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Are Middlemen Ever Appropriate

As Carl Schuessler always says, “Eliminate the ‘Middles’ and that is how you save.”

What really is a middleman? I have asked myself this question a hundred times. The answer always seems to be the same. A middleman is a person that stands between myself and the product or service that I am trying to buy. The big question is, do we really need that person standing between us and what we want?

In a few cases, the answer is yes! My hard and fast rule is this: If the person providing the service or selling the item is not capable or doesn’t want to complete the sale, then they need to get a middleman involved. Imagine you want to buy something from a local farm. If this farmer is extremely busy with livestock and/or crops and doesn’t have a way to make sales, then they need a person to handle things. It doesn’t mean the farmer couldn’t do it, it means that the farmer values the service provided and wants to be sure that the customers get what they need. So, the farmer may contract with a company, who works to sell farm products, handles collecting payment, and getting the products/services to the customer.

The reality is that it is often more complicated than this example. For most farmers, they contract with a company that wholesales their products. That wholesaler may contract with a trucking company to move the products. The trucking company handles the delivery to the retail location (grocery store or shopping center) charging the farmer for shipping and sometimes charging the wholesaler too. The retail centers then handle the sales to you, the customer, and of course, it gets marked up some more. A pumpkin that a farmer grew for Halloween may have earned the farm $1.00, the trucking company charged $1.25/mile to move them, the wholesaler sold it to the retail center for $4.75, and then the retail store sold it for $8.00. 

The farmer put in months of work, days of labor and may generate a teeny tiny profit. If we take out most, or all of those middlemen, then the change in income is drastic! If the farmer sets up a small honor stand on their property and sells the pumpkins for $5 each, they may see a few thefts, but will not have to deal with loading a truck, harvesting in bulk, possible rejection from the end retailer, and loss for trucking. The farmer in that case also more than doubled what they would have made through all of the middlemen. If the farmer works with a company like Shop Small Farms LLC who takes a small percentage of the overall sales price, the farmer could easily increase the price on the pumpkins to $8 to match the store and will still have a substantial increase in revenue.

You might be asking yourself, "how is this related to healthcare...?"

When you pay for healthcare, you usually aren’t paying the doctor directly. In fact, you probably have 5-10 sets of hands in between. Your employer may take money from your paycheck, to send that money to the insurance company. The doctor’s office probably hired someone to send an invoice, and handle all of their billing. The invoice gets to the insurance company, the insurance company pays the biller who ultimately pays the doctor's office, and then eventually pays the doctor. If that doesn’t seem complicated enough, remember that everyone along the way takes a little piece of the profits. Imagine if we simplified this process, how much money patients could save, and how much less doctors would have to charge to receive the same level of income.

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