The US Healthcare System Is Two Markets In One, And Should Be Treated As Such

Any debate regarding the high costs of healthcare inevitably involve the argument that because sick people are “under duress”, they can’t shop around for healthcare. Logically, this should mean that a market based approach to health care can’t work.

However, a core idea that many choose to ignore when making this argument, is the fact that healthcare is in fact two markets in one. The two markets in question are commonly divided into “emergent” and “non-emergent”.

Market 1: Emergent healthcare

For emergencies, surgeries, and conditions that require expensive ongoing care like cancer, patients are in a form of duress in the sense that if they don’t get prompt care, they will die. Someone bleeding out in a car accident doesn’t have the luxury of being able to shop around for doctors. This is the market in which the usage of insurance makes sense, as it’s a rare occurrence that would be catastrophic for most people to pay out of pocket for. It’s no surprise that this is also the more difficult of the two markets to improve costs and efficiency.

By law, ERs cannot turn away patients, regardless of their ability to pay. This has inevitably lead to those with no insurance relying on the ER for all their healthcare needs. Hospitals have no choice but to eat those costs, making up for it by charging higher rates to the insurance policies of those who can pay. Those insurance companies then charge higher premiums to make up for it.

For this market, lowering costs relies heavily on increasing the efficiency in how insurance and healthcare providers do business together. To get an idea of the magnitude of this problem, look no further than this chart:

Because of the cumbersome and disjointed way in which medical billing is done, paperwork has drastically increased, leading to hospitals needing more and more administrative staff to handle this workload. That naturally translates to higher costs, which are passed on to insurance companies, who pass the costs on to patients.

Market 2: Non-emergent healthcare

For routine primary care, like regular checkups or an appointment for some symptom bothering you, you absolutely are not under duress. You won’t die because you took 5 minutes to choose a doctor on ZocDoc. With more transparency in costs of service, this could definitely become a market, ie “for $XX per month, get unlimited visits to our partner doctors’ offices”.

This is currently being tackled by the surge of urgent care centers like CityMD, Northwell Health GoHealth, “concierge medicine”, and others. The natural progression of this model has seen the introduction of subscription based medicine. Because these plans only need to cover lower cost routine care, they can be as low as $30–100/m.

“ When compared to traditional healthcare, membership medicine actually reduces costs as much as 20%. It does so by keeping patients healthier and out of hospitals, according to a 2015 study by Qliance

When subscription medicine providers compete, the monthly costs become much more attainable, similar to the market dynamics of auto insurance. Subsequently, the greater accessibility of preventive care this brings means patients can catch conditions early, before they become complex and costly.

To sum it up, we can do a great deal to lower cost of healthcare to Americans using a two market approach to improve transparency of costs, make billing/reimbursement less labor intensive, and prioritize affordable preventative care.

Here lies the home of my two cents.

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