In this post at RealClearMarkets physician William Strimel makes a plea for more “stakeholder capitalism” in the healthcare sector:
From 2013-2017, 51 hospitals closed across the United States and 11 closed in 2020 alone. During that same time period however, insurance companies made record-breaking profits.
United Healthcare recorded an annual profit of $17.3 billion for 2021 and in their Q1 results for 2022, they celebrated double digit year over year revenue growth and raised their full year earnings outlook. This result, which was representative of the performance of the other major health insurance carriers, is illustrative of the disconnect that currently exists between insurers that are flush with cash and providers that are struggling to stay afloat.
I’m afraid that Dr. Strimel is confused. To explain how I’m going to need to explain insurance, healthcare “insurance”, and our present system.
First, insurance. When a company offers insurance, they are making a bet with the purchaser. They’re betting you will not need to collect on the insurance while you’re betting that you will. You pay a premium consisting of an average (preferably an average weighted by risk) of payouts on the insurance plus a small amount to cover operating expenses and profit margin). That is how insurance works. Insurers bear risks.
Nowadays very little healthcare insurance operates that way. Two-thirds of American workers are covered by their employers who self-fund or self-insure, i.e. they pay the bills. The “insurers” are actually processing companies who bear no risk. They are generally compensated based on a percentage of what they process, i.e. they have very little incentive to lower costs. The higher the better.
It’s a bit of an aside but I don’t believe that Americans have much interest in true health insurance. What they want is more akin to a fully-paid maintenance plan.
Back to Dr. Strimel’s poster child of a “greedy company”. As this post from Wendell Potter makes clear, UnitedHealthCare’s profits aren’t from the insurance business which is actually declining. It’s from the healthcare administration business described above and an astonishing amount of the growth in its revenues are from various government programs, particularly Medicare and Medicaid.
What we’ve got is a system in which everybody follows the incentives they have. Patients want more care. Physicians want to provide more care. Healthcare insurance administrators like UnitedHealthCare want healthcare costs to rise. And politicians want the voters to be happy so they’re okay with spending more. So healthcare costs more. It’s a positive feedback loop.
I’m not hopeful. I think our system will do pretty much the same thing any positive feedback loop does—it will keep building up speed until it breaks.
BTW, if you’re wondering how out-of-pocket healthcare spending in the U. S. relates to other countries, we pay a little more than the French, about the same as the Germans, and considerably less than the Brits and the Brits are the only one of the four with a national health system.
So, how does all of this relate to Dr. Strimel’s diagnosis that we need more “stakeholder capitalism”? If anything we have too much stakeholder capitalism, the stakeholders are pursuing their interests as should be expected, and the system is out of whack.
Dave Schuler: BTW, if you’re wondering how out-of-pocket healthcare spending in the U. S. relates to other countries, we pay a little more than the French, about the same as the Germans, and considerably less than the Brits and the Brits are the only one of the four with a national health system.
That is not correct. The chart you provided is as a percentage of healthcare expenditures, but the other countries spend considerably less overall. This is the correct chart for “Out of Pocket Expenditure per Capita”. They spend less in private money and less in public money, all while providing comparable care and wider coverage.
https://data.worldbank.org/indicator/SH.XPD.OOPC.PP.CD?locations=US-GB-FR-DE
You’re changing the subject. The chart to which you linked just shows that healthcare in the U. S. is more expensive than in the United Kingdom, France, and Germany which I agree with.
The question is why? As Uwe Reinhardt put it, it’s the prices, stupid. I think it’s because everybody is following their own best interests which results in a positive feedback loop. IMO to fix our system we’ve got to change the incentives which won’t happen even with a full-on national health system like BNH.
Dave Schuler: You’re changing the subject.
You might think it a quibble, but it is important to note that these other countries pay less privately as well as publicly.
Dave Schuler: IMO to fix our system we’ve got to change the incentives
The primary incentive is that insurance companies don’t want to insure sick people, but society expects them to.
As I have explained repeatedly, most insurance companies are not insurance companies but insurance administrators who make more money the more is spent on healthcare. You’ve got the incentives wrong. Patients want to spend more. Physicians want to spend more. “Insurance” companies want to spend more. Politicians want to spend more. Employers who want to spend less hire fewer employees and cover as little of their healthcare as they can.
Dave Schuler: Patients want to spend more.
Patients want more spending.
Dave Schuler: Physicians want to spend more.
Physicians want more spending.
Dave Schuler: “Insurance†companies want to spend more.
One would expect that price pressure would act on self-insured companies. However, most companies who self-insure use a fee-for-service system rather than integrated care, largely due to various tax and regulatory incentives, as well as resistance from care providers. Employers will often chose the option with the least restrictions, especially in a tight labor market. Consequently, integrated care hasn’t been able to make inroads.
Fixing this would require a systemic change, and due to political dysfunction, something the U.S. seems incapable of accomplishing.
In general patients want more care but want someone else to pay for it. When patients are more on the hook for the care themselves they do want to spend less but there are some very good studies that have found that patients do no economize on care prudently, economizing on essential care as well as optional or excessive care. That’s why a market system won’t work as its advocates claim.
A distinction without a difference. For them to earn more, more must be spent. We have a fee for services system.
Among the many reasons I argue in favor of a tight labor market.
On this we are in complete agreement. For example, a system that resembles that of the Italians in which physicians are compensated via a capitation would improve things in many ways. For decades I supported a single-payer system but after the debacle in healthcare reform during the Clinton Administration I abandoned that view in despair. Healthcare is just too expensive in the U. S. for a single-payer system to work now (“it’s the prices, stupid”) and going to a single-payer or even a full-on national health system will only aggravate the situation unless we are willing to cut spending.
(We edited our comment above for clarity and linguistic symmetry.)