A Healthcare Idea: Insurance That Doesn't Pay
One reason for this arrangement is that health care you pay for directly is paid with after-tax dollars, health insurance via your employer with before-tax dollars, giving a substantial advantage to the latter. But there may be another reason as well.
From time to time one sees accounts of a patient who was billed for something and discovered that the cost was much more than what the hospital charged an insurance company for the same treatment. Such anecdotes are not, by themselves, very strong evidence, and I do not know how common the pattern is—I have also seen stories in which the discrepancy was in the other direction, after some bargaining by the patient. But it does make a certain amount of sense. The insurance company is a well informed purchaser bargaining in advance on behalf of lots of customers, so it wouldn't be surprising if it were able to get better terms than the hospital offers to an individual who requires treatment.
This suggests an obvious possibility—"insurance" companies whose main function is not insurance but negotiating prices. Within the current framework, that would mean a policy with a very large deductible, large enough so that the customer ended up paying for all ordinary medical care, giving him an incentive to hold down its cost as best he could. In the limiting case it would mean a company that provided no insurance at all, simply the service of negotiating for its customers, in advance, prices for medical service, and perhaps offering customers advice as to what they ought to purchase from what provider.
To what extent do such arrangement already exist? Is there a problem with them that I am missing? They don't deal with the implicit tax subsidy issue, but they would seem to solve the other problem.