HomeHealth Care NewsDirect Pay in Health Care Can Improve Care, Cut Costs - Commentary

Direct Pay in Health Care Can Improve Care, Cut Costs – Commentary

By Robert Koshnick, M.D.

There are two ways the government can reduce health and financial disparities in the U.S. One is by doing it directly – direct pay. The other is by doing it indirectly.

The direct way is to give people the means to manage their own medical care expenditures. People could use subsidies and individual tax deductions to fund accounts that allow them to directly purchase medical care as they do with other goods and services with the option to later fund health savings accounts in the same way.

Putting people back in control of their medical care expenditures would create the incentive for them to demand price transparency that would recreate a medical care market Americans lost with third-party payer healthcare financing.

The indirect way is to continue to fund third-party payer financing to pay for health care through employers or the government. Employers pay for their employee’s health care insurance as a tax-deductible expense, which costs the U.S. treasury approximately $240 billion dollars.

The Invisible Cost

The average annual employer healthcare cost was $7,739 for single coverage and $22,221 for family coverage in 2021 according to the Kaiser Family Foundation. The expense of nonportable employee health insurance makes U.S. businesses less competitive in the world economy and reduces employee vocational freedom.

An ever-increasing percentage of the population has health insurance through government programs such as Medicaid, Medicare, the Indian Health Service, Tricare, the VA, the CHIP program, and more recently “state-options,” with a federal single-payer being proposed. Medicare, Medicaid, state, and proposed federal single-payer options work by setting arbitrary reimbursement rates much lower than the open market and cost of care. This shifts costs from the public to the private market, accelerating health care inflation.

Third-party financing disconnects people from the true cost of health care. People overutilize health care services which also drives health care cost inflation. Health care has gone from 4.5 percent of the national GNP, which was $12.9 billion or $84 per capita, in 1950 to 18.3 percent at $4.3 trillion, or $12,914 per person, in 2021. Germany spent 12.8 percent of its GNP on healthcare in 2021, the next highest in the world.

Driving National Debt

Health care is driving the national debt to $32 trillion or $246,868 per taxpayer according to the U.S. debt clock. The Congressional Budget Office (CBO) estimates that the national debt will go from 98 percent of GDP in 2023 to 195 percent (the nonpartisan Penn Wharton Budget Model projects 225 percent) of U.S. GDP by 2053. A government single-payer system would need to ratchet down medical care payments to drive down its liabilities.  This would lead to the deterioration of medical care facilities, equipment, and workforce.

The state of Washington in 2021 was the first to offer a state option. The president of the Washington State Medical Association, Cassie Sauer, authored an editorial on July 22, 2022, titled “Hospitals Face Unprecedented Financial Distress,” in which she noted that “In the first quarter of 2022 alone, hospital and health systems in Washington lost nearly $1 billion, with a negative 10% operating margin.” Sauer blamed the government for imposing low fixed reimbursement rates. That is the predictable result of government-financed healthcare.

Third-party financing is also shattering physician morale. Part two of the 2022 survey of America’s physicians by The Physicians Foundation found that six in 10 physicians often have feelings of burnout. Six in 10 physicians have felt inappropriate feelings of anger, tearfulness, or anxiety. One-third have felt hopeless or that they have no purpose. Half report withdrawing from family/friends/coworkers. More than half of physicians know of a physician who has ever considered, attempted, or died by suicide including a fifth who did in the past 12 months. Medical care practice conditions could best be improved by re-establishing the physician-patient relationship.

In 1847, the American Medical Association put forth the Corporate Practice of Medicine Doctrine which stated that allowing corporations to practice medicine would result in the commercialization of the practice of medicine. Corporation shareholders’ fiduciary obligations may not align with physicians’ obligations to their patients and may interfere with the physician’s independent medical judgment. This doctrine has been overridden by the Health Maintenance Organization Act of 1973, subsequent federal legislation, and state exceptions. Enforcing the Corporate Practice of Medicine Doctrine would reinstate the physician’s sole obligation, consistent with the Hippocratic Oath, to put the patient’s welfare above all else including corporate profitability. This would reestablish the direct patient-physician relationship that both patients and physicians value and cherish.

Empower-Patient Accounts

Reinstating the Corporate Practice of Medicine Doctrine may not be realistic. Reestablishing the physician-patient relationship could alternatively be accomplished by empowering patients to oversee and manage their own medical care expenditures.

I have proposed “Empower-Patient Accounts” which could be supplemented with health savings accounts to pay for medical care. This would restore a direct patient-physician relationship that would reduce health care costs, improve patient and physician satisfaction, improve health outcomes, and reduce financial and health disparities among Americans.

Robert Koshnick, M.D., is a retired primary care physician from Detroit Lakes, MN. He is chair of the policy committee of the Minnesota Medical Association and recently authored Empower-Patient Accounts Empower Patients!


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