“When you go to a restaurant and ask for a menu, you might be alarmed if the waiter or waitress were to respond by asking, “Who’s your employer?” If you then learned that the prices on your menu were much higher than those on menus given to other customers, you’d conclude it’s a dysfunctional market. Yet, this is exactly what happens when you need medical care in our status quo system today.”
This passage was taken from The Price We Pay by Dr. Marty Makary, a sweeping account of our dysfunctional health care system. I picked up this book after my own frustrations as a business owner and a patient reached a boiling point, and I am so glad that I did.
In my previous life, as an employee, I was blissfully unaware of how much of my money was being siphoned off of my pay and into the health care system in the form of monthly premiums. I was also lucky enough not to have any major health care needs in my family during that time, so I didn’t experience much by way of claims. Over that five-year period, like many Americans, we half-consciously paid tens of thousands of dollars in health care premiums and, in return, got a handful of annual checkups.
After starting our business and getting it onto even footing, we felt that paternalistic urge to “take care of our employees” – we set up a 401K program for all employees and adopted a full-blown health care plan for our full-time employees (1 employee plus Kathryn and me). We signed up for a plan with a major carrier. Per person, the monthly premium was $500. Our company would pay $250 and the individual would pay $250. That’s a lot of cash – $18,000 per year going to this insurer (plus more after we had a child) – but perhaps a small price to pay for the peace of mind, knowing that our health care is fully insured.
But was it, really? A week after Margo was born, with Kathryn shouldering the spectacular burden of early motherhood, I heroically decided to make her lunch by plating a bagged salad. Only, I couldn’t get the god-forsaken bag to open. After 30 seconds of white knuckles and furious cursing of the agra-conglomerate who was getting the best of me, I grabbed the nearest tool – a butcher’s knife – and used it to open the bag. It opened the bag and it opened my finger. Two minutes later I was driving myself to the emergency room, leaving Kathryn to do the remaining 90% of the salad-making.
When I got to the ER, I was presented with lots of papers to sign. The faster you sign them, the sooner you get care. I did not read them or send them out for legal review. I signed them and I paid a $400 co-pay. This $400 seemed high for a stitch-job, but it was the co-pay listed on my insurance card for ER visits and I needed to get this thing fixed. An hour and ten stitches later, I was on my way back home. Two weeks later, stitches were removed, with just a small scar remaining on my finger to remind me that scissors are sometimes the right choice of tool.
Well, it turns out that that $400 was just a down payment. Several weeks later, I received multiple bills, from the facility and from the doctor, totaling some $3000. None of this was covered by insurance, as this provider was “out-of-network”, but even if they had been in-network, my annual deductible is $3,000, so I would have had to pay this, anyway. We’ve all heard stories like this – many of them with numbers 10x as big. In my case, I simply ignored the bills. We own our home and have no need for future debt, so I’d sooner ruin my credit than give these crooks a fraction of that egregious bill. In fact, I pretty much forgot about that bill altogether until a recent experience…
I went in for my annual physical and the doctor ordered a set of labs. I did the labs and had the followup with the doctor. Everything was paid for by insurance; so I thought, until I received a $73 bill for the labwork. Of course, it had all the features that we’ve come to know of these bills:
- The original amount was $476.
- My insurer had a “negotiated price” of $120.
- Of that $120, my insurer paid $47, which left $73 for me.
This bill enraged me even more than the $3000 emergency room bill.
Why? After all, it’s only $73. And, look at those numbers: I received $476 worth of care at just a fraction of the price!Seems like a bargain, except: (1) we all know that $476 is bullshit, and (2) I pay $6,000 per year in premiums! And for what? It clearly doesn’t cover emergencies, and, despite what they tell you, it doesn’t even cover preventative care! How useless is this product? Sure, if something really bad happens – Cancer, car accident, etc. – and I manage to stay in-network, my out-of-pocket exposure is limited to some $3,000 per year. But is that catastrophic coverage really worth $6,000? Or, for my family, $15,000? That’s more than we spend on daycare and food combined.
And the same goes for our full-time employee, Jorge – our Hopspitality Director. He would be taking home $6,000 per year more if that weren’t going to pay health insurance premiums. And should something happen where he needs health care, he could be out another $3,000.
I could feel it in my bones that this employer-provided health insurance setup – the one that most Americans participate in – was a complete scam. But what can we do about it? Sure, there’s that ongoing policy debate about Medicare for all, etc., but in the meantime I’m throwing money away thousands of dollars every month. What can I do about this now?
And just when I was pondering this question, I came across an EconTalk podcast episode with Makary talking about The Price We Pay. I immediately ordered the book and finished it in two days. It’s a damning account of our health care system. There’s a lot of money being made by people who do very little, and it’s at our expense.
The Game is something that health insurers, agents, hospital administrators, physicians, nurses, EMT’s, medical schools, ambulance and life flight companies, pharmacy benefit managers, pharmacies, and pharma companies all participate in, and it’s at your expense. Providers are incentivized to over-treat and over-prescribe and they know how to nudge you into questionable elective surgeries and exploit your insurance company for maximum payout. They’re usually “unable” to predict how much you’ll end up paying, and if you end up getting a surprise bill, they’ll point the finger at your insurer for not covering the cost.
Hospitals’ billing departments, insurance companies, and agents are staffed with an increasing number of highly paid professionals making money off of you, and none of them are actually providing anyone health care. They earn their living off of a host of fraudulent and unethical practices that have become standard. Rather than go through them in further detail, I’ll just say that this book reaffirmed my belief that this system is corrupt, and I don’t want any part of it.
