The Future of Consumer-Directed Health Care

Over the next decade I believe we are going to see a major transformation of American medicine. It won’t be the kind of transformation that is normally discussed at health care conferences and at inside-the-Beltway briefings. Nor will it be the kind of change anticipated by the people who gave us the Affordable Care Act (ObamaCare). Instead, what I envision is a large migration of patients and doctors, and facilities and services out of the third-party payer system.

That means a major increase in concierge doctors, concierge facilities and concierge-type services. More generally, it means the creation of new markets where providers are free to repackage and reprice their services without third-party payer approval; where transparency of price and quality becomes the norm for patients; and where suppliers of services compete for patients on price, quality and amenities.

The single most important cause of this transformation will be the Affordable Care Act (ACA).  That is especially ironic in four ways. First, the most important purpose of the act was to bring millions of people into the health insurance system, not to push millions of people (at least partially) out of it. A second purpose of the ACA was to change the way medicine is practiced — using electronic medical records, financial incentives and regulatory powers to goad providers into providing lower cost, higher quality, more transparent care. Yet all of these goals will be achieved more quickly, more completely and more effectively outside the system. A third goal of the ACA was to create a more egalitarian system in which all have access to the same care. Yet the world we are about to enter will be the exact opposite — a two-tiered system in which access to the best doctors and the best facilities will depend very much on your ability to pay. A fourth goal of the ACA was to create universal access to care. Yet our more vulnerable populations — the poor, the disabled and the elderly — are likely to have less access to care under the new reforms than they have today.


“We can take what’s wrong and make it right.”

To see why this is going to happen, let me summarize the impact of four especially important characteristics of the new law.

Response to the Individual Mandate. In a few short years millions of people will be forced to buy a health plan that’s cost is going to grow at twice the rate of growth of their incomes. Barack Obama did not create this problem. The spending path we are on dates back four decades. The new legislation, however, will lock us onto a future path that is as bad or worse. The 32 million newly insured plus most of the rest of the population with more generous insurance will push spending higher than it otherwise would have been. Traditional tools to control costs (e.g., more limited benefits, greater cost sharing, etc.) will be limited.

One of the few tools employers and insurers will have left is to turn to more limited networks.  For example, you may end up in a plan that covers only half the doctors in your area. It’s possible you will have to pay full cost if you go outside your plan’s network. More likely, most services will be subjected to “reference pricing,” under which your plan pays 100% within network and you pay 100% of any extra cost you incur outside of the network.

It is precisely this type of reimbursement mechanism that will lead to the steady exodus of providers from the insurance system and allow an unfettered market to develop outside of it.

Responding to the Perverse Incentives of Health Insurance Exchanges. Since I have explained this many times before, I will make this brief. With community-rated premiums, insurers will try to attract the healthy and avoid the sick. After enrollment, their incentive will be to overprovide to the healthy (to keep the ones they have and attract more just like them) and underprovide to the sick (to encourage their departure from the plan and to discourage enrollment by others). The federal employees plan — often cited as a model — functions like one big human resources department. Imagine getting rid of the employer and opening up the system to everyone in Washington, D.C. (And remember for people who go bare while they’re healthy and enroll after they get sick, the fines are going to be small and may be nonexistent.) What you would be left with would be a mess.

Bottom line: the health plans in the exchanges will have severe quality problems — problems people with money (or anyone who’s willing to spend money on his care) will want to escape from if a health need arises.

Responding to a Bizarre System of Health Insurance Subsidies. For people with below-average income, the subsidies in the exchanges will be two, three, four or five times greater — depending on circumstances — than the health insurance subsidy at the place of work. Competitive pressures alone will cause these people to gravitate to this exchange — although there are many ways this might be done.

Why is this so important? At the place of work, all these people had an employer who functioned as a protector in the health care system. In the exchange they will seek insurance on their own.

Bottom line: the number of people in the exchanges will be many millions more than what the Congressional Budget Office (CBO) is predicting — creating budget problems and exacerbating the quality problems.

Responding to the Imbalance between Supply and Demand. If the economic studies are correct, 32 million newly insured people will try to double their consumption of medical care.  Most of the rest of the population will have increased access to preventive services, without copayments and deductibles. As an illustration of where we are headed, if everyone in America got all of the preventive medicine the Preventive Services Task Force says we should get, the average primary care physician would have to spend more than 7 hours a day delivering services to basically healthy people — leaving little time for anyone who is actually sick.

Bottom line: We are going to have a huge increase in demand with no change in supply. Since we primarily pay for care with time rather than money, the time price of care (waiting) will shoot up almost everywhere — at the emergency room, at the primary care facilities and for most specialist services.

