Chief Investment Strategist, The Freeport Society
Last week, I went to the best cardiologist in town.
A friend who I go biking with in the foothills of the Peruvian Andes hadn’t been feeling well. He went to his doctor. And he was diagnosed with a serious arterial blockage that would require multiple stents.
So, I did what any hypochondriac man in his late 40s would do.
I booked an appointment with the best cardiologist in Lima, where I live.
And I wouldn’t leave him alone until he agreed to do a full battery of tests, blood work, and even a cardiac stress test on a treadmill.
All of which cost me a grand total of $656, cash.
I didn’t have to deal with insurance forms.
I didn’t spend hours on the phone haggling with a soulless insurance agent because the doctor wasn’t in an arbitrary “network.”
And there will be no random bills six months later, when the doctor’s office gets tired of dealing with the insurance company and sends a bill for whatever remains unpaid.
My cardiologist told me up front what the costs would be. I paid the bill. And our business was concluded. At least until I have another health freak-out moment.
Now, let me be clear. U.S. medicine is still the best in the world. Had my Peruvian cardiologist found something that needed intervention, I would have been on the next flight home to have the surgery done there. If I’m going under a knife, it’s going to be an American doctor in an American hospital doing it.
Still, the administrative system that surrounds American medicine is awful… shockingly, appallingly bad.
We Americans take pride in our free-market, non-socialized health care system.
There’s just one overarching problem…
It’s not a free market. It’s a heavily socialized one.
It is also the most asinine system ever devised by man. And it starts with Uncle Sam.
Making American Medicine Sane Again
If you pay an attorney to represent you, you pay them an hourly rate or perhaps a percentage of any winnings in a lawsuit. But how they go about representing you isn’t really your concern. You’re paying for the outcome.
The same is true for a tax accountant. You pay them to do your taxes. That’s the outcome. You don’t pay them differently based on what software tools they use.
That’s not how medicine works.
Medicine follows a fee-for-service model, meaning you pay for every individual service performed: every test, consultation, procedure, or follow-up gets its own separate bill.
If you go to the doctor with knee pain, they’ll charge you for the initial consultation, an X-ray, a follow-up visit, and physical therapy.
You get billed for all of it, whether it was necessary or not.
Doctors are no different than the rest of us. We all do what we are incentivized to do.
And in a fee-for-service model, the doctor isn’t incentivized to make you healthy. That’s not what their compensation is based on.
They get paid based on the number of services they provide… so they’re clearly incentivized to perform a lot of services, whether they’re needed or not.
It’s quantity over quality.
This model didn’t spontaneously evolve in a competitive market economy. It comes directly from Medicare, which sets standardized reimbursement rates for specific medical services and procedures.
Private insurance companies follow Medicare’s lead, generally using Medicare’s pricing as their benchmark. If Medicare pays $100 for a medical procedure, a private insurance company might pay $120, for example.
But when the government mandates prices, you get perverse incentives. Doctors are motivated to provide the specific services that give them the best reimbursement rate.
This is real.
An analysis by the healthcare industry think tank Lown Institute last year found that more than 200,000 unnecessary back surgeries were performed on older adults between 2019 and 2020. A separate study from the American Medical Association in 2010 found a 15-fold increase in complex spinal fusion surgeries between 2002 and 2007… because they were reimbursed at a higher rate.
There was no evidence that the more complex procedure produced better outcomes. But there was ample evidence they produced a higher paycheck.
If we want a better, more cost-effective health system, the first step is to build a better incentive system in which compensation is tied to patient health and not the number of procedures done at a reimbursement rate that government bureaucrats set.
Give the Free Market a Chance
You don’t use your homeowner’s insurance for every minor paint scratch.
You don’t use your auto insurance for every oil change.
Insurance exists to protect you from a costly disaster.
Shouldn’t health insurance be the same?
Getting cancer, heart disease, ALS, or any other number of serious diseases would require treatment that would bankrupt most people. This is what health insurance should be for: to protect you from a potentially life-altering health disaster.
It shouldn’t be used for routine cuts and bruises.
And yet it is.
If health insurance were treated as every other insurance – as protection from a potentially devastating loss – the companies could charge less for it.
If routine, basic medicine were a cash business, doctors could advertise their prices transparently and patients would know what they were getting into. A trip to the doctor would look a lot more like my experience in Peru.
There’s one more element here too…
President Trump has made most of his second term about “trade fairness.” He believes that American companies are at a disadvantage to foreign competitors due to tariffs, cheaper overseas wages, and other factors.
We can argue those points another day. But I would say that if Trump were serious about leveling the playing field for American companies, he should look at the current insurance benefits arrangement.
Why, exactly, do American companies provide health insurance when the state pays in virtually every other developed country?
Where did this concept come from?
It turns out it started during World War II.
To keep wartime inflation in check, the U.S. government implemented wage and price controls. They couldn’t legally raise pay, but they could offer non-wage benefits like health insurance.
So, they did. Americans got used to it. Eighty years later, we all just take it for granted and expect it.
But here’s the problem with it.
Risk taking and entrepreneurship are the lifeblood of a growing economy. You don’t want America’s smartest and most motivated would-be entrepreneurs stuck in a corporate salaryman job because they can’t afford to lose their employer-provided insurance.
Yet that’s exactly what happens.
While it’s impossible to put an exact figure on the number of Americans that never start that business they dreamed of due to lack of insurance, a study by the Journal of Health Economics says it all.
In a 2010 paper, the authors found that business ownership rates jump immediately after the age of 65… the year they qualify for Medicare and thus no longer have to worry about health insurance. There was no other noticeable jump at any other age between 55 and 75.
So, note to President Trump, Elon Musk, Robert F Kennedy, Jr., or anyone else who cares to listen.
You want to boost government efficiency and eliminate waste while making Americans healthier?
Start by scrapping the fee-for-service Medicare model and come up with something that incentivizes doctors based on how healthy they keep their patients rather than how many reimbursable procedures they run.
You claim to know smart people. Hire them and figure this out.
And then, once you’ve knocked that out, scrap all current employer-provided health insurance incentives and rethink the entire system from scratch.
Build a system in which Americans aren’t dependent on a paternalistic company to take care of them. Incentivize them to take risks and start their own businesses without jeopardizing their health.
What does that system look like?
I have no idea.
That’s your job, President Trump… not mine.
But if you figure it out, you will legitimately make America healthy again and likely create the biggest economic boom of our lifetimes.
To life, liberty, and the pursuit of wealth,
Charles Sizemore
Chief Investment Strategist, The Freeport Society