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Why Do We Have Health Insurance Companies Anyway?

Some doctors argue that their patients would fare better paying out of pocket.
Portland Press Herald / Getty Images

On the night that John McCain voted against a repeal of the ACA in July, I sat at a hotel bar in Oklahoma City. It was the last stop on a whirlwind tour of healthcare in my home state, which had taken me to a family practice in a town of 800, a veterans center, and a hospice in the middle of opioid country that was grappling with how to guard its morphine drips from theft. Six months ago, when the political fight over health insurance was beginning to heat up in Washington, I felt the urge to see up close what needed to change about healthcare in our country, by interviewing doctors and nurses on the front lines of medicine. I went back to Oklahoma this summer, after my first year of medical school, looking for some answers.


But as I drove through Oklahoma City's medical district that next morning, I began to notice something strange. The state's capital is indeed a healthcare mecca for its four million people, and has the facilities that you'd expect in an American city—stodgy towers filled with doctors' offices, and sprawling campuses of big-box medical centers. Among them, however, on what seemed like every block, there were surgical centers and primary care clinics that only take cash or a check.

This summer, and for the past few years, the onus of health reform has fixated on the noble goal of increasing access to health insurance, whether that be through an employer, the exchanges, Medicaid, or from elsewhere. But a growing network for healthcare in Oklahoma seems to be designed for the individual or family who don't have—or don't want to use—the health insurance canonized by the Affordable Care Act.

The term I later found, which seems to best describe what I saw on my drive, is "free-market medicine." Microeconomics 101: In its purest form, free markets consist of impersonal buyers and sellers interacting with one another directly over the exchange of a product. Think of apples in a farmer's market. Different sellers, competing for buyers, price their apples on a curve based on the costs of growing, harvesting, and transporting each apple to the market (the supply curve). And buyers, unconsciously or consciously, also have prices in mind, along a curve, based on their cravings for an apple at the market (a demand curve).


At first, it may be the case that sellers overshoot their price, making their apples too expensive for the tastes of most buyers, or undershoot it, selling their apples to buyers for less than what they would have been willing to pay. If a free market really exists, however, buyers and sellers will eventually settle on a price and a quantity for apples exchanged, which leaves them both feeling as if they got a fair deal.

Proponents of using free markets in healthcare argue that insurance obscures the true costs of medical services provided by doctors, and that patients and doctors could naturally find a much lower, mutually-agreed upon price if left alone. Urgent care centers are a muddied version of this model, where people are promised quick access to healthcare; most will take insurance, but many people end up paying out of their own pocket by procedure. More pure models, however, have quietly gained popularity over the past few years, particularly in Oklahoma. General practitioners are creating direct primary care clinics (similar to concierge medicine, but usually with a much lower price point), where customers pay a flat subscription fee to retain a doctor, who they can call, text, email, or visit at virtually any time. Pulmonologists are building cash-only sleep study centers, and teams of surgeons are listing their starting prices for knee replacements and hysterectomies online.


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To be fair, the idea of free-market medicine has been around for a while. The original Blue Shield plans conceived by physicians in the 1930s could be considered a primitive version of the direct primary care model. Today, we often use cash to pay for healthcare our society has, for better or worse, deemed as peripheral rather than central—liposuctions but not quadruple bypass surgeries, a visit to the acupuncturist but not the oncologist. But to embrace paying for core pieces of healthcare is certainly controversial for modern medicine.

If anywhere is fertile ground for free-market medicine, it would be Oklahoma. This is, after all, a state that reaped the capitalistic rewards of an oil boom spanning much of the last century. Artifacts of its libertarian tendencies can be found in its healthcare too, like in its unusually large number of hospitals owned and operated by physicians, instead of by corporations. But more recently, Oklahoma hasn't fared well under the Affordable Care Act. It didn't expand Medicaid, and the percentage of uninsured Oklahomans has actually increased since 2009.

Regulations in the ACA, written to assume that Medicaid expansion would be universal, slashed disproportionate share hospital (DSH) payments, given to safety-net hospitals who care for large numbers of uninsured patients. Tax cuts have left it in a budget hole now approaching a billion dollars. Public funding for social services has receded. The exchanges have largely failed in Oklahoma, with only one insurance carrier still offering policies, while premiums and deductibles have skyrocketed.


Yet a mistrust for big government doesn't seem to entirely explain the growing popularity of this movement. Free-market medicine has not limited itself to conservative America, or to parts of the country where the ACA hasn't fully reached its expectations. Some well-known direct primary care practices in the country are based in liberal strongholds, like Forward in San Francisco, and Parsley Health in New York. Other operations, like Iora Health in Boston, have taken the direct primary care model and applied it to programs like Medicare Advantage. Transparent pricing for surgeries have also found homes in blue America, like at the Ocean Surgery Center outside of Los Angeles.

To get a better sense of the motivations behind this movement, and where it may be headed in the future, I spoke with Meg Freedman, the executive director of the Free Market Medical Association (FMMA) in Oklahoma City. Over the past few years, the FMMA, according to Freedman, has managed to corral disparate practitioners of free-market medicine across the country, and inject some philosophical structure to the movement itself.

Freedman describes her litmus test for free market healthcare as a notable lack of "shenanigans" between buyers and sellers of medicine. She also pays homage to traditional talking points of the movement, like the need for price transparency in exam rooms and ORs. For a while, we discussed the bizarre variance of how much a mammogram—covered as an essential health benefit—costs in the United States, which I later found ranges from $165 in New Orleans, to $468 in Portland (this is based on costs shared between insurance companies and as a co-pay in total).