Redistribution of Services. Even without the transformation I am predicting, there will be a redistribution of health care services from those who have less to those who have more. Anyone who is in a plan that pays below market will have increased difficulty getting care. These are people in Medicare, Medicaid and possibly (as in Massachusetts) people in subsidized plans sold in the health insurance exchanges.

How the Transformation Will Exacerbate This Problem. Every time a doctor leaves the insurance system to become a concierge doctor, he/she will take only a fraction (say one-fourth or less) of the patients the doctor was previously seeing. That means the doctor/patient ratio for everyone left behind will worsen.

Sadly, as doctors and patients seek better, more timely care, they will make matters worse for all those who stay in the third-party payer system.

What Health Care Will Be Like Outside the Health Insurance System. As we’ve written before, the average concierge doctor already does most of the things the Commonwealth Fund thinks all doctors should be doing. They use telephones and e-mail, they often have same- or next-day services. They keep medical records electronically. They prescribe electronically. We’ve also pointed out that when patients pay the marginal cost of their care, there is almost always price competition, which tends to produce quality competition as well.

The new legislation may indeed cause the transformation of medical practice that the ACA seeks to bring about. But it will not occur because of the guidance Washington gives to providers in the third-party payment system. It will occur because of the competitive pressures that everyone who escapes from that system and practices outside it will face. And it won’t be available to those who need it most.

Comments (24)

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  1. Your second paragraph 100% correct. I recently discussed PPACA legislation with one of the largest orthopedic practices in North Texas and they have already decided to refuse third party payment and go “Cash Only” in January 2014. Based on their current client base and business model they predict retention of current revenue levels with 1/2 the patients and considerably less administration relating to insurance filing and reimbursements.

  2. George says:

    Excellent analysis John,
    What you refer to as a tow tiered system is more likely to be two separate systems: “healthcare” (that relatively new social construction), and medical care. Physicians who actually care for patients are most likely to be attracted to the latter as independent professionals, rather than the former as organized public servants.

  3. Devon Herrick says:

    Public health advocates often lament that the U.S. health care system is evolving into a two-tiered system where poor people have less access to care than affluent people. Advocates solution is universal coverage — similar to provisions created by the Affordable Care Act (ACA). Yet, the ACA will likely push the U.S. health care system closer in the direction of a two-tiered system because of expanded Medicaid eligibility the low reimbursements paid to Medicaid and Medicare providers.

    Despite insuring 32 million or more additional people, the ACA does almost nothing to expand physician supply. If more physicians decide their only alternative is to adopt the concierge (retainer medicine) model due to low government reimbursements, patients willing to pay cash will get great care while those with public coverage will find it harder to get a doctor willing to treat them.

  4. Linda Gorman says:

    As the cash market begins to develop, the states and the federal government will move to squash it because it makes them look bad. They can make medical licensing conditional on accepting exchange plan payments. They can make it illegal for physicians to accept payments for services at anything above reference pricing as they have done with Medicare.

    If the cash market is not protected it will be outlawed.

    And even with the cash market, health care would now much more expensive as people are paying once for the worthless ObamaCare coverage and again in cash.

  5. H D Carroll says:

    Clearly there will be a need for true catastrophic level medical expense insurance, but the question will be whether or not such types of policies will be allowed to exist, since they won’t cover “essential benefits” at the relatively low cost sharing levels (out of pocket limits) required by ACA. The anticipated severe limitations on High Deductible plans will become even more leveraged. It may be possible that we will see a drift towards such true catastrophic level policies needing to be written as excess and surplus lines since they won’t be able to be written as “filed” insurance because of those restrictions. Of course, the Feds and state regulators will then do what they can to prevent such policies from being written because such policies will support the “opting out” from the controlled market of the exchanges and regulated policies. This will simply further the unraveling of the system into a more severe dispersion into two or more tiers of quality.

  6. Karen Yancura says:

    I’m confused with the label, “concierge” doctor; if that means pay for fees outside any plan, I thought that wasn’t allowed under Obamacare? Could you explain?

  7. Don McCanne says:

    The Affordable Care Act establishes “unaffordable underinsurance” as the new standard. Even with the subsidies, insurance premiums will remain unaffordable, and out-of-pocket costs for those who need care will be unaffordable because of the low actuarial values of the standard plans (70% for silver and 60% for bronze).

    With health care costs now averaging over $18,000 for a family of four and median household income at $50,000, unaffordable underinsurance will leave middle-income Americans behind. That’s most of us.

    Concierge medicine will fill the void only for the relatively affluent. As John Goodman says, “it won’t be available to those who need it most.”

    The nation will not tolerate a system that caters to the wealthy but doesn’t work for the rest of us. A bona fide social insurance program is absolutely inevitable. Most likely that will be a single payer system because of its greater efficiencies – improving value in our health care purchasing.

