States Should Protect Direct-Pay Health Care Models

Michael Hamilton
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Posted: Feb 01, 2017 12:01 AM
States Should Protect Direct-Pay Health Care Models

Lawmakers in several states are preparing to take up legislation protecting private, direct-pay agreements between doctors and patients from market-crushing regulations. They should trust their instincts, passing such protections immediately instead of waiting for cues from Washington, DC, regarding the future of Obamacare.

Even under the obtrusive Affordable Care Act (ACA), direct-pay health care arrangements offer significant benefits to patients and doctors. Those benefits would multiply exponentially by getting ACA out of the way. No one should be forced into direct-pay health care arrangements, and no one wants to force them, but lawmakers should at least do all they can to ensure patients and providers have the option.

Currently, the reverse is often the case, because providers are hesitant to adopt a business model bureaucrats could suddenly quash. Lawmakers in 37 states have yet to protect “direct primary care” (DPC) practices from onerous insurance regulations that would put DPC providers out of business.

States should pass legislation specifying DPC arrangements are not insurance and are therefore exempt from insurance regulations, including the requirement insurers maintain huge financial reserves small practices cannot. Such legislation would create an inviting regulatory environment for physicians considering opening up DPC practices.

Patients pay DPC physicians directly, reducing physicians’ overhead. Pure DPC providers invest literally no time fussing with insurance paperwork or haggling with insurance companies. Nor do DPC providers have to chase down payments from patients, whose monthly membership fee gives practices a predictable income stream.

In exchange for a modest monthly fee ranging from $25 to $125 and averaging $80, DPC providers offer patients a range of preventive care services, tests, labs, and a fixed number of doctor visits. These services account for 70 to 80 percent of all health care services, which for many patients could mean 100 percent of the services they use in most years. For non-primary care services, DPC providers negotiate impressive direct-pay discounts with specialists, in some cases up to 98 percent off.

DPC providers stress that membership is not a form of insurance, and many encourage patients to obtain some form of “catastrophic coverage,” an insurance plan with very low premiums and a high deductible. A patient would seldom use it; indeed, he would hope never to use it.

Many people mistake the bronze-level plans sold on Obamacare exchanges for catastrophic coverage because bronze deductibles are so high — too high for people using insurance to pay for routine care. True catastrophic coverage, however, has lower premiums and higher deductibles, because patients would use it to pay for health care as seldom as they use their auto and homeowner’s insurance policies to pay for car and home repairs.

Some lawmakers question whether DPC memberships are worth it for patients, considering memberships do not satisfy ACA’s individual insurance mandate. These lawmakers should consider two things.

First, if the ACA debacle has taught us anything, it is that lawmakers should let patients choose for themselves which health care arrangements offer the best value. When government appoints itself the market’s judge, it becomes the market’s executioner as well. If patients choose to obtain health care with a $600 to $1,000 annual DPC membership, plus the low premiums of non-ACA-compliant catastrophic insurance, plus a $695 Obamacare penalty, such an arrangement must offer extraordinary value.

Second, DPC membership already offers many patients sufficient value despite Obamacare’s market obstruction. Patients could treat their bronze plans as catastrophic coverage (even though true catastrophic coverage would have lower premiums and a higher deductible). They would pay their bronze premiums, plus pay $600 to $1,000 for a DPC membership, plus budget a few hundred dollars more just in case they need to direct-pay a specialist from whom their DPC provider would negotiate a massive discount.

Voila. These patients would not pay a dime more for health care in a year, and they probably would enjoy unlimited doctor visits and telemedicine included in their DPC memberships — more health care in a year than most insured people receive. They would enjoy hugely discounted cash prices in exchange for not using insurance to pay for routine care. Assuming no catastrophe strikes, patients could easily pay far less for health care as a DPC member than they would pay chasing a $6,000 bronze plan deductible.

The DPC model is a prime example of an innovative, patient-centered health care reform driven by markets instead of governments. The incentives DPC offers patients may pale in comparison to the incentives DPC will offer them once ACA is repealed, but they do exist, as evidenced by the boom in DPC practices many states are seeing. Lawmakers should remove regulatory barriers to entry deterring physicians from opening DPC practices.