Medicare was signed into law on July 30, 1965. Its original budget was around $10 billion and 19 million individuals signed up for Medicare during its first year. Today more than 50 million Americans are covered by Medicare at a cost approaching $600 Billion per year. According to author David Goldhill in Catastrophic Care, Medicare’s launch signaled the start of a healthcare economy where we began to expect that EVERY healthcare need would be covered by our insurance. The payers became complete intermediaries (he calls them surrogates) between patients and providers. Goldhill believes that this intermediation is THE reason for our runaway healthcare costs (like the 60X growth in Medicare over the past 50 years).
A brief intro to Goldhill’s ideas can be found in this Planet Money podcast (~20 minutes in length) that aired in August 2009.
The Planet Money team introduces the topic by comparing our healthcare system to an all you can eat buffet. Sure, it’s convenient because you pay a fixed amount (at least historically we have) and you take what you need. The problem is that we don’t always know what we need and we’re wrong about how much we’re actually paying. To make the point, they bring on a Google employee and talk with him about the many fringe benefits at the Googleplex — free lunch, massages, laundry services and more. They ask him how much he pays and he says “nothing”. Then they ask, “if Google didn’t provide these benefits do you think they could pay you more”? That got him thinking: sure I enjoy those massages, but if they just gave me the money I could choose to get a massage, or invest the money in my retirement, or go on a vacation. The same thing is true of our employer-sponsored health insurance — all of the money our employers pay for it is paid on our behalf and in-lieu of a higher salary. There’s also a large portion of your federal and state taxes (and the corresponding employer match) that go towards healthcare. In short, we’re paying way more than we think.
David Goldhill’s story begins with his father being taken to the hospital with pneumonia. Within 36 hours he acquired sepsis and then multiple secondary infections until he passed away 5 weeks later. Goldhill’s experience, along with the $636,687.75 bill to cover treatment for conditions his father acquired in the hospital, sent him searching for answers. Goldhill came to believe that the intermediation off all healthcare by the payers undermines proper economic functions and is the reason for the problems we face today.
How much different would the industry behave if they had to present that bill to my mother instead of Medicare?
Goldhill estimates that the average family of four will pump nearly $1.7 Million into the healthcare system in their lifetime (including all insurance premiums and healthcare related expenses paid by us and our employers). The fix? Patients need to get the bill. He proposes a $50,000 lifetime deductible for all Americans with traditional insurance coverage for catastrophic care, Goldhill believes that when patients get the bill then normal market forces will come back to life and cause healthcare to act like all other typical consumer-driven markets. As he puts it so often in the book, healthcare will have to leave the island and return to the mainland with everyone else.
Richard Kirsch of Health Care for America Now joined the show to offer a counterpoint. First and foremost, Kirsch worries that if money is a major deciding factor in getting care that people will forgo needed treatment and end up costing the system more later on when the condition worsens. More importantly, he says patients don’t have the information we need to make good decisions. With this gulf of information, there’s just no safe way to dump it all in the patient’s lap. Kirsch believes we should not throw out the current system, but rather repair it by properly aligning incentives with the outcomes we desire. He suggests we look to groups like Cleveland Clinic “who are already doing it”.
The show wrapped up with one of the typical arguments we hear against the consumerization off healthcare — patients can’t be expected to shop when faced with an emergency. Goldhill quickly counters that “this is based on a misunderstanding of how consumer markets work”. The point is not that you’ll call 10 hospitals in an emergency, but that whichever hospital you end up in has been vetted by natural market pressures and has been found acceptable to the masses in terms of price, service and quality. He suggests that all shoppers benefit from the existence of Walmart, whether they shop at Walmart or not. In a true consumer-driven healthcare market, someone will create the Walmart of Healthcare (refreshing that it’s not the uber of healthcare).
Wednesday, March 23, 2016
Q1: Should all of our healthcare needs be paid for via health insurance? What are the pros and cons?
Q2: How can we close the information gap so that patients do have access to the information they need to be capable healthcare consumers?
Q3: Can we fix the payer-led healthcare market by realigning the incentives, or do we need patients to receive the bill?
I’m about 1/3 of the way through Catastrophic Care on Audible — its a bit of a commitment at 13 hrs in length, but it’s a good listen at 1.25 speed. If you do audiobooks, this is a good one.
Also, check out Goldhill’s Atlantic post How American Health Care Killed My Father — this is where it all started.