Health insurance and the American taxpayer

Thoughts from a former healthcare analyst who, in another life, would have been at the UnitedHealthcare analyst conference last week.

Non-US readers can skip this issue.

Health care is a vexing policy issue that affects the everyday life of just about everyone in the US. This week, it’s topical because of the assassination of Brian Thompson, CEO of UnitedHealthcare. At this point, there is a suspect and indications that they were motivated by animus against the industry.

Two things can be true at once: murder is wrong, and the US healthcare system is broken.

I know too much

I followed healthcare stocks from 1990 to 1997, a period that overlapped with Hillary Clinton’s attempt to reform American healthcare. It seemed clear to me that she would fail, a point of view that caused me some grief at work. But I was so very deep in the weeds that I briefly considered applying to do an economics Ph.D. at Stanford, where economist Victor Fuchs ran an outstanding healthcare research program. Obviously, I didn’t do that.

But my time crawling through the weeds showed me that only one thing will solve the problem of healthcare in the US: some type of truly universal health insurance, which every industrialized nation (except the US and South Africa) already have. This does not have to be single-payer government health insurance, although we already have that—but only for people over the age of 65.

Without comprehensive reform, we must make incremental changes. And soon.

The crux of the issue

I’m not even sure where to begin with the inefficiencies and contradictions of American healthcare. But it starts from understanding two things. First, health care isn’t an insurance product. It’s actually a welfare benefit. It’s almost impossible to underwrite lifetime care in a way that is remotely affordable for an individual.

Second, health care is a consumption good, not an investment good. With very, very few exceptions (vaccines, prenatal and well-baby care, screening colonoscopies), spending on preventative care does not lead to reduced overall healthcare expenditures. It just keeps you alive longer to eventually succomb to cancer or dementia. Living longer is good! Spending on health care is not wasted, but it also doesn’t generate lower costs down the line, and expecting that it will is foolish.

Diet and exercise won’t prevent the biggest health care expenditures. They are good things, but they have limited usefulness against traumatic brain injuries, severe congenital conditions, or devastating cancers.

Eat more fruits and vegetables. Get more exercise. But don’t let your health insurance lapse!

Who’s to blame?

Tl;dr: Everyone is to blame, but just a little bit. That’s why the system is so hard to fix.

Back in the 1990s, venture capital firms were investing in companies that would provide disease management and write clinical pathways. The idea was that these businesses would identify the best practices for treating high cost diseases, then take on the risk of caring for affected people. It would save money and improve care! But the reality is that the best way to save money in the health care system is to have insurance companies deny care. Disease management cannot work because employers change health insurance companies and workers change employers. There is no continuity of care until people turn 65 and go on Medicare. Health insurance companies have a built-in incentive to deny treatment in the hope that people will be with another health insurance company, or on Medicare, by the time things get really expensive. And given that spending on health care today rarely saves money tomorrow, this incentive is huge.

So the insurance industry is one problem. The lack of continuity is another.

But wait, there’s more!

The US has the most innovative, high tech health care system in the world, and there are people working miracles every single day. Some of this is due to the profit motive, and some of this is because the US is a big and wealthy country where people can afford to specialize on very niche areas. (At every Olympics, Americans excel at niche activities without expecting to make money.) But the profit motive isn’t spread evenly. I could make a case for having profitable pharmaceutical and medical device companies, although I would also argue that we need an effective treatment for brain cancer more than another copycat cholesterol-lowering pill or a slightly fancier hip implant.

But one reason drug companies go after products that address common chronic conditions, even if there are already plenty of drugs addressing it, is that it’s really hard to get new drugs approved in the US. We haven’t had a thalidomide disaster, and that’s good! But we are stuck with gloppy suncreens. So add a few more sources of high costs to the list.

Then there’s the cost of providers. I think that people who are providing patient care should make a decent salary, and that goes for nursing assistants and janitors as well as neurosurgeons. But maybe some make too money. And of course, doctors pad their bills to cover malpractice premiums and the hassles of collecting money from both insurance companies and patients, so there’s a few more sources of costs.

Hillary Clinton tried to do a complete overhaul of the healthcare system, and that scared people. And rightly so, because health insurance becomes emotional. If your kid gets cancer, are you going to shop around for the cheapest pediatric oncologist?

Barack Obama went for incremental reform, which helped. Health insurance is better than it was before Obamacare, but that’s not saying much.

But other countries have problems, too!

Yes, yes they do. Residents of the 180 or whatever countries with universal health insurance have plenty of complaints. At one extreme, I once overhead someone on a bus in Vancouver, BC complain that the hospital wouldn’t give her bandaids and told her to buy them at the pharmacy. She was not happy! At the other extreme, the Cleveland Clinic has an InterContinental Suites hotel on its campus because various notables from around the world fly to Cleveland for treatment, and they don’t want to stay at the Holiday Inn.

Rationing, coverage limits, and no access to the most sophisticated treatments are problems around the world. But guess what? They are problems here in the US, too. Just because the best hospital in the world is in Cleveland doesn’t mean that everyone in the US can go to Ohio, get an appointment in a timely fashion, and have their insurance cover the charges.

Saying that we should accept our healthcare system because there are problems in Canada, or the UK, or Switzerland, or Venezuela, or Taiwan is a handwaving excuse. US health care costs are the highest in the world but our life expectance and health outcomes don’t measure up.

Surely, we can do better.

But won’t our taxes go up?

Yes, our taxes would go up with universal health care, more than offset by big savings on health insurance premiums and out-of-pocket costs. Ask anyone on Medicare if they would prefer their old insurance. I’ll bet good money they’ll say no.

So what should we do?

Unlike the odds of retirees preferring Medicare to private health insurance, the odds of our health care system being scrapped and remade are close to nil, barring revolution. The only way forward is incremental reform. So ask your congresspeople to support incremental reforms! Request better sunscreen, ask for more drugs to be sold over-the-counter, and push for universal prenatal care. You can go to GovTrack to see current pending legislation, or send a message letting them know what matters to you.

And now, your turn

If you could have one incremental reform, which would you choose?