Fractured healthcare never heals
When it comes to the American healthcare system we mainly hear two things: 1) it’s too damned expensive even with health insurance; 2) outcomes for cost are terrible when compared to other wealthy nations. (Ok, there’s a third: Nothing to see here, folks, everything’s A-OK.) There’s a lot of handwringing on what to do with two main opposing viewpoints vying to be the full solution. The first is the tried and (we want to believe) true laissez faire capitalist attitude that the market will figure it out, and the second is that only a full governmental takeover will solve the compound issues of cost, poor outcomes and unequal quality of care for women, people of color and the poor.
The former is wishful thinking, this being born out of history. Every time we have allowed an industry to run wild with little to no governmental oversight something goes wrong (housing, banking, tech, etc.). Pricing is out of whack, the products and services hurt people, monopolies form and exert so much control no meaningful competitor can enter the market leading to artificially inflated pricing, millions of people lose heat and water during a horrifically bad frigidly cold winter storm, and the list goes on. And the latter puts too much centralized control over what is ultimately a hybrid problem that requires both decentralized and centralized oversight. I’ll explain.
The biggest problem the American Healthcare system faces lies in its Balkanization. In the United States we have what amounts to 50 countries of varying population sizes, each with their own healthcare providers, insurance companies, laws and regulations. It’s no wonder insurance costs are so high and it’s no wonder out-of-pocket, co-pays and deductibles are bankrupting people. You can’t have real competition and market induced price controls when your market is broken into 50 little pieces with high walls and moats around each piece. As a non-medical industry example, look at power companies and other utilities. I know of nowhere where there’s multiple utility providers competing with each other for the same customer. It’s all effectively a single provider of electricity, gas, cable, etc. Most of the time these service providers, as monopolies, run under significant government regulation and oversight (though, internet providers seem to be far less scrutinized than most other utility providers). The point being, whether or not these utilities are Balkanized, we have an environment of private companies working hand-in-hand (though, some would say under the thumb) with government to provide services to people at (we hope) reasonable rates. At the very least, at rates that aren’t going to bankrupt anyone (though, look at Texas and the tens of thousands of dollars in bills some customers have received due to the deregulation of the electric market).
I recognize that in many ways, and in the ways that truly matter, healthcare is a local issue. Your doctor is local, your pharmacy and hospital are local. Your ambulance provider, whether public or private, is local. From this perspective everything about your healthcare experience should be local, from laws and regulations, to licensing to insurance coverage. Right? Wrong. From an economic standpoint healthcare is like any other industry in America, pricing is only competitive and kept in check when there is broad competition and a large buying base (and, of course, the proper political and legal guardrails). It boils down to simple economies of scale. To illustrate this point think of suits (I know, in this Pandemic Age who’s wearing suits?). Generally speaking, a one-off bespoke suit is going to cost thousands of dollars. A suit made in high volume in a factory is going to cost anywhere from a hundred bucks to a few hundred dollars. Something from a designer, made in limited numbers, will of course cost in the upper hundreds to a couple of thousand dollars. Again, it’s all about economies of scale. The more you produce the less expensive your raw material costs, the more you can output per unit of time and the less your labor costs add to each individual product.
The same holds true for healthcare, be it providers or insurance companies. In this case, though, the product is the health plan and the customers fill the labor spot. Simply, the more people you have paying in to a particular health plan the more people you have to spread the costs of individual healthcare. Of course, this means there are more people you have to pay out for healthcare, but as the most expensive treatments and care tend to be outliers at a certain point you have far more people not utilizing health services on a regular basis than you have people requiring ongoing treatment, bringing down the cost to cover each individual. On the opposite end, when you have a relatively small pool of people available for a given health plan things get expensive quickly on an individual basis, pricing the plan out of reach for individuals and employers alike. Going back two decades, when I lived in Rhode Island I had health insurance through my employer. Right before I relocated to Florida there was talk of our insurance provider pulling out of Rhode Island simply because the market wasn’t large enough for them to make any money. In fact, there was significant concern that all health insurance providers were going to pull out of Rhode Island because of the small population. Our company was lucky in that the headquarters are in Connecticut and there were enough employees to work a deal with the insurance provider in Connecticut to cover employees for both locations.
Again, this was 20 years ago, so it’s not like the problems the ACA tried to resolve or that we hear about daily today just suddenly cropped up during the Obama administration. These affordability, access and outcome problems have been around for decades as a direct consequence of our American healthcare system. The solutions we keep throwing at the problem, capitalistic competition and patient education around costs, keep failing. And, it’s all for two really simple reasons. The first, what I’ve already pointed out, healthcare costs are covered in a hodgepodge, fractured, Balkanized manner where no health insurance plan will ever be able to gain enough customers to keep the per person cost reasonable. Second, the way hospitals and doctors structure their billing is in direct response to the insurance companies only paying out a percentage of what is billed. Which, I’m sure, originally seemed like a good idea in that when a doctor agreed to accept a particular insurance they did so with the understanding that they would be able to see more patients, increasing their overall revenue even at a discount to their billings.
The expensive nature of various diagnostic equipment, testing, staffing requirements, the management overhead of the insurance companies, drug costs, and more often than not what seems to be unreasonable expectations of profit margins have all come together spiraling costs across the board which have spilled over to reach further into the pocket of the patient.
The solution to our healthcare cost crisis is a simple one, and one that the Federal Government has pursued time and time again in other industries, whether it’s mail delivery, trains, space exploration, military. A public-private mashup that provides a public option (in this case I’m advocating for Medicaid-for-All-Who-Want-It) as competition to private insurance. The US Postal Service is a government service run as an independent agency with a for-profit mandate that also provides services to private sector delivery services (whether or not USPS has been screwed by Congress and made worse under DeJoy is a whole other post and outside the scope of this one). Amtrak is government owned, even though it’s run as a for-profit corporation. NASA utilizes private companies to build much of its equipment, and is now relying on private space companies to launch supplies and astronauts. And, of course, the good old military-industrial complex, a rich coming together of government run military with the private sector creating a behemoth that without constraint would grow without reason.
All of these services and agencies are successful to varying degrees and provide either an alternative to more expensive private offerings, or provide much needed services and infrastructure where none have existed in the private sector. Also, as is the case with NASA and the military, important technological advances are made that find their way into the private sector, enriching our lives and improving the world.
Today’s answer to our healthcare woes is simple, one in which the Federal government steps in as a key alternative to private insurance. As more and more people and companies hop on to what is surely going to be far less expensive insurance (and essentially upfront cost free for those who can’t afford the lower premiums), yet receiving similar or same healthcare (hopefully better) the rest of the industry will have to follow in reducing cost while improving outcomes. An inexpensive to zero cost national healthcare option that is open to all citizens and covers you no matter where in the United States and its territories you happen to be, even a Medicaid style system with oversight at the State level, will bring much needed nation-wide unity and price competition to a hopelessly fractured and ever more expensive health system that is only getting better at not treating patients and bankrupting people.