Tuesday, May 2, 2017

Ten libertarian ideas to make healthcare affordable

How do we increase access to healthcare?  We make it more affordable.  How do we make it more affordable?  The short answer is, the same way you make anything cheaper: increase the supply, and decrease the demand.  Here’s the long answer…

How to increase the supply?

It’s often said that healthcare is so expensive because “sick people can’t say no,” so healthcare providers can extort them by charging exorbitant prices.  It’s understandable why people would think this, because healthcare providers really are getting away with charging basically whatever they want in the current healthcare system. 

But contrary to public mythology, this isn’t because sick people inherently lack alternatives.  First off, life-saving emergency care of the sort people “can’t say no” to comprises only a tiny fraction of overall healthcare costs.  And again, consider the markets for food, housing or clothing: surely, consumers also “can’t say no” to these products if they are to survive or function in modern society.  And yet, most people can afford those things, and producers in those markets cannot charge whatever they want if they expect to remain in business.  What makes healthcare different?

The main reason big pharmaceutical companies can get away with charging prices that so vastly exceed the per-unit cost of production is that unlike producers of food or clothing, it’s often illegal to compete with them: the government literally prevents anybody else from selling the same product at a lower price, creating artificial monopoly conditions.  The secret to increasing the supply of healthcare options from which the average sick person may choose lies in legalizing competition by undoing these interventions, in at least four ways:

1.      Let people buy insurance across state lines.  For some reason this is illegal currently.  I sincerely have no idea why, as there is literally no benefit to isolating those markets (apart from protecting certain favored companies, I suppose).  In any case, making it legal to purchase health insurance from a company located in another state is a no brainer reform that will drastically increase the number of insurance options available to the average consumer and motivate those insurers to compete with one another for a much larger swath of potential customers.  Lower prices will result.

2.      Patent reform.  The most textbook example of government granting an artificial monopoly comes through patent law.  Intellectual property is controversial both in and out of libertarian circles, and I do concede a certain period of exclusive rights is probably needed to incentivize innovation.  But there are other incentives for life-saving healthcare research besides pure profit, and at present these exclusive ownership periods last much longer than is necessary (at the expense of the most vulnerable sort of consumers).  Reforming patent law in other sectors has had bipartisan support for decades, and would inject much needed competition into the market for pharmaceuticals.  It’s no secret why the price of ibuprofen dropped so sharply after Advil’s patent expired, and the same would happen to hundreds of other drugs were generic brands made available to compete with the established ones.

3.      Invert the FDA’s standard of proof.  A classic case of the seen vs. unseen consequences of regulation, the FDA has become a sort of sacred cow on the left, often pointed to as the case-in-point poster-child for the necessity of federal regulation.  Associating its absence with poisoned, rat-infested food has always been rooted more in fear than facts, and there is a growing body of historical research challenging the mainstream story of how and why it was first created (hint hint: it was never intended to protect consumers).  But in any case, the core of what it does today is make it illegal to sell medicine, and there can be little doubt this is contributes to price inflation in healthcare.

I have made passionate arguments before on this blog that the FDA is a corrupt and captured agency far likelier to protect industry incumbents than protect the public.  I sincerely believe we’d be better off without it and don’t back away from any of that today.  Nevertheless, abolishing the FDA outright is highly unlikely to happen in the foreseeable future, so we need a more moderate intermediate stage: inverting it’s standard of proof.  At present, the FDA makes it illegal to sell any medical treatment it has not approved, and will not approve any medical treatment until the people who want to sell it can prove it is safe.  Proving it’s safe takes several years and millions of dollars from the wallet of the inventor.  This is ass-backwards.  A reformed FDA would err on the side of legality, banning only those drugs it has compelling reason to believe (from either it’s own research or that of a third-party watchdog) pose a danger to consumers so grave it exceeds any medical benefit the drug has been demonstrated to provide.  It also would let people try experimental drugs if they are informed of the risks.  Obviously, terminally-ill patients should have no restrictions on what they choose to put in their bodies what-so-fucking-ever.  And finally, it would also allow the reimportation of already-approved drugs manufactured in the United States but priced lower in other countries, enabling efficiency enhancing price discrimination without any uptick in patient risk.

An agency that prides itself on consumer protection should not be proud of the lack of options, inflated prices and dead patients that lie in it’s wake.  Reform here is essential no matter what sort of healthcare system we move towards.

