What’s Inflating U.S. Healthcare Costs? Third-Party Payment Systems
Back in the days when the family physician oversaw a person’s health from birth to grave, expenses were much more reasonable and payments could often be negotiated (or bartered for!). At the very least the patient, a.k.a. the consumer, was undeniably more aware of actual costs for the services being rendered. There’s value-awareness in this scenario.
Today, a simple visit to the doctor is so expensive that we all need insurance to help out should we require anything more extensive than a check-up. And just how expensive? Well, that’s a good question. Often patients remain in the dark. Or, best case scenario, eventually receive that little piece of paper in the mail acting somewhat as an itemized receipt. But even that can be difficult to decipher, as to the cost associated with what service. Don’t worry – your third-party payment system stepped in and paid for it. But if you were to sift through your own costs in this process, what is actually coming out of your pocket?
Just so we’re all on the same page, let’s define “3rd-party payment system.” In respect to your healthcare, the third-party is typically the insurance entity that pays the provider on behalf of the insured. In our current system, the consumer directly pays only a portion of the cost. On the surface, you may be just fine with someone else paying a large chunk of your bill – who wouldn’t?! Except, there may be a higher cost you’re “paying” to not pay.
Economics 101: in most cases, when a price goes down, demand increases and supply decreases, leading to price increases. Our healthcare system has experienced the same arc as of the 1960s, when the cost to individuals went down with the introduction of employer-provided health coverage and government-subsidized programs such as Medicare and Medicaid. Now, with our growing and aging population, the demand for healthcare continues to rise while the supply diminishes – and you have one of the big drivers for the rising cost of healthcare.
So, how are you paying to not pay? Due to our multiple-payer system, approximately 1/3 of all healthcare dollars are spent on administrative costs rather than actual care, driving costs up even more. Add in the HMOs and other group policies, and you have a system where the insurance company is often deciding who your doctor is and what care is available to you, sometimes with less than optimal results.
You could make the “free market argument”: allow for consumers to create and refine supply-and-demand systems – just look at the automobile, tech or agriculture industries. But healthcare does not run on free markets, and therefore we have little control over what is offered and what it costs.
There is really no easy solution here that could go into effect overnight. However, there is something to be said for consumers having greater awareness of costs and being more active in the direct-payment process. Think about it. If you were to have paid cash for that new kitchen remodel vs. supplying a credit card number, you would have definitely FELT the cost more. Perhaps we need to FEEL our own healthcare cost more to be more financially incentivized to make healthier decisions.
What You Can Do Now
Be mindful of how your health insurance affects your healthcare choices. Learn to use your insurance efficiently: get regular checkups, important tests and necessary medications. And most importantly, do whatever you need to do to stay well and avoid preventable ailments. The healthier you are, the more control you have in your own healthcare and the easier it is to manage. If at all possible, consider switching your policy to one that provides wellness and preventive care – and that allows you to choose your physicians.
Watch for additional posts in this series, where Fit After Fifty discuss in more detail what you can do as an individual within the new wave of healthcare-economy innovations. It should come as no surprise to realize that it boils down to taking responsibility for your own health and doing everything within your power to be proactive and maximize your health outcomes.
The full series: