This happens with me frequently. My interest will be piqued by the caption of an editorial, column, or op-ed and I read it, prepared to disagree vehemently with whatever it has to say. On reading it I find that I agree with most of what the writer has to say. That was the case with David Goldhill’s Washington Post op-ed, “Insurance is what makes U.S. health-care prices so high”:
Consider this: Health insurance is a product so terrible that few Americans voluntarily buy it without receiving a sizable subsidy.
“No one would design a system like the one we have. And no one did,” UnitedHealth Group CEO Andrew Witty wrote this month. “It’s a patchwork built over decades.”
Today, insurers are accused of pushing up prices for medical care and then denying legitimate claims. Their leaders are said to be greedy or incompetent. In reality, we have a more fundamental problem: Health insurance can no longer pay for or manage modern health care, and the patchwork that Witty described is not fixable. It makes no sense to try.
One of the key problems is that what is called “healthcare insurance” in the United States isn’t actually insurance. For a plan to be insurance the insurer must bear risk and premiums must be proportional to risk. What we call “healthcare insurance” isn’t insurance at all. It’s a healthcare maintenance plan paid for by insureds, employers, or the government. Mr. Goldhill actually makes the same point in his piece:
Health insurance was meant to work like other kinds of insurance: When policyholders got sick, they would use the collective financial resources of the healthy to cover their costs. But this model was designed to pay for emergencies such as hospitalizations — not to “share the risk” of erectile dysfunction, weight loss, lifelong management of chronic conditions, or the mental health treatment needed by 1 in 5 Americans. The Centers for Disease Control and Prevention estimates that 90 percent of America’s health-care expenditure goes toward chronic and mental health conditions.
It’s as if homeowners’ policies expanded from insuring against fires and floods to also covering utility bills and property taxes, or even replacing worn-out furniture.
I think the point he’s making here is solid:
When insurers are the primary payers, the marketplace is distorted. So much of what Americans hate about the system — limited networks, paperwork, billing mistakes, terrible customer service, opacity — arises from the way clinicians serve insurers’ business priorities rather than patients’ needs.
The same problems obtain when employers are the actual customers or the federal government is the actual customer:
Policymakers cement the centrality of this model. Medicare, Medicaid and Veterans Affairs health care all have been dressed up as pretend insurance. Americans individually pour hundreds of thousands of dollars into the system through premiums and deductibles, yet they somehow keep believing that someone else is paying for their care.
Here’s his prescription:
To replace its obsolete insurance structure, America has two choices.
One is to emulate other nations and make health care a social utility, with government controlling supply and prices to ensure equal access to care. But this model utterly fails to drive the innovation that’s essential to improving health outcomes. Had the United States copied Britain’s National Health Service when it was established in 1948, Americans might today enjoy the glories of equal access — to roughly 1948-level care.
Instead, America should get the entire industry to compete vigorously for customers — for patients, that is, not insurance companies. Spending power needs to shift from insurers and government subsidies back to individuals, through mechanisms that patients control. Competition among providers for dollars spent directly by prudent consumers would not only bring prices down but also encourage more innovative approaches to packaging care. And this care would be better aligned with patients’ diverse needs.
In such a system, insurance and government would play their traditional functions but no longer act as the industry’s primary customers. Insurance would spread the financial risk of rare and major episodic medical needs. Governments would subsidize vulnerable populations so they could fully participate in the marketplace for ordinary health care.
Sadly, his proposal will not work. There is plenty of scholarship demonstrating that patients do not make decisions about their own healthcare sufficiently prudent to maintain their health and control costs.
Let’s consider the list of stakeholders that have little interest in controlling costs:
- Insurance companies
- Employers
- The federal government
- Providers
- Patients
It’s little wonder that prices and costs have increased so rapidly over the last 50 years and continue to do so.
It’s a positive feedback system and the behavior of such systems is well understood. They keep going out of control until they collapse. When will that happen? As Adam Smith observed more than two centuries ago there is a great deal of ruin in a nation.