4.      Medical licensing and accreditation reform.  The “supply” of healthcare refers not just to quantities of raw materials like drugs or hospitals or CAT scan machines.  It also refers to people: the thousands of doctors and nurses and surgeons and pharmacologists who assist, diagnose, treat and operate on sick or injured people.  A big portion of the price of healthcare goes towards compensating these people for their time and expertise – and boy oh boy, are they compensated!

Of course, doctors deserve to be paid well.  They put in long hours doing very important work that saves and improves thousands of lives each day.  Furthermore, theirs is work that relatively few other people in society have the intelligence, expertise or drive to do effectively.  Acquiring this expertise requires almost a decade of very expensive secondary education, which accrues massive student debt that must be retroactively paid for.  In conjunction, these factors yield a low supply of capable workers, plus a high demand for their services: the perfect recipe for high wages.

The trouble is, the supply of workers willing and able to be doctors is far larger than the number that are presently allowed to become doctors.  Why?  Because the people who get to decide how many are allowed to become doctors are other doctors.  More specifically, they are the American Medical Association (AMA), which may be the most unnoticed culprit for the high cost of healthcare in the country.

Shikha Dalmia of Forbes describes the AMA in no uncertain terms: “a doctors' cartel that has controlled the medical labor market in the U.S. like its personal fiefdom for a century.” The AMA is not a deliberately sinister organization, but it does carry immense sway with federal regulators, and it uses this sway to systematically shield its members from competition under the guise of patient protection.  It does this in the following ways:

1. It prevents the establishment of new medical schools.  Under current federal law, it is illegal to practice any sort of medicine without a license.  You cannot get a license until you have a medical degree from an accredited university.  The AMA gets to decide which universities are accredited, and hasn’t accredited any new ones in almost 40 years.  It also has a history of convincing lawmakers to shut down any medical schools it subjectively deems deficient, at one point resulting in a 30% decrease in the supply of new doctors over the course of 30 years.

2.  It indirectly restricts the number of students the existing medical schools are allowed to train, creating a de facto cap on the number of new doctors produced each year.  In order to receive a medical degree from an accredited university, you must complete a residency, and this residency must be funded. Congress caps the number of residencies it will fund at 100,000 a year, because the AMA told them this was the maximum the system could absorb without causing a “glut.”  As Dalmia writes, it’s difficult to understand what’s so bad about a “glut” of doctors, except that it would suppress the wages of AMA members.  And in fact, the AMA was proven wrong, as recent years have witnessed an acute shortage of doctors.

3. It prevents foreign doctors who’ve been practicing for years from practicing in the United States until they redo their residency and take several onerous exams, a protectionist policy plainly designed to prevent international competition from undercutting inflated American doctor salaries.

4. It prohibits qualified nurses or physician assistants from offering standard treatments for routine illnesses without physician supervision, due to vastly exaggerated worries about patient safety. 

This is important because in a free healthcare market, nationally syndicated libertarian commentator Ronald Bailey predicts, “a lot of routine care would be done through retail health centers located in shopping malls, drug store chains, and mega-stores. Such centers would not be staffed with physicians but with nurse practitioners or other qualified personnel. Consumers would generally pay for routine, everyday care directly out of their health savings accounts.”  Distinction between routine and more serious care is an important part of long-term healthcare affordability, but that cannot happen for so long as the AMA bans non-doctors from providing services on their own.

5. It goes to war against niche healthcare providers like midwifes, optometrists or chiropractors based on similarly unfounded allegations of patient danger.  The AMA has convinced dozens of states to prohibit midwifery despite the fact that studies have found it provides equally safe care at vastly lower prices than standard hospital births.  It used to prohibit doctors from making referrals to chiropractors until the Supreme Court ruled that illegal in 1987, and still vigorously polices chiropractors to ensure they don’t offer any services that licensure laws deem illegal.

The result of is that According to a 2007 study by McKinsey & Company…US doctors make twice as much as their OECD peers,” which “bumps up health care spending in America by $58 billion annually, on average.”  Removing these restrictions on supply would bring prices down sharply.

The counterargument is that these laws and regulations exist to protect consumers, but they usually do the opposite.  As Milton Friedman eloquently put it in his classic work Capitalism and Freedom:

“I myself am persuaded that licensure has reduced both the quantity and quality of medical practice; that it has reduced the opportunities available to people who would like to be physicians, forcing them to pursue occupations they regard as less attractive; that it has forced the public to pay more for less satisfactory medical service, and that it has retarded technological development both in medicine itself and in the organization of medical practice. I conclude that licensure should be eliminated as a requirement for the practice of medicine.