The main thrust of her advocacy for free-market medicine, however, seemed to focus on the growing mountains of paperwork faced by doctors practicing "traditional medicine" over the past few years, coinciding with the implementation of the ACA, and the stiffening resistance of health insurance companies to reimburse providers. Maybe she was just speaking to a sympathetic audience, but Freedman pitched the mission of the FMMA as a potential out from fighting with insurance companies—an escape hatch from the electronic medical record. When I asked Freedman says that her movement is offering a way "to get out from underneath the thumb of all the people that are telling you [the doctor] what to do."

Fatima Jaffrey, a primary care clinician in Oklahoma City, has a different argument for free market healthcare than Freedman. She says that that "costs drop like a lead balloon in a practice like this," and that "quality goes up" (the research so far is promising, but hasn't yet supported this claim). Jaffrey's seen these improvements to quality manifest themselves in intangible but crucial ways—like having time to have proactive conversations with older patients about end-of-life care. She contrasts the plight of doctors who wade through "layers of regulation, layers of bureaucracy, layers of demands, with little to no recognition for the kind of work that's involved in what they're doing," against her own experiences today in direct primary care. But more importantly, she feels as if she stumbled upon a model that allows her to call the shots, and best help her patients.


Unfurling the true cost of a medical episode weighs heavily in the minds of free market doctors. Freedman and Jaffrey, however, suggest new angles to this movement. What ultimately seems to bind these doctors together, under a banner of organizations like the FMMA, is a contempt for how medicine has transformed into an occupation of paperwork for money-crunchers, and an urgency to clear the debris of EMR files and insurance codes littering the physician-patient relationship. And this may explain the broad appeal of ideas, like a transparent pricing list or a subscription service to a doctor, taking hold from San Francisco to Oklahoma City.

Yet for generations, health economists around the world have balked at the idea of a free market revolution taking over medicine. And as a medical student, I have to agree that selling apples in a farmer's market doesn't capture the nuance of what really happens in an exam room. A free market assumes that patients and doctors lack a personal relationship, and that they both can equally recognize the possible pathologies of a new heart murmur. It also assumes that patients can shop around for healthcare in the midst of a stroke, and that potential physicians can skip the trouble of rigorous certifications to open up their own clinic tomorrow—something that Freedman and I both agreed would be frightening in reality.

And even if a free market is feasible in medicine, it raises ethical concerns. Doctor's offices like Jaffrey's inherently favor a young and medically uncomplicated patient, able to pay the necessary fees up front. For a 26-year-old first-time mother and healthy infant, to take an example, a direct primary care clinic could offer an affordable 24/7 channel of communication to a doctor. For a woman that same age, but with Guillain-Barre syndrome—a debilitating autoimmune disease that causes an ascending paralysis—direct primary care may not be able to offer much, if anything at all.


Jaffrey suggested that those patients are the ones who ought to be seeing specialists back in the "traditional" world of medicine, who today are too burdened with issues that can be managed in primary care. Experts might call Jaffrey's suggestion an example of adverse selection, or when an insurer (in this case, the doctor, since they effectively are an insurer) avoids covering customers whose healthcare they imagine would be more expensive. In healthcare, what would we do for the people who free markets brutally leave behind?

The adverse selection of free-market medicine models create downstream effects for most of the other pieces in our complex healthcare landscape. By taking the healthiest patients out, direct primary care centers and cash-only surgical hospitals may be siphoning off much-needed healthcare dollars that would have been going to the hospital systems caring for our most poor and sick at a loss. Free market models also often operate as islands of healthcare, separated from the coordinated systems of big hospitals, stranding doctors faced with complex cases. Jaffrey, for example, shares a story about how she was left alone to complete a difficult neurological work-up and make a diagnosis for brain cancer.

If not guarded closely, the movement itself also risks aligning itself with particular political leanings, and adding to the gradual drip of politics into medicine. The FMMA's membership, Freedman asserts, is politically diverse. The PowerPoint slides used at their annual conference this year, however, told another story. One innocuous talk focused on what doctors have to learn from plastic surgeons, who have relied upon cash-pay patients for years. Another talk discusses Marx, along with the alleged similarities between "socialized medicine" and public slavery.

The jury is still out on free-market medicine, as robust studies have yet to be conducted to fully assess its impact on cost and quality. With the advent of wearable technologies, along with the hordes of medical information now collected by smartphones, maybe patients can start to act more like free market consumers over time to some degree. And even today, there's likely something to learn from it, as countries like Italy, the UK, and Germany have looked to introduce competition into their health systems.

Yet above all else, the trending growth of the free market movement, in Oklahoma and across the country, speaks to the concerns of physicians today, watching their professions rapidly transform in front of them. In a 2016 study from in the Annals of Internal Medicine, researchers found that doctors only spent about a quarter of their time with their patients face-to-face. Half of their time was spent on the dreaded EMR—filled out in bits and pieces punctuating an office visit, and finished off in a one to two hour block at the end of each workday. In the not-so-distant past, medicine offered a comfortable job, of science and service to others within a tried-and-tested model. So what does it say about our system today, that thousands of them are now jumping ship, and starting risky business ventures of their own?

Some would say a free market solution is most able to address those concerns, while others would say the same for a single-payer system. But perhaps both would do well to learn from each other, and realize that, for now, the people on the front lines of medicine will continue to try ideas—however good or bad—on their own. Read This Next: Wellness Is Mostly an Expensive Fantasy