Dec 2, 2017

A New Healthcare Paradigm

Last summer, in reply to an interesting set of Tweets from Paul Krugman regarding healthcare, I wrote, “The biggest problem in healthcare is cost. And that will get fixed when people have skin in the game and start price shopping.” Little did I realize the hornets’ nest I had stuck a stick into.

So I’m going to explain myself. In the country with the most amazing medical system imaginable, the system has broken down in two ways: access and cost. But a large part of the access problem is the cost.

My opinion remains that fixing health care is primarily about lowering its cost. ACA did the opposite: It broadened access and then tried to lower cost while its use was expanding.

That healthcare is costly and needlessly inefficient is mostly obvious, supported by different analyses done, and by visits to any medical facility. Healthcare misses many of the basic efficiencies that exist in other, more competitive industries. But the heathcare system has little incentive to control costs since costs are mostly passed along to payment systems.

My suggestion is that we reduce costs by providing incentives for some users of the system to shop their needed healthcare - to allow some of capitalism to filter into a system that today is largely socialized, whether directly through the government or indirectly through tax incentivized employer insurance.

The retort to any use of capitalism in the healthcare industry is the proverbial emergency ambulance trip where a dying patient is researching ER costs. Well, I can’t quickly name anyone who has been in an ambulance, including myself. In reality, most healthcare is not urgent. Physicals, complex operations, birthing and counseling are examples that could be shopped for. I’ve had five surgeries in my life and only one was urgent.

I suggest that we start this change with our younger, healthy people whose healthcare is largely handled through their employer. The idea is that we give this group incentives to be deliberate on what healthcare they receive, and what it costs. Our current system offers little here. My fellow workers pay for my healthcare and I pay for theirs. We individually have little financial interest in its cost.

If younger, healthy workers had a financial incentive in the healthcare they receive, a new market could arise where costs and value are known. Although the healthcare industry would claim that they are special, the truth is that whether a physical, vaccine, appendectomy, colonoscopy or heart surgery, they can provide these prices.

And as consumers, we can make a value judgement between service and price. We do it every day. But the healthcare systems insists on some mystical discussion of “family physician” and “talk to your provider,” instead of recognizing that healthcare is largely a heavily regulated industry of highly trained technicians largely doing very routine things.

How do we provide financial incentives? Primarily by eliminating the healthcare payment system and return today’s healthcare “insurance” to what it is called: insurance. That is, insurance should kick in only for healthcare issues that exceed some level of cost, to spare us financial ruin, as insurance is meant to work. We do not need this system to manage a flu shot, just as we don’t need an automotive payment system to handle oil changes. And this insurance should be selected from an array of providers and options that balance the amount of risk one is willing to take.

What might happen in this environment of cost transparency and limited insurance use? Healthcare users would quickly find that there is a wide difference in pricing between providers for nearly identical procedures. No, they may not be blessed by your family physician, but they work just the same.

With just a subset of people starting to shop their healthcare, private for-profit entrepreneurs would find there is a lot of money to be made by lowering the costs of procedures and undercutting the current industry. We would find that some healthcare would remain very expensive but much of it can be provided more efficiently at a much lower cost. And eliminating a middle payment system alone would start saving money.

Lowering costs includes challenging whether the healthcare sought provides much value at all. A simple example is the mostly needless and common emergency room visits for rashes and other skin problems. Most disappear on their own, rarely requiring medical attention.

Here’s another way to look at it. In our quite typical middle-class family of five, the total cost of our healthcare is less than the combined cost of our housing and transportation. I can’t recall the last car or homeowners insurance claim I’ve filed but I do know very well the price of vehicles, gas, utilities, and maintenance and repairs.

The same can be done with healthcare. It is ludicrous that healthcare is considered so esoteric, urgent  and expensive that working families can’t manage their healthcare as they do other critical aspects of their lives. It’s just a bad story planted in our collective conscience.

The last chapter in this scenario is what happens when the young and employed start receiving healthcare that’s significantly less expensive. It would be natural for the old healthcare system to learn from the new system, enabling them to reduce some of their costs, too.

Most people do not shop at Walmart, but during the 90s, competition with Walmart significantly reduced the price of most retail purchases everywhere. In time, we would learn to measure healthcare somewhat as a value proposition. And much of our often needless healthcare would just drop, whether the young pacing out their “annual” physicals, or elderly passing on a highly invasive and expensive procedure that does not consider the total quality of their lives.

For sure, nothing will change quickly in the US medical system regardless of the direction it takes. There are too many moving parts. But there are things we can do to move us in a better direction, some of which may be happening with HSAs and high-deductible healthcare plans purchased on exchanges. Start with reducing the use of insurance for every medical expense and then work to move the purchase of insurance into a free market.

Finally, for those who are vulnerable and have lived in the current system most of their lives, assure them that their antiquated system will continue - that, no, they do not have to price emergency rooms while riding in an ambulance.

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