What truly protects patients is competition, just as it does in every other sector of the economy.  In a better world, healthcare quality/safety assurance would itself be it’s OWN industry of competing watchdog quality evaluators, much like Underwriter’s Laboratory does for household items, or CNET and dozens of other websites do for the latest phones and laptops, or TripAdvisor for vacations, etc. But in the interim, we can at least resist the AMA and it’s state-level affiliates’ overblown fearmongering about quackery, and end their chokehold over the supply of doctors in this country, to the benefit of patients everywhere.

5.      Legalize the sale of organs.  This is sort of under-the-radar issue, and really it could fall under the supply or demand side (providing a larger supply of kidneys to those currently on the waiting list decreases the demand for other costly long-term medical services like dialysis, for example, reducing drain on the healthcare system and cutting the price of those procedures as well).  But whether it’s on the mainstream’s radar yet or not, legalizing the sale of organs would save thousands of lives and millions of dollars each year.  My argument for it is too extensive to republish here, but you can read the whole thing here if you like.

How to decrease the demand? 

But increasing the supply is only half the battle.  Healthcare does not fall like manna from heaven; it is, and will forever remain, an amalgamation of scarce resources.  We cannot infinitely increase the supply of labor, land, raw materials, research, etc. devoted to healthcare without diverting these resources from other areas, which creates real tradeoffs in human wellbeing.  For healthcare as for any product, controlling demand is an essential part of the affordability equation.

This makes liberals antsy because many of them conceive of healthcare as a human right (or at least, as an unmitigated social good we should provide ever-more of to ever-more people; sound familiar?).  Without fail, exploring ways to reduce demand for healthcare prompts accusations that libertarians would heartlessly deprive sick poor people of the life-saving care they need.  So before I continue, it’s worth clarifying that this is not what reducing demand entails.

The United States currently spends $3-4 trillion on healthcare every year, and the vast majority of that is NOT spent on providing life-saving emergency care to people in desperate need of it.  The bleeding-heart tendency to dwell on that minute portion of the larger whole is “using the exceptional case to argue broad,” a disingenuous form of argument that conflates separate moral questions.  Furthermore, peer reviewed articles estimate that roughly a third – and at minimum 20 percent – of those healthcare expenditures are unnecessary or wasteful.  In other words, enormous portions of the healthcare industry consist of products and services that people really CAN say no to – and sometimes, they should.  We can reduce demand for these healthcare services without decreasing the number of dying people we save.

Healthcare reform alone cannot much change how often people get ill or injured, but it can change how flippantly they will spend money to treat those injuries and illnesses.  To illustrate, suppose you are at risk for heart disease.  Ask yourself: how much money would you spend per year for a medicine that would reduce your chance of suffering a heart attack at some point over the next 20 years from 5% to 3%?  Or, less dramatically, suppose you have a cold; how much money would you spend for medicine that would shorten the duration of your cold by 48 hours? Or, supposing you’re buying health insurance, and deciding between a plan with a $500 deductible and one with a $2000 deductible; or, between one that covers elective surgery, and one that does not.  How much more would you be willing to pay per month for the better plan over the worse one?

I can’t know how you would answer those questions.  Different people would surely answer them in different ways.  But I do know one thing for absolute certain: the amount you’d be willing to spend would be much, much higher were it someone else’s money you were spending!

This simple truth is the single biggest reason US healthcare costs are spiraling out of control: the people deciding how much healthcare or health insurance coverage to purchase or advise are almost NEVER the same people paying for it.  Seniors consume as much as they want on the government’s credit card, without themselves paying a dime; employees consume as much as they want on their employer’s plan, without paying a dime more than a deductible they didn’t choose; doctors prescribe as much as they can, to patients who usually don’t have to pay for it, because neither have any incentive to economize their consumption.  Most doctors don’t even know how much the treatments they order cost, and when costs are hidden, overconsumption is inevitable.

This state of affairs is completely unsustainable no matter which side of the ideological spectrum you fall on.  Conceptualizing healthcare as a human right does not magically render the law of diminishing returns inapplicable.  Even if your goal is universal healthcare, that can only be affordably achieved if we spend our healthcare resources more efficiently, which necessarily entails economizing consumption.  Getting serious about controlling healthcare costs means abandoning the fantasy that everyone can have as much of it as they want, whenever they want, on somebody else’s dime.