But what choice do I have? Aren’t we all condemned to suffer helplessly in this horrible system until the government fixes it for us? Fortunately, no. We do not have to play The Game. This is thanks to some audacious renegades who have blazed alternative paths through the wasteland of traditional employer-paid health insurance. Some notable innovations:
- Direct Primary Care Centers: These are doctors’ offices (with diagnostic centers, etc.) that operate on a monthly subscription basis without insurance. For a monthly fee of, say, $50, you can visit as many times as you like with no co-pays or deductibles. The staff are a team with a goal of keeping you healthy, and they have a financial incentive to do so – in contrast to the traditional model, they don’t make more money when you’re sick.
- GoodRx: The Game with pharmaceuticals parallels The Game with providers – it’s loaded with deceit and waste, and lacking price transparency. How much is your insurance company actually paying for these drugs you’ve been prescribed? You’ll never know. But, if you pay directly for your drugs, you can shop around, and you might be surprised how cheaply you can buy them. GoodRx is a completely free website / app that compiles prices and discounts for all drugs at all pharmacies. That Z-pack that costs $35 at CVS around the corner? You can get the generic for $9.33 at the HEB across the street. Oftentimes, you’ll pay less out-of-pocket this way than if you went through insurance.
- Healthcare Bluebook: This service (free for the public / subscription basis for employers) allows you to see the “going rate” for different procedures, and it also rates facilities based on how fair their pricing is. Patients use this to shop around and negotiate. That facility charging $35,000 for an elective surgery? You can get it at another facility in town (perhaps even with the same surgeon!) for $1,500 cash.
- Self-Insured Employers: Many employers have dropped their insurance provider altogether and have opted instead to self-fund their health insurance program. They pay the health care bills directly, and as such, they have an incentive to keep their cost down. The employer can then purchase catastrophic insurance to cover massive losses – say, anything over $100,000 – and this insurance can be purchased across state-lines and is relatively inexpensive. H-E-B, the largest private company in Texas with over 100,000 employees, is completely self-insured.
I was interested in self-insurance for Holler Brewing Co., but would it really be feasible for such a small company? I didn’t want to spend time negotiating and paying everyone’s health care bills, and the cost would be highly variable from year to year. To find out what to do, I called one of the book’s praised renegade companies – EPowered Benefits. They confirmed that, indeed, self-insurance isn’t practical for tiny companies like ours, but they recommended an alternative (which they use for their small company, too): Medical Cost Sharing.
Medical Cost Sharing is an alternative to health insurance, where an individual’s major health expenses are shared by a community. This has been around for decades with faith-based (usually Christian) cost sharing communities. The company we were introduced to is Sedera, which is a relatively new, non-religious Medical Cost Sharing Community. Here’s a brief summary of how it works:
The main idea:
- Members pay a monthly contribution. In our case, it’s about $230 per person.
- Only major expenses are covered. Physicals / wellness checks, sinus infection visits, etc. are not covered. Specifically, if the “need” is less than $500, it’s not covered.
- Major needs (>$500) are shareable: The member pays the first $500, and everything else is paid by the community. There is no insurance – the member gets billed directly by the provider and submits the bills to the Cost Sharing Community for payment.
- There is no network: Members are free to choose their provider.
- Members have free 24/7 access to Teledoc – a telemedicine service whereby doctors provide consultation, diagnoses, and prescriptions.
The cost savings are massive. We’re going from $500 per person per month to $230, and that’s if no care is required. In the case of a medical event – something that would’ve cost an entire $3,000 deductible (or more, if it spans multiple calendar years) under our traditional plan will only cost $500.
These cost savings are driven by the simple switch from a third party payer model to a direct pay model. Even though you’re being reimbursed, you’re a “cash pay” patient, and, knowing that you’re part of a community, you’re expected to do your part in minimizing the cost of your care. Specifically, you’re required to state your commitment to (1) living a healthy lifestyle, and (2) being an active and engaged participant in your health care decision making. This latter notion is a radical departure from status quo insurance, where decisions about your health care are made by your provider and paid indirectly by millions of people.
This is not the same as health insurance, and it is not for everyone. While I love the idea of having increased personal responsibility for my health care, some people might find this idea repulsive. Why should I have to worry about this at all? Why can’t my employer (or the government) handle all of this? There’s something warm and fuzzy about your health bills “being taken care of” by someone else, until you consider how much that someone else is getting screwed, and that that someone else is actually you.
For us, it was a no brainer. We spent a couple months doing due diligence and discussing the idea with Jorge, and April 1st we shredded those insurance cards and joined the renegade movement of Medical Cost Sharing. Of course, this is a very weird time and the brewery is in hibernation due to COVID, but given that our monthly health care bill has been cut by 60%, we’re able to keep ourselves and Jorge covered without jeopardizing the company’s health.
Is Sedera really the final answer for us? I don’t know. After all, we’ve only been signed up for 12 days and have not had to process any claims. The cost savings are compelling, but they might be lower than anticipated if membership fees increase; and there may be some other unforeseen downsides. Time will tell. However, what gives me such confidence in our decision isn’t the promise of Sedera, but the clear inferiority of the alternative. The status quo of employer-provided, major carrier health insurance is a corrupt and shameful enterprise; one in which, I’m proud to say, we no longer participate.