Tuesday, June 23, 2009

Let's Talk Healthcare!

While I'm in the mood to fix all the world's problems, let's have a go at the US Health Care system.

Practially noone likes our current system, but that doesn't mean that any change will be an improvement. It can definitely be made worse (and probably will be). If we really want to improve our health care system, it's first necessary to understand why it is the way it is now.

Business and The Free Market

In a free market, businesses have to constantly adjust to try to please the customers. It's not that they love us customers, it's that they have no choice. If they don't, we'll take our business elsewhere. Customers vote with their dollars. If a restaurant serves you bad food, or the waitress gives you poor service, you probably won't go back. Businesses that don't adapt lose customers, and go out of business. This forces them to constantly make trade-offs to keep the customer's happy, i.e. they have to try to minimize cost, while at the same time maximizing customer satisfaction. Customers withholding their dollars and shopping elsewhere is the feedback that makes the system work.

Customer dollars are the only feedback system that consistently works. e.g. if a company regularly makes it's customers mad, and those customers complain, but keep shopping there, spending the same amount of money, the business isn't likely to change. (Think Comcast)

But if business makes it's customers mad, the customers don't complain, they just go elsewhere, the business will realize it right away, and take action.

But if this is the case, why aren't market-forces working on the Health Care industry to make things better?

The Patient is Not the Customer

The 'customer' that businesses have to please is not the person who receives the service, it's the person who signs the check. From your Doctor's Office point-of-view, you are not the customer, your insurance company is. Market forces work on health care providers to adapt to satisfy the Insurance companies, b/c that's who pays them. And adapt they do.

This by itself wouldn't be so bad, except that from your Health Care Insurance Companies point-of-view, you're still not the customer, your Employer is. Since your Employer is the entity that pays the lion's share of the Insurance company bill, that is the customer that they have to please.

In our attempt to get someone else to pay our medical bills for us, we've eliminated our vote in the process.

Employer-Sponsored Health Insurance is the problem. Single-Payer Health Insurance will be much worse.

But if you think it's bad now, wait until there is no choice at all.

Your Employer does not really want to be your Insurance Provider.

Ask yourself -- why does your Employer buy your health insurance for you in the first place?
e.g. say I'm your employer, and let's say I pay you $1000/month in salary, and I spend an extra $500 a month on your health insurance. Why can't I just give you the full $1500 directly instead, and let you get your own insurance (or not)? After all, it costs me $1500 either way. If all other things were equal, it would be simpler and cheaper for me to give you the money directly, b/c I wouldn't have to also negotiate with the Insurance Company every year, I wouldn't have to pay someone in Human Resources to manage all the forms, and help people fill out their paperwork. From your Employer's point of view, being your insurance supplier is a big hassle.

So why does almost every employer do it that way?

The reason is the tax code. The way the tax code is currently written, it's cheaper for your employer to buy your insurance for you, than it is for your employer to give you the same amount of money to buy it yourself.

So How Do We Fix It?

Change the tax code. Remove the current tax incentive for employers to buy your insurance, and replace it with an equivalent incentive for employers and invididuals to buy their own insurance.

Could it really work?

Absolutely. Look at car insurance. Individuals buy their own, employers don't buy it for you. Auto-insurers compete hard for your business. No matter how crappy your driving record, there is some auto-insurance company who will cover you. It may cost you more, but they'll cover you.


  1. Interesting take. I like it. I've always been slightly weirded out by the whole employer/health insurance connection. And this system has served to drive up the costs of health insurance to a prohibitive rate. Now it is nearly impossible for an individual to afford their own health insurance (other than catastrophic).

  2. Now that you've got this planned out, how do we get "Them" to change the tax code? THere isn't anything being done that doesn't give "Them" some profit.

  3. "Now that you've got this planned out, how do we get "Them" to change the tax code?"

    I don't know.

    "There isn't anything being done that doesn't give "Them" some profit."

    Very true. The current system sucks for patients, sucks for Health Care providers, and sucks for Employers.

    (And now, for a gratuitous use of Latin to make me sound really smart, and somewhat pompous)

    Cui Bono>

    So who benefits? Insurance Companies.

    The current system is a result of years of lobbying by the Insurance industry. An insurance agent would rather sell one group policy for 1000 employees, than have to sell 1000 individual insurance policies.

    Ironically, they are the ones who are going to suffer the most when the Govt nationlizes the whole thing.

  4. You pretty much hit the nail on the head with this one. Why should they care about the patient, when it's the government and insurance that are writing the big checks. If you go into a doctor's office without insurance, they'll often cut you a break on the price because they know that you are more sensitive to the costs involved, but if you have insurance it might cost three times as much. One thing that I would point out though is that the tax code is only responsible for part of this problem. An even more significant issue is insurance avoidance. Since an insurance company can look at individuals on a one on one basis, they make it expensive for someone who has problems to sign up. By having your employer negotiate a "group" rate, some uninsurable people are able to get insurance while the healthy ones overpay. If you're company wanted to attract top talent that might have health issues, a group plan would be a pre-requisite because the benefit would be so much more than the $500 per month.

  5. "An even more significant issue is insurance avoidance. "

    Again, I point out the counter example of Auto Insurance. No matter how bad your driving record is, there is an Auto Insurance company that will cover you.

    The difference is: (a) you pay for Auto Insurance yourself. And (b) we don't expect out Auto Insurance to pay for routine maintenance, oil changes, etc. And (c) routine maintenance is reasonably priced.

    (b) is a direct result of (a), and (c) is a direct result of (b).

    If auto insurance covered routine maintenance, inspection, etc., then there would be no pressure on 15-minute-lube to keep it's prices down, and you'd see auto mainenance costs skyrocket the way health care has.

    Likewise, if you start making everyone pay for their own health care, there would be much more market pressure to contain costs.

  6. Taking away someone's auto insurance after 3 DUIs probably isn't as controversial as telling someone they are too sick to qualify for treatment, but you make a good analogy. If all drivers were forced to pay, my rates would certainly be much higher. Another interesting point from your analogy is that if my lube jobs were paid for by my insurance company, you can bet I'd go in right at the "recommended" 3000 miles vs. pushing it when it's my wallet. I bet that the amount of money spent on healthcare would be 15% of what it is today if an insurance industry didn't exist at all. It makes me wonder how much of the system is used for meaningless things just because of a $15 co-pay.