If the TL:DR for increasing supply was “remove barriers to competition,” the TL;DR for decreasing demand is “promote cost-consciousness.”  This can be accomplished through the following policy proposals:

6.      “Make insurance insurance again” by repealing Obamacare’s individual and corporate mandates.  The purpose of insuring anything, to include one’s health, is to safeguard against unlikely but potentially devastating calamities.  That peace of mind is only affordable for so long as the risks remain both small for any one individual, and unpredictable for any larger group, such that insurers can pool thousands of similarly low risks into similarly low-price brackets.  This model allows most people to afford car insurance, home insurance, and life insurance without any help from the government nor their employer.

By mandating (errr, “selectively taxing in order to guarantee”) an expansive minimum level of universal coverage, and then prohibiting “price discrimination” against those with pre-existing health conditions, the Affordable Care Act deliberately made this traditional insurance model illegal.  Controlling the price of both healthcare and health insurance begins with hurling these two rules into the trash bin of history with as much force as we can muster.

People will never economize their consumption of healthcare if all healthcare services included in Obamacare’s extensive list of minimum coverage requirements are free or sharply discounted (to them) at the moment they’re deciding whether to consume.  These minimum requirements include almost all healthcare procedures, from prescription drugs to mental health services to children’s dentistry, as well as elective medicine like preventive colonoscopies or mammograms, birth control, plastic surgery, and pregnancy/childbirth services (even for single men).  Prominent mainstream feminists are already pushing for it to include tampons, and from there, why not include other personal hygiene items?  Say, toothpaste, or floss, or shaving cream, or band-aids, or Chapstick?

Each of these are products which may improve my health, but they are very clearly not risks I need to be insured against.  They are optional and highly affordable luxuries which most individuals are perfectly capable of purchasing on their own.  Needing some sort of healthcare at some point in our lives is not a risk we have to insure against; it’s a certainty we have to save for.

To demand insurance cover nearly all healthcare-related expenditures, and then prohibit insurers from charging some people more than others, is exactly equivalent to demanding younger and healthier people pay the healthcare costs of older and sicklier people.  In other words, it is to transform those so-called “insurance” plans into something else entirely: either a guaranteed entitlement to other people’s money, or a mandatory obligation to give other people your money, depending on how healthy you happen to be at the moment.  Even if you break perfectly even from that transfer, it’s then merely a camouflaged prepayment for future consumption (and one which libertarian commentator Sheldon Richman observesincludes a hefty administrative overhead charge, which means the policy would be a bad deal if customers were paying the full price with eyes open.”) That is insurance in name only.

If you share Obama’s dream to guarantee universal coverage at no additional cost to those with existing health problems, have the integrity and confidence to advocate for that position plainly, without pretending “insurance” has anything to do with it.  And again, realize that even in the most socialist European examples, a broad and generous public healthcare safety net cannot happen without a degree of cost-consciousness, which means administering that guarantee through massive insurance company middlemen was a counterproductive strategy you should get on board with undoing.  Who do you think benefits most from cost-indifference?! 

The people setting the price, that’s who.  Giant healthcare corporations are reaping massive rents off Obamacare’s minimum coverage requirements, which, when combined with the complete obfuscation of how much things cost and the typical separation between payer and consumer, allow companies to sell an ever-expanding list of things considered “healthcare” in ever greater quantities at ever higher prices without anyone having incentive to take their business elsewhere.  Abandoning the rhetorical pretense of an insurance-based model would have the added benefit of bypassing the corporate interests getting rich off the inefficiencies of the current system.

But until such time, and for so long as the question is “how do we make health insurance affordable?”, the clear answer is a return to the low-cost, high deductible plans so successful in other insurance markets, to include health insurance in Singapore.  These plans may not give everyone free birth control and Lipitor, but they do resolve the heart-wrenching cases of people bankrupted by tragedy that the left so often uses to agitate for single-payer.  And most importantly, they’re shown to be extremely effective at reducing aggregate healthcare costs – in part because contrary to popular belief, preventive medicine does not save the health care system money, and “there are literally hundreds of studied over the past 40 years” that show preventive medical services actually increase medical spending.