  8. Bruce says:

    Not a pretty picture.

  9. John Goodman says:

    @ Linda Gorman

    You may be right. But to outlaw the concierge doctors will require additional legistlation. It won’t be easy.

    @ HD Carroll

    There is a limit on how much out-of-pocket exposure is allowed, even in the employer plans. I believe it is 9.5% of income for the employee premium plus out-of-pocket exposure.

    @ Karen Yancura

    Just as doctors today can treat senior patients outside of Medicare, doctors will be able to treat patients outside of the mandatory insurance required by ObamaCare.

    @ Don McCanne

    I agree that it will be unaffordable, and if not initially, certainly eventually.

  10. Erik says:

    Here is a look at two articles pertaining to “Concierge Doctors”:

    From the Article:
    “United Healthcare confirmed it is dropping four local doctors from its network in April because the company disapproves of their so-called “concierge medicine” model.”

    “Cigna is also condemning the practice, in which physicians charge an annual retainer of $1,500 to $1,800 for patients who then receive more personal care. The claim is it is in violation of the physician’s contract with the insurer.”


    From the Article:
    “While all concierge practices share similarities, they vary widely in their structure, payment requirements, and form of operation. In particular, they differ in the level of service provided and the amount of the concierge fee charged. While some concierge physicians (including MD2) charge well over $10,000 per patient per year, others charge considerably less.


    “Some critics have denounced concierge medicine as injurious to America’s system of health care. “Change is inevitable, but a change toward elitism in the delivery of health care is pernicious,” Professor John Goodson of the Harvard Medical School observed in a letter to the Boston Globe. “It undermines the most fundamental commitments of our profession.”

  11. L. Brody MD says:

    Thanks, again John for laying this out. I can also foresee a “cash and carry practice” where doctors and patients select each other, and by pass all the quality assurance programs, insurance schemes, government interventions.

    I believe it will be more expedient, and have a greater cost/benefit ratio. Doctors can then focus on taking care of their patients as valued clients and satisfying them. Of course, catastrophic coverage will have to be available, but I was glad to see your article and its optimism.

    I have no belief in government programs to do anything but drive up costs and drive the society closer to socialism. This will help patients respect and appreciate doctors and hospitals more than their insurer or government.

  12. Erik says:

    Hey John,
    What is this about?
    Erik says:
    Your comment is awaiting moderation.

    March 7, 2011 at 1:16 pm

    Is this something new?

  13. Michael says:

    It’s not new- if you include multiple links in your comment, it must be approved to make sure it isn’t spam.

  14. Dennis says:

    I can see this happening in primary care. Subspecialty care, especially in the case of surgical treatment or more complex multispecialty treatments (e.g. cancer)will be more difficult to reorganize along these lines on a large scale. Yes, people can afford to pay several thousand dollars for LASIK or a facelift, but it would be difficult to manage tens of thousands for scoliosis surgery or resection of a benign brain tumor. Situations like the management of breast cancer are even more difficult, requiring many physicians and different facilities for optimum treatment.
    In the UK the NHS has attempted to address this issue by refusing to provide “standard” care in the NHS if a patient goes outside the system for additional treatments. I suspect that will happen under O-care as well.

  15. Jennie Fiedler says:

    Wow. I didn’t know about the “concierge” thing, but it sure makes sense. Wouldn’t you get frustrated if you didn’t get paid? I would. Single payer is a great option, private care, public funds which everyone who earns any income pays for, but instead our lawmakers come up with a joke called the ACA, when they have a system already in place they can tweak to work for everyone. I sure don’t get it. All I can say is “ACA’s plan for healthcare: DON’T GET SICK!!!!”

  16. Tom P says:

    One of the interesting things about two-tier care is why we haven’t had more of it. As I travel the country meeting with hospitals, I am struck by how many have been building private rooms and other amenities. Why not? Medicare, which pays about half of a hospital’s revenue, rewards (or doesn’t penalize) such building. Patient, who pay little to nothing, have no trade-offs to make so are delighted with flat screen TVs in a private room. The result is we have one tier of beds — the most expensive kind. Contrast that with Japan, for example, where you are placed in a ward unless you want to buy up to a more expensive semi-private or private room.

    One example, but it gets at another topic: if we are to drive down health care costs, what do we do about the massive stranded costs we’ll be facing? Someone will have to get hurt — will it be taxpayers, hospitals, bondholders…?

  17. W. Dunk says:

    Excellent analysis!


