The First $5,000 System

With the rise of high deductible plans, consumers are on the hook for spending the first few thousand healthcare dollars out of their own pockets after paying their monthly premiums. However, wisely spending your own hard-earned money on healthcare is nearly impossible. You often don’t know what you need ahead of time so it’s impossible to shop around for an unknown solution. And the solutions are all different because doctors practice differently. If you go to the ER with a simple headache looking for a quick fix and, by random chance, you are assigned to a doctor who got burned last week because she missed a stroke in another patient, you’re likely going to get expensive imaging because of that doctor’s bias. She also knows the more she orders, the more she gets paid. There are unknown unknowns on both sides of the equation and the incentives baked in for doctors are opposed to the health of your bank account. True consumerism is impossible.

But I think the real problem here is health insurance companies have tried to infuse themselves into every step of the care process, from cheap primary care quick fixes all the way to great-grandma’s month-long stay in the ICU. They are two markedly different solutions with very different economics at play. Why do insurance companies have their hands in every single transaction? They’re trying to micromanage their expenses at your expense. Their entire business model depends on data and control. They micromanage, you wait 22 days to see doctors. Primary care doctors trying desperately to play nicely with this micromanagement adds overhead, complexity, and inefficiency.

There comes a time at which the cost of micromanagement far outweighs the value. If you’re responsible for paying $5,000, don’t you want an ecosystem set up for you that helps you spend that $5,000 wisely? But once you’ve spent that $5,000 doesn’t it then make sense to turn over control to insurance companies so they can micromanage their own spend?

Insurance companies micromanaging all of your spend, not just their spend, makes healthcare inefficient, expensive, and unnecessarily complex for patients and doctors.

A population’s healthcare needs are actually extremely predictable. In a sufficiently large population (meaning greater than 1,500 people), there’s a very predictable rate of colds, UTIs, high cholesterol, diabetes, sinus infections, ankle fractures, etc.. That’s how health insurance companies exist. They have the data, they predict next year’s expenses, and they adjust premiums accordingly. That is the entire business model of health insurance. They’re damn good at that. They’re also good at negotiating rates for grandma’s ICU stay. But they’re terrible at micromanaging everyday low-cost healthcare. The long waits, the paperwork, the rules you follow to get simple care, the co-pays, the co-insurance, the confusion. It’s all a result of micromanaging first-dollar care.

Ninety percent of Americans spend less than $5,000 on care per year. And average deductibles are quickly approaching this $5,000 mark. There needs to be a true, transparent, healthcare delivery ecosystem that offers care affordably, effectively, and predictably for the 90% of Americans stuck in health insurance micromanagement hell.

There is a solution. I call it The First $5,000 System.

This System should have the freedom to compete for your $5,000 based on the service and the experience they offer you. This would drive down costs, increase quality and consistency, and maximize convenience. We’ve got to end the micromanagement and decouple health insurance’s involvement in your deductible spend. Traditionally, health insurance companies have negotiated rates with local doctors, facilities, and hospitals on your behalf. They’ve assumed that their negotiations, through purchasing power, are more effective than independent entities competing for your deductible dollars. But what if there was an ecosystem of true consumerism available to you? This System would be composed of the six most commonly used services found in the first $5,000 spent on healthcare in America:

Primary Care

What if you could pay a primary care group a flat fee per year to take unlimited care of you? They could solve 70% of your issues virtually without you having to even see someone. And they could deliver unlimited care for those 70% of problems because their costs of delivering care are, by definition, extremely predictable. For example, I know that Sherpaa can deliver unlimited care for ~$300 a year per person to our current demographic of patients. You get care. We make money. Everyone’s happy. Ultimately, what if the doctor’s overhead spent on interfacing with micromanagement was spent on innovating a convenient service that rose to your expectations of what healthcare should be? Sherpaa is just one option. There should be many, many more.

Retail Health

Retail health centers would exist for inexpensive point-of-care testing (strep tests, flu tests, blood pressure, etc.) and for simple issues that need a physical exam. Think of these more as testing centers communicating with virtual doctors rather than nurse practitioners acting in silos like they do today. Of course, these costs would be transparent and published.

Urgent Care

What if there were urgent care centers that charged a flat rate for all care inside its walls? Instead of wondering if you’ll come out with a bill for $300 or $900 dollars, it’s just a flat rate. They know how much an average visit costs. Compete on cost and service experience.

Specialist Care

The most commonly needed specialists in this first $5,000 are orthopedic surgeons, gastroenterologists, dermatologists, allergists, physical therapists, psychotherapists. They should all be competing on price and experience for your dollars.

Lab and Imaging Tests

What if lab test companies and imaging centers published their prices so you and your doctor knew ahead of time how much a test would cost you? What if lab companies and imaging centers started competing on price? A test is a test. It is a commodity with a very predictable cost. What if your virtual primary care doctor could simply send you down to a testing center to get a $12 blood test? Right now, that $12 test must be part of a doctor or retail health clinic visit. As a doctor, I don’t need you to pay for an in-person visit, I just need you to get the $12 test.

Pharmacies

When you need a medication, you never know how much it’ll cost you. Pharmacies should be competing based on price. It’s a chemical compound for god’s sake. It’s the epitome of a predictable commodity. I personally take a medication where, if I use my insurance, it costs me $253 every two months and contributes to my deductible. However, if I use GoodRx, it costs me $108 and doesn’t involve my insurance. The difference of almost $150 is Walgreens taking advantage of cost opacity while baking in the cost of negotiating with insurance companies to settle on a rate that maximizes reimbursement for them, which contributes to maximizing your premiums.

Note: ERs are not included. Emergency rooms, by definition are emergencies and should only be employed when sparing your life is more important than cost. When you have easily accessible virtual primary care (and that is vital to simply get started on The First $5,000 System) immediately available to you, ERs should only be called upon due to an emergency and you’ll quickly blow through that $5,000 in the first few minutes in the ER.

If there was an ecosystem consisting of these six entities, this would solve 90% of the problem for 90% of people in America.

But after you’ve proven you’ve spent your deductible, you unfortunately then subject yourself to the inefficiencies of health insurance micromanagement. You’d be incredibly surprised how much care could be delivered for $5,000 per person if the cost of that care was a direct result of competing for your dollars.

Many folks will argue this isn’t equitable. Not everyone can afford $5,000 out-of-pocket. That is 100% true. But healthcare costs and subsequent deductibles are quickly approaching the threshold where very few people can afford any of it. We’ve given health insurance companies an opportunity to fix this, through their purchasing power and negotiations, but they have failed the 90% of Americans that spend less than $5,000 per year and made access to care a painful experience for both patients and doctors. Obamacare baked in health insurance involvement by design at every single point. It perpetuated the micromanagement. Obamacare is now in danger from President Trump. If we agree that micromanagement at all levels of care, not just complicated, expensive care, is the source of the consumer experience problem, this new era of American healthcare is an opportunity. It’s an opportunity to create The First $5,000 System. Let’s separate that first $5,000 from insurance companies, foster a competitive landscape that competes for those dollars based on convenience and experience, and let health insurance companies do what they do best- micromanage the expensive stuff and stay out of the everyday, low-cost stuff.