Of course, eliminating the individual mandate also makes it legal to have zero health insurance coverage whatsoever.  This is also okay.  Different people have different risk tolerances and in a free society they are allowed to live with the consequences of those tolerances, good or bad.  And remember that abandoning the individual mandate would not kick anybody off of the plans they already have, it would just give them the option to stop paying for it moving forward without having to pay a fine instead.  Worrying that some people would lose their coverage if we merely made it legal for them to not buy coverage is akin to worrying that millions of people will lose their military service if we do away with the draft.  Compulsory anything is no favor to the people being compelled.

It’s worth mentioning that fully “making insurance insurance again” would also require some state-level reforms, since many states had passed so-called “Patient Bill of Rights” bills with minimum coverage requirements even before Obamacare’s passage.  But in any case, motivating patients and doctors to eliminate unnecessary or inefficient expenditures will have to include making more healthcare services fee-for-service at the point of sale, instead of prepaid by someone else.  This leads right into the next proposal.

7.      End tax exemption for health insurance benefits.  Yes, you read that correctly: a libertarian is calling for a de facto tax increase.  Of course, I’d ideally want this offset by tax reductions elsewhere in a revenue neutral way, but those are details.  The point is that our lack of cost-consciousness is driven in large part by our uniquely horrible employer-based health insurance system, in which 85% of Americans are given health insurance as part of their salary thanks to decades of federal tax exemptions for healthcare benefits.

The employer-based system came about because post-war policymakers wanted to expand access to healthcare while by means of encouraging employers to provide insurance to their employees.  To accomplish this, they essentially subsidized health insurance benefits in the form of tax breaks, exempting medical benefits as untaxable or less-taxable compensation just as they write off charitable donations.  This gave employers and employees a joint incentive to divert as high a portion of overall employee compensation through the healthcare system as possible – sometimes up to $15,000 a year – which, in turn, gave insurance companies an incentive to offer ever-more comprehensive insurance plans that functioned more as advance prepayment than traditional insurance.  Richman elaborates:

“What makes private medical insurance look like a good deal today is that employers seem to provide it for "free" (or at low cost) as noncash compensation, or a fringe benefit, which is treated more favorably by the tax system than cash compensation. If an employer pays workers in part with a $5,000 policy, they get a policy that costs $5,000. But if the employer pays workers $5,000 in cash, they’ll have something less than $5,000 with which to buy insurance (or anything else) after the government finishes with them. That gives employer-provided insurance an appeal it would never have in a free society, where taxation would not distort decision-making. Moreover, the system creates an incentive to extend "insurance" to include noninsurable events simply to take advantage of the tax preference for noncash compensation.”

Subsidizing anything creates more of that thing, and in this case tax breaks for health insurance benefits create an artificial stimulus of demand to insure against more and more health costs.  This helped the shortsighted politicians who simply wanted to decrease the magic number of uninsured Americans in the name of public empathy points, but it was horrible for the long-term goal of decreasing healthcare costs to a range everyone can afford, for at least two reasons. 

First, it strips consumers of the incentive and information needed to shop around for health insurance.  People don’t (and shouldn’t!) pick a career path based on which health insurance plan is right for them, so they wind up doing the opposite instead: picking health insurance plans randomly, based on which job comes along with it.  The result is that consumers have no any idea what their plan costs, nor any motive to reduce those costs, nor any feasible method to do so if they wanted – they’d literally have to quit their job and uproot their life to switch plans.  This is the exact opposite of how consumers behave in the places where health insurance is cheap (like Switzerland, where consumers are among the most discerning in the world).

Secondly, the employer-based system has the perverse quirk that losing your job means losing your health insurance too, at the precise moment one can least afford to foot one’s own healthcare bills.  This double-whammy is the literal opposite of the “safety net” system it’s progenitors hoped to achieve.  Applying such a system to any other sort of product shows just how inane it is.  Harvard University business professor Regina Herzlinger laments I wouldn't permit (the President of Harvard) to buy my house or my clothing or my food for me. Yet as my employer, he could take up to $15,000 of my sala­ry each year and buy my health insurance for me, without knowing anything about my preferences or needs. It's ridiculous."

