In our region there are already hospital systems that are owned as subsidiaries by corporations that also own insurance companies. These corporations are gobbling up smaller hospitals as those merge and then subsequently get purchased by regional systems.
The monopoly in the provision is problematic enough, but it reaches new levels of problems when they are also merging with insurance companies.
So for some people, even if they aren't getting direct care technically, they are, because their choices are limited geographically for all intents and purposes to one provider, and their insurance is coming from the same provider.
The challenge these direct care models faced, as alluded to by other posters, is in competing with conglomerates that offer a complete spectrum of care. You either cater to people who can afford it, or have to lower costs enough to make it reasonable for people who might not otherwise. The first option limits your customer base; the second is not really currently feasible given government regulation and how it inhibits competition in delivery models.
I worry about the future of health care in the US, only because I don't see the GOP implementing anything other than the not-too distant status quo, which was broken. I sympathize with their stated ideal of reducing costs and increasing competition, but it seems like doublepeak for reducing costs and decreasing competition for established financial interests and increasing competition for everyone else. The net effect will just be squeezing more and more money out of the common individual.
Not sure if it is a reasonable model yet, since these firms are incentivized to minimize patient contact. In the positive view, it means they want to focus on preventative care. In the negative view, they will get suffocated with hypocondriacs and have to institute limits to care that invalidates the allure of an unlimited insurance-free provider. Plus, these places effectively have to underwrite like insurers to remain profitable which is not easy when competing woth sophisticated giants. Not to mention the risk pf dealing with a very unstable ACA that will likely change the landscape.
Only if you ignore non-monetary costs and benefits. Risk reduction/mitigation is a benefit and has a value. If it had no value, people would not bother buying insurance. When that benefit is taken into account, the net expected value of insurance is positive for both parties: the insurer makes money (assuming it has done its actuarial statistics properly) and the insured buys risk reduction/mitigation at a cost that is less than its value.
Your point about "health insurance" combining two separate products, only one of which is actually insurance, is valid, though, and very important.
As mentioned below, expected value here refers to the flow of funds. Yes, it is different from the utility of the (guaranteed) value, which is also different from (and greater than) the expected utility of the risky action.
The monetary difference between what I'm referring to and what you're referring to, incidentally, is what economists call the premium. (The naming of "insurance premiums" is not a coincidence.)
Arrow wrote the seminal paper on understanding insurance, for anyone who's interested in how this is calculated.
For the first part you're assigning a value to a thing beyond it's market cost and saying everyone is in fact a winner, and that's a little strange. Risk pooling via a private insurance company is negative sum because someone makes a profit beyond their costs. That should not then be taken to mean it's a bad deal (it isn't).
Of course. If that weren't true, people would not buy insurance.
> Risk pooling via a private insurance company is negative sum
If you only consider monetary costs and benefits, yes. But this ignores the (non-monetary) value to the insured of not being exposed to the risk (because that risk exposure has been transferred to the insurer).
> That should not then be taken to mean it's a bad deal (it isn't).
I agree that it's not a bad deal; I'm just saying that the reason it's not a bad deal is that people consider more than just monetary costs and benefits.
> It is not there to save you money. The expected value of all insurance is negative, and that's intentional.
You might well be right. But I wasn't trying to tell him what he meant; I was pointing out that viewing "expected value" solely in terms of monetary value does not explain why people buy insurance in the first place. To explain that, you have to take into account non-monetary costs and benefits.
The same is true for any economic transaction that involves anything other than pure financial instruments. For example, I go to the grocery store and buy various items for money. If I only consider monetary value, the "expected value" of this transaction is negative. Does this seem like a useful way to explain the economics of grocery stores?
Contrast this, for example, with trading stocks. Here there is no non-monetary value involved; people don't eat stocks, or get any other non-monetary benefits from them. So when analyzing the stock market, it is appropriate to use "expected value" to mean monetary value.
When I go to the grocery store, the expected value is exactly zero. In every possible outcome, I expect to exchange some amount of money for a basket of goods with an equal value.
