Every Day is Black Friday: Why Paying Cash Leads to Enormous Savings In Healthcare
Every Day is Black Friday: Why Paying Cash Leads to Enormous Savings In Healthcare
Why is healthcare so expensive in the United States? It’s the question that no one seems to be able to answer. Every year, healthcare costs increase by 5–10%, its march seemingly unstoppable. Politicians have made law after law with the explicit purpose of healthcare costs, only for healthcare to become more expensive year after year. Businesses have made splashy announcements declaring they’ll be the ones to finally fix American healthcare, getting a lot of press despite their efforts going nowhere. Why?
One key reason is they do little to solve one core problem in healthcare: inefficiency. Almost $1 trillion of what we spend in healthcare goes to waste, with this number increasing year after year — or a little over $3,000 for every person in the United States. Part of this massive bill goes toward paying for healthcare’s laughably inefficient technology — after all, this is an industry where the standard form of communication is the fax machine, something that the rest of us abandoned in the 1990s. But one of the most glaring inefficiencies comes with how payments function in the US healthcare system. In 2020, it takes insurance companies 49 days to pay a hospital for their services. Yes, days, not seconds or minutes.
But why? Credit and debit card transactions take just 1–3 days for completion and banks can transfer money within seconds. Why does healthcare have to be exponentially slower? Part of the reason is because of inefficient technology. All the largest health insurers use mainframe computers developed in the 1960s and 1970s, written in a programming language that Edsger Dijkstra, one of computer science’s founding fathers, stated in 1975 that using it “[crippled] the mind; its teaching should, therefore, be regarded as a criminal offense.” Yet here we are, 45 years later, crippling the entire country from gross incompetence.
However, credit cards run on similarly old technology, so there must be more to the story. It turns out that healthcare claims systems are too modern even for healthcare, with 96% of insurers still paying some doctors and hospitals by check (overall, roughly $1.2 trillion is paid via mailed checks rather than electronically sent). In a world where we use Venmo and Zelle for practically all our payments needs, the healthcare industry seems to be partying like it’s still the 19th century.
So what can we do about this? Well, credit cards are apparently 16–50x faster than any payments innovation the healthcare industry has to offer, so it may well be time to use that over insurance. Hospitals routinely offer discounts to patients who pay with cash or card over using their insurance. The savings can be astounding — it could mean paying $521 instead of $2,758 (an 81% discount) on a pair of ultrasounds, spending $80 instead of $269.42 for five blood tests (a 70% discount), expending $70 instead of $600 for a knee x-ray (an 88% discount), and much more. The Surgery Center of Oklahoma, which does not accept insurance — just cash and credit cards (although I’ve heard rumors that bitcoin works too) — charges $15,499 for a hip replacement while the rest of us pay anywhere between $30,000 and $112,000 for it. The administrative costs of dealing with inefficient insurers has become so acute that you can save 20–80% on the cost of a procedure by paying your doctor 45 days earlier. The financial equivalent of this is if you gave them a cash loan with an APR of 475% to 6200% — numbers so large that even payday loan companies would be jealous. Paying via cash or card for a healthcare expense may well give you the greatest financial returns of almost every investment in human history.
In healthcare, cash is king. Inefficient technology, processes, and payments make every day Black Friday in the healthcare industry. Better yet, it’s a doorbuster that will probably never expire, unless of course the industry finally gets its act together and modernizes the way it conducts payments.