Effective reform would re-empower consumers to shop around for the plan that’s right for them by dismantling the employer-based health insurance system and converting the money currently spent by employers for group insurance to additional employee income.  If government can afford to continue foregoing this tax revenue (and of course I think it can), it makes much more sense to reward taxpayers with lower-but-more-level marginal tax rates across the board than to keep the status quo intact.  And even if you think the government needs more revenue, it makes more sense to close this loophole first than it does to raise marginal tax rates overall, as many healthcare reformers also advocate.  Either way, since the portion of employee salaries paid as insurance benefits would go down, more money would transfer out of the bloated healthcare sector and into other areas of the economy, reducing the aggregate cost of healthcare in the country.

Perhaps the reader wonders whether the additional income returned to employers would be enough for them to afford equally comprehensive health insurance plans as their employer currently provides.  The answer is “maybe, but hopefully not.”  Of course, we do want people to be able to afford insurance against catastrophic healthcare risks beyond their control, and I explained above why they would very likely be able to.  But as I’ll explain below, reducing the role and prevalence of health insurance in our healthcare system should be seen as a feature, not a flaw.

8.      Allow and encourage healthcare providers to shift from an insurance-based payment model to a direct fee-for-service model, especially for routine care.  Proposals six and seven would pave the way for this shift to take place, but finalizing it will require cooperation from state government, insurance companies, and doctors at all levels.  It is linked up with the medical licensure reform I mentioned in the supply section, as well as the state-level “Patient Bill of Rights” acts I mentioned in question six.  Creating optional Health Savings Accounts for all Americans (like Singapore does except voluntary) might also help.  And to be perfectly honest, I’m not sure of exactly how to phrase the law to guarantee this happens.  It might be a gradual process and legislation might not be the best tool for bringing it about.

All I do know is that such a shift is crucial to effectively restraining healthcare costs.  To understand why, I’ll paraphrase famed economist Milton Friedman.  In his classic work Free to Choose, Friedman identified four different types of spending, ranked in accordance with how efficient they are:

1.      The first type of spending is when one spends one’s own money on something for oneself.  This is the most common and most efficient sort of spending, because the spender is very careful to both minimize the price and maximize the quality of the thing being purchased.

2.      The second type of spending is when one spends one’s own money on something for somebody else – like we do when we’re shopping for gifts, usually.  This is less efficient, because while the spender may be concerned with limiting cost, they are not as concerned with scrutinizing the quality of the thing being purchased (after all, it’s bad form for the recipient to “look a gift horse in the mouth”!).  Also, the spender usually doesn’t know enough about the other person’s unique preferences or indifference curves to maximize the utility which the other person might derive from the amount spent.

3.      The third type of spending is when one spends someone else’s money on something for oneself.  This is a very inefficient sort of spending because there is no incentive to limit costs, and every incentive to spend as extravagantly as possible on the highest quality items.

4.      The fourth and final type of spending is when one spends someone else’s money on something for someone else (either that same someone who’s money it is, or for another person still).  This is by far the least efficient form of spending because the spender has neither an incentive to limit costs nor an incentive to maximize quality. 

Friedman’s insight was that government spending almost always falls into this fourth category, whereas private spending almost always falls into the first category.  He argued this was a big part of the reason the private sector is so much more efficient than the public sector, and he’s very clearly right about this.

But observe that even in the private sector, most healthcare spending under our current “insurance model” of paying for care falls under category three.  When everything’s covered for everybody – the explicit goal of the political left for decades now – those weighing care options (both doctors and patients) are enticed to spend enormous amounts of someone else’s money (that of the government or their insurance company) on products and services they’ll consume themselves.  Remember earlier when I cited how doctors and patients don’t even know how much their healthcare costs?  This is why.  It’s literally irrelevant to their shopping decisions.

It should honestly go without saying that no matter what healthcare system we pursue, the cost can no longer continue to be irrelevant if our nation is to be fiscally solvent.  Bastiat was on to something when he mused, way back in the 1800’s, that “government is that great fiction by which everyone tries to live at the expense of everyone else.”  The modern American left uses insurance as a code-word for cost shifting, and Friedman reminds us there is no such thing as efficient cost-shifting.  That’s why shifting away from that sort of expansive insurance model towards direct primary care payment is so inescapably necessary: we need to minimize the number of healthcare payments made via delayed third-party reimbursement.

Sounds good in theory, sure, but does it work in practice?  Yes. 