That's the general meaning I'm using, but in this case the range of possible outcomes is pretty narrow--basically I buy food and eat it. The small probability of some of it being bad, and me either having to throw it away or getting sick from it, isn't significant for what we're discussing here.
> When I go to the grocery store, the expected value is exactly zero. In every possible outcome, I expect to exchange some amount of money for a basket of goods with an equal value.
Then either your grocery store is overpriced or you are being really pessimistic about the value you get from your food. Also you have a pessimistic view of economics.
My expected value from grocery shopping is positive: I expect to get more value out of the groceries than the money I spend on them: I can't eat money. The expected value to the grocery store owner is also positive: they weren't going to eat all those groceries anyway, so the money is more useful to them than the groceries were. In other words, the transaction as a whole is positive sum. This is how wealth is created: people make positive sum exchanges that redistribute things to increase overall value.
Of course, this whole viewpoint I'm expounding requires a concept of value that is uncoupled from monetary value. You don't appear to have that concept: you appear to believe that the "value" of anything is equal to the money you can exchange for it. That is not a fruitful way to view value if you want to understand how wealth is created. Notice that the "value" of both the groceries and the money had to be different for me and the grocery store owner for the exchange to take place; that is how all positive sum exchanges work and how wealth creation happens. If everything had the same value to everybody, which is what is implied by equating "value" with monetary value, the economy would be completely stagnant and no wealth would ever get created.
"If everything had the same value to everybody, which is what is implied by equating "value" with monetary value, the economy would be completely stagnant and no wealth would ever get created."
That's untrue. Even if everyone had the same utility function with respect to every single possible good and service, (i) wealth would still be created (e.g. by a woodworker transforming a piece of wood into a piece of furniture) and (ii) trade would still take place (because, even in the absence of differing utility functions, there are still productivity gains to be had from specialisation).
Anyway, we've veered way off topic. The comment to which you replied "The expected value of all insurance is negative, and that's intentional" was entirely correct, as long as you don't want to use a definition of 'expected value' that nobody uses.
The same good or service having different value to the two parties to a transaction doesn't require them to have different utility functions. It just requires the utility functions to depend on variables that differ between the parties. For example, the utility of a given item of food depends on how much of it you already have (the grocery store has a lot more of it than me, so it's worth less to them).
> we've veered way off topic
I'm not so sure. Health care seems like an area where it should be obvious to everybody that non-monetary costs and benefits are a huge factor that must be taken into account.
One thing that people often overlook when talking about health insurance is that, economically, "health insurance" is really the combination of two completely separate products, only one of which is actually insurance.
Insurance is about pooling risk. It smooths risk across states of the world (e.g. the universe in which your house burned down, and the universe in which it didn't but your neighbor's house did instead). It reduces the variance between those states, and in exchange, it charges a premium for making the outcome more predictable. It is not there to save you money. The expected value of all insurance is negative, and that's intentional.
By a true insurance model, routine care and elective surgery would be priced the same with insurance as it would without, because there is no risk involved. The reason it isn't it because we want to subsidize these, to enable people to obtain care they otherwise wouldn't be able to afford. We use "insurance" as a vehicle for this, but really, that's not insurance at all. It's a redistribution.
So it's perfectly understandable that a primary physician who is dealing with routine care and doesn't accept insurance would be able to charge patients less (and still walk away with more money) than one who uses insurance.
The reason you don't see this everywhere, though, is that policies are making it harder and harder for physicians to run private practices entirely (whether they accept insurance or not). The majority of physicians are now employed, largely by hospital networks which are required to accept insurance (in some cases legally, and in others by virtue of the fact that they need to cover their Medicare losses[0]).
So, the place you are most likely to see the direct care model are with physicians who are catered to the incredibly wealthy. That's not to say that a direct care model couldn't work for people who aren't, but the way our system is set up doesn't facilitate it.
[0] https://news.ycombinator.com/item?id=13356442