will Give Us Market Driven Health Care?

There is a reason why the GOP did not create a Market Driven health care system back when they had control of all branches of government in 2017.

The barrier to a real market system is where we started- you can’t get Market Driven unless the person making the purchase (i.e., buying a knee replacement) is also the person who is paying for that knee. The only way to do that is to get rid of insurance- to have everyone be self-pay.

That solution is a political impossibility. *

As long as a third-party payer system is intact, we will continue to have High Deductible insurance policies, preauthorizations, and anything else payers can (and will) invent in the future to weed down treatment decisions and put pain in the wallet of the patient.

That is our future regardless of what happens to ObamaCare- and regardless of which party wins control in elections to come.

*Putting aside Democratic proposals to get rid of insurance companies, for now, I do want to point out that Medicare for All is the direct opposite of a Market system- it promises care without any payment at all!


Want to Know More?

  1. Why did we start insurance coverage for medical care, and when? For an excellent review of the health care insurance industry in America, I recommend “A Short History of American Medical Insurance” available here.
  2. There is another common use for High Deductible health care policies I did not mention in this Fontenotes- and that is when a person has a Health Savings Account (HSA) with a High Deductible plan as a back-up. To learn more about this option go here.