Third Party Payment

It's become very fashionable to blame insurance companies for many of the problems in health care these days. But, here's another perspective to think about since we are now having a national conversation about health care reform. The premise of insurance is to have a third party (the insurance company) pay for things. But, there are always problems when you bring third parties into such economic transactions. Ask yourself: If you were the third party how many treatments would you be willing to pay for? How many treatments would you deny payment for? If it were your business to provide third party payment would you be as generous with your money as everyone is demanding that insurance companies be with theirs?

There's no question that the way our health insurance industry is structured and regulated distorts any free market principles at work in health care. But, to find a solution we must first understand the problem. Any attempt to separate the physician from the customer will distort the system in some way. This is the system we currently have and, unfortunately, it looks to be the system we will still have once reform legislation passes.

What nobody seems to be asking is what would happen if we allowed health insurance to work as car insurance works. We don't expect car insurance to cover every expense associated with our cars such as gas, oil changes, and other routine repairs. As a result, these services are affordable as is insurance. Part of the reason they both are affordable is because there is a free market at work. Unlike health insurance, car insurance can be sold across state lines and unlike health care services automobile services charge clear prices for their products that consumers pay.

One of the worries is that if we let the free market dictate prices most people won't be able to afford health care. Why would this be the case? What business would charge more than any of their customers (or the vast majority) could not pay. They would soon go out of business. But, you might say, health care is already expesive. Well, if we leave payment to third parties this is an inevitable result. If neither the doctor nor the patient can engage in a negotiation for their health care services and what they will pay for them costs will continue to rise.

But, what about medical procedures that are inherently expensive since they use expensive technology not yet widely available. The best analogy here is with consumer electronics. When flat screen and plasma televisions first came out they were expensive and only affordable for a few people. But soon after this prices fell and now these technologies are widely available and affordable. The same would likely apply if we allowed health care technologies to be available in a free market.

What about those who still cannot afford these services. We can address that problem as we do other affordability problems with much less disruption and much more beneficial results. There is no question that the current system is in need of reform, the real question is will we pursue a course of reform that might yield beneficial health results or just beneficial political results for our elected officials. These will not necessarily be the same benefits.