  18. John Goodman says:

    @ Erik

    Who is this John Goodson at Harvard? I wonder if I’m distantly related — connectied thru a lasst name misspelling. Any way, I would have thought that the most basic “commitment of medicine” is to meet patients’ needs. That is what concierge doctors appear to be doing, while those in the third-party payer system often fall short.

    @ L. Brody

    You are correct. The whole point is to avoid the (often nonproductive) bureaucracy.

    @ Dennis

    Remember, the UK version of this is all about rationing (saving money). It has nothing to do with equity.

    @ Jennie Fiedler

    I agree. But there is a wider point to be made. Within the health insurance exchange, you will be better off if you don’t get sick, regardless of what type of plan you are in.

    @ Tom P.

    Good observation. When hospitals don’t compete on price or quality, what’s left? It’s almost guaranteed that they will compete on amenities.

  19. Seamus Muldoon MD says:

    @Goodman: With community-rated premiums, insurers will try to attract the healthy and avoid the sick.

    This is not limited to insurers. We also see the emergence of Accountable Care Organizations (ACO’s), which draw physicians, hospitals and insurers together into an alliance whose primary function ends up being cost-containment. In our local medical community, which is touted for its model of costs and quality, we see physicians trying to recruit healthy patients while squeezing less healthy patients out of their practices. It’s easier to meet Pay for Performance benchmarks if you start from a healthier baseline, and access is harder to obtain for those who need it most.

  20. Madhatter15 says:

    The problem I am seeing with this is the usual, no one asked for the Government to handle our health care, not Obama care or any other care, thats what we were against. Yes so far you are about the fifth person/Senator who tells us it can be fixed. We didn’t want it, it is just another nationaliztion of something that used to be our choice and responsibility. I have never been sick thank God but if that day comes I don’t think I would even know how to get help, this is a complicated at best format. We had health care for the poor but it was given to every immigrant that came in here by the millions as soon as they got off the plane they got a medicaid card, don’t do that, we would then have enough to cover the poor in America, legals only. The rest of us can do what we have always done, take care of our selves. We pay into medicare, raise the price a little, , I mean a little , and overseer it in a regular fashion and you won’t have any trouble, hiring more people to go over the bills turned in by the Hospitals and Doctors would go a long way to ending abuse and giving people jobs. Billions of dollars spent for something we don’t want is outrageous, no one seems to understand the word NO anymore. When we were protesting and shaking our fists and tea parties were up in arms because we didnt’ want nationalized medicine, John Boehner said they can work on fixing it, we didn’t want it, now you are coming up with another plan that sounds complicated, it is complicated, and we don’t want it, although people seem to be buying into it more now from what I can see, what happened to we don’t want it? If they couldn’t handle Medicare or medicaid what makes you think this gigantic plan will be any different? This is just anothr form of control and I odn’t like the sound of electronic medical records if it means a chip, thats out for me but it has been mentioned before. They already have them in our shoes , next it will be in our arm. The Government is really taking liberties they have no right to. Everything the Government spends is our money, not theirs, from the undergraound bunkers and Fema camps to the Super highways, all things no one wanted but were forced to pay for, it is our money, Obama better start to understand that, he doesn’t seem to get it, no one does. How much money did it cost us for Micheles new healthy eating plan, you know, the one the kids won’t eat? well this is the same only if we don’t use it we are fined, thats freedom?

  21. Bret says:

    Here is a Kaiser Health News column on the latest developments in concierge medicine:

  22. Robert Kramer says:


    I have been supporting this for years. It is not unlike when I went into practice 40 years ago. Outpatients paid at the point of service; no insurance company interference. The people could take out a catastrophic policy to cover hospitalization or other long term situations.

    My only concern is who is going to take care of those who cannot afford concierge care? Please help me with this one

    -Dr. Bob Kramer

  23. Linda Gorman says:

    @Robert Kramer: Before the government got involved, charities took care of people who could not afford medicine. Physicians and hospitals donated a lot of free care. Fraternal societies provided health care to members.

    If government must be involved, subsidies should go to the individual, not to providers. At present, government health care programs are the equivalent of providing food for all by collectivizing agriculture. The results are similar, too.

    Things would improve a great deal if we simply stopped the collectivization and instead copied the food stamp program. It might be a second-best solution, but that would be a whole lot better in efficiency and welfare terms than what we have now.

  24. John Goodman says:

    @ Seamus Muldoon

    I agree with you. The entire health care system gives everyone an incentive to run from sick people and in every case the reasons are the same — perverse incentives created by bad government policies.

    @ Madhatter15

    I’m not telling you Obama Care can be fixed. Only that we have a repeal and reform strategy that I hope will work.

    @ Bob Kramer

    People who cannot afford concierge care will face increased rationing by waiting and decreased access to care. Ironicly, the people hurt the most will be the ones Obama claims to care the most about.