Reason provides dozens of real-world examples of how this “direct primary care” system makes healthcare prices drastically, severely lower (think 10% or less of what they are now) while also being best for a growing movement of “off the grid” physicians and specialists.  One of them is Dr. Neuhofel, based in Lawrence, Kansas:

“[Neuhofel] charges for his services according to an online price list that's as straightforward as a restaurant menu.  A drained abscess runs $30, a pap smear, $40, a 30-minute house call, $100. Strep cultures, glucose tolerance tests, and pregnancy tests are on the house. Neuhofel doesn't accept insurance. He even barters on occasion with cash-strapped locals. One patient pays with fresh eggs and another with homemade cheese and goat's milk.

"What people don't realize is that most doctors employ an army of people for coding, billing, and gathering payment," says Neuhofel. "That means you have to charge $200 to remove an ingrown toenail." Neuhofel charges $50.

CATO Doctor Jeffrey A. Tucker agrees that ditching insurance would enable massive savings:

“Many doctors—myself included— will gladly substantially discount their fees in return for up-front payments from people who pay directly for their health care. Hospitals, ambulatory surgical centers, and urgent care clinics do the same. Why shouldn’t they? They don’t have to pay an army of staff to fill reams of forms and wait weeks to months to collect payment from an insurance company that sometimes is lower than what they get from their direct-pay patients.

Yet most of these same providers have much higher “list prices”—the official prices they list publicly—which are used to negotiate compensation contracts with health insurance companies and other third party payers.”

What’s more, a direct-pay system enables innovation and flexibility in ways retroactive reimbursement would stifle.  The Reason article continues:

“[Neuhofel} consults with his patients over email and Skype in exchange for a monthly membership fee of $20-30. "I realized people would come in for visits with the simplest questions and I'd wonder, why can't they just email me?" says Neuhofel. Traditional doctors have no way to get paid when they consult with patients over the phone or by email because insurance companies only pay for office visits.”

The rest of the article is full of dozens of several similar stories, and the underlying morale of the story is the same throughout: make the person paying for the care and the person receiving the care the same person on the same day, and good things happen.  Let’s do that.

9.      Push back eligibility for Medicare.  So far I’ve focused on what remains of the allegedly “private” portion of the US healthcare system, but much of that system has been consumed by government in more obvious ways.  Fully one third of Americans are eligible for free government healthcare through either Medicare or Medicaid, not including those uninsured who have the government pick up the tab for their emergency room visits.  Addressing the demand side requires addressing these expenditures too.

Of course, in libertarian utopia we wouldn’t need Medicare at all, but as I mentioned in regard to the FDA, a libertarian utopia is a long way off.  For the time being, we still need to address the program’s several decades of unpayable liabilities.  The fairest way to do that is to push back it’s eligibility by several years in accordance with how much longer Americans are living.  Failing to adjust the Medicaid eligibility year in accordance with later life expectancies and retirement averages is akin to failing to adjust fiscal entitlements for inflation, and liberals are certainly insistent on doing that.  This also fits in perfectly with the aforementioned strategy of reducing the role of comprehensive, take-all-you-need style insurance plans.

Taxpayers don’t need to be buying unlimited prescription drugs for every sore throat or bunion suffered by every working 63 year-old in the country.  Narrowing and delaying eligibility for Medicare benefits is the only fiscally responsible course quite apart from it’s broader economic implications; that it would make healthcare cheaper for most by decreasing demand is just a nice perk.

10.  Reform medical malpractice laws to make it harder to sue doctors.  Another factor driving overconsumption of healthcare is over-prescribing and the drain of defensive medicine.  The exact extent to which this plays a role is hotly debated, and I actually sympathize more with the left-wing arguments in that case; victims do need recourse when they’re lives are destroyed by gross negligence.  But one reasonable compromise with this approach could be getting rid of so-called punitive damages in medical tort cases, in which “an individual person is turned into a scapegoat to be ‘taught a lesson’ on behalf of the entire class of victims of conduct like his or her own.  In other words, it amounts to punishing doctors not only for their own misconduct, but for damages caused by other doctors who also happened to make the same mistake.  This isn’t just unjust: it drives up the cost of healthcare by frightening doctors into practicing defensive medicine just to cover their ass.  Recall that 20-33% of all healthcare expenditures are unnecessary in this country, and investigating what leads medical experts to advise so many unnecessary treatments “just to be safe” seems like a no brainer.  If removing the risk of NOT prescribing it will help doctors make such decisions according to medical necessity instead of fear, we should do what we can to remove that risk.

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