We Need Southwest Airlines!

Roger Collier

Can price competition cut health care costs? There are lessons to be learned from the airline industry.

Over thirty years, per capita health care costs, adjusted for inflation, have increased two and a half times. In the same period, despite a doubling of fuel prices, airline fares have fallen by more than half.

Why the five-fold disparity?

It’s obvious the two industries have followed very different paths. While airline travel has become an experience of packed planes, crowded airports, and peanuts (or less) meal service, health care has seen dramatic advances. Treatments that a few years ago seemed unimaginable are now commonplace: heart transplants, anti-depression drugs, artificial joints, laparoscopic surgery using miniature television cameras, and—of course—Viagra.

That’s only part of the story, though. While air travel is now safer and more convenient, with more frequent flights to more destinations, health care in some communities is so inadequate that morbidity and mortality rates are comparable to those of third world countries.

Why have airlines been apparently so much more successful in giving value for money?

Led by Southwest, the airlines that sprung up after deregulation recognized that individual flyers were price-sensitive, and cut their costs accordingly. They faced barriers, though, many of them analogous to those in today’s health care system. Business travelers flying on their employers’ nickel resisted efforts to move them to crowded peanut-only flights, frequent flyers resisted having to switch from their favorite mileage plan to that of another airline network, and travel agents much preferred to send their customers on airlines paying higher commissions.

Southwest and its peers succeeded by marketing directly to the public, through relentless emphasis on lower fares, and by maintaining standards that were, if not luxurious, acceptable to travelers. Few businesses are now sympathetic to employees’ preferences for more comfortable higher-cost flights, frequent travelers have adapted to low-cost airlines’ mileage programs, and travel agents and their commissions are almost a thing of the past.

And now, just as Southwest Airlines travelers found that they reached their destinations as reliably—if not quite as comfortably—as before, so recent studies have shown that there is little or no relationship, within the range of acceptable medical standards, between health care costs and quality.

So, what must health care reform do to emulate Southwest Airlines’ effect on fares?

First, just as deregulation ended most legacy airlines’ government subsidies, the tax exemption for employer-paid insurance should be reduced or eliminated.  Not only is the $300 billion a year tax subsidy needed to help pay for reform, but cutting the exemption will discourage overly-generous coverage and remove the inequity between employer-paid and individual-paid insurance.

Second, just as travelers can compare airlines’ fares for the same itinerary using Orbitz or Expedia, insurers should be required to price the same basic benefits, perhaps through insurance exchanges. Supplemental benefits could be offered and separately priced, but being able to compare prices for the same basic coverage is essential.

Third, just as individuals purchase most airline tickets, so individuals should be responsible for choosing insurance to meet their own needs. In practice, this implies subsidies for the lower-income, and perhaps also some form of voucher model to facilitate the process. It may be appropriate, however, to allow self-insuring companies to continue to provide employee coverage since, with no insurer risk or profit involved, they typically provide better value.

Fourth, just as airlines’ pay is negotiated only with their own unions—not with every airline union in each airport—so there should be more effective constraints on provider monopolies in which specialists in an area group together to control prices.

Emulating Southwest Airlines won’t result in the cost of health care falling by half, but it offers a far more promising approach to cost control than the expensive band-aid solutions, superimposed on the worst features of our present system, apparently preferred by congressional committees.

Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies. He is editor of Health Care REFORM UPDATE [reformupdate.blogspot.com].

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MD as HELLRob LadaLynnjdrbar Recent comment authors
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MD as HELL
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MD as HELL

The fovernment regulate airlines but RUNS AMTRAK. That alone should seal the deal against government healthcare. Airline passengers all buy a ticket because they choose to do so; they are not forced to do so. Many people are afraid to fly. Do we want to make them fly? There are private planes. These cost more but are more flexible and a matter of choice. Freedom is the key to America’s greatness. We are not talking about healthcare for all, only coverage for all. The government can only craft a political solution, not a practical solution. With EHR lawywers will only… Read more »

Rob Lada
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Rob Lada

The comparison of the airline industry with healthcare is interesting but has some flaws. The airline industry has been able to develop these efficiencies by being able to place responsibility on the consumer. The passenger it required to go to a specific location to get on the plane. If the flight is missed or they want to change flights they must pay an additional fee. Once on the plane if they do not follow the recommended behavior the airline may remove them from the flight. Finally the pilots of the airline fly to the same destnation over and over again.… Read more »

Lynn
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Lynn

1. Southwest serves only the profitable markets its chooses. 2. Southwest planes take off, land, and fly through skies regulated (air traffic controllers) and subsidized by governments. 3. Southwest also winked and ignored routine safety inspections for several years. Is their safety record good or were they just lucky? When healthcare can choose only to serve profitable patients, ignore expensive regulations when its chooses (and save money) and is willing to give up its tax subsidized capital we might use this a “comparable” model. Even during this recession Southwest has lost money, cut flights, reduced salaries. The only thing I… Read more »

jd
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jd

Don’t we already have several Southwest Airlines in healthcare? InterMountain, Geisinger, Mayo, the VA and a host of other familiar names come to mind. As others have mentioned, air travel is more of a commodity than healthcare (and has been for decades). Moreover, airlines by their nature go long distances from point to point and thus always have markets that span several states or are nationwide. That is not true in healthcare. Even the biggest “Southwests of healthcare” like Kaiser and Intermountain are only in a few states. Most are in a fraction of a single state, and find it… Read more »

rbar
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rbar

Nope. An airline seat is a highly standardized product. Healthcare, in general, is not, although one can pick certain procedures and pretend that it is. You do this coupled with copious reimbursement, and there you have your orthopedic or heart hospitals, or your hip replacement in Thailand. But that’s only a part of it – the other, larger part is diabetes care, CHF care, CAP, and a large variety of other conditions, often in multimorbid, fragile individuals.

James
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James

The explosive growth of overseas medical care patronized by American patients would tend to indicate that market forces and competitive factors do indeed matter.

propensity
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propensity

Pathetic comparison by the uninformed.

John A.
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John A.

How many more inappropriate comparisons between health care and other commercial activities are we going to make?
Maybe Grassley had a point about the hammer and nail. Somehow consultants like Collins haven’t gotten the idea that there really is a limit to the translation of their knowledge and experience. Perhaps he should start by considering that one ends up in an airline seat most often by choice which is not usually the case when one ends up in the examining room. Contemplate the implications of that scenario and tell me again how airlines and health care are comparable.

Peter
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Peter

I would agree with the airline/Southwest comparison IF failing airlines were allowed to fail. Unfortunently they continue to be propped up by bankrupcy courts that act for them in labor negotiations. Price may be the comparison of airline de-regulation, but service and labor relations sure is not. As for safety, try the regionals poor record. For those opponents of single-pay who argue rationing/wait times/less service, the airline industry model should give them fits about using it as an example of free enterprize solutions to healthcare. Do we really want healthcare employees (including docs) to be as insecure about their pay… Read more »

Meiyang
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At the same time that we place more responsibility on the individual to select and pay for their insurance, we need to ensure that 1) we’re working towards a more competitive and transparent health care market, and 2) individuals have more access to information that will help them select the “Southwests” of health plans and providers. The first can be achieved, as Mr. Collier suggests, by taking away tax subsidies for employer-provided benefits and standardized pricing. To achieve the latter goal, we should focus on a combination of data reporting (comparative effectiveness research on EMRs and Medicare quality reports, for… Read more »

Brad
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Brad

You are barking up the wrong tree. Rather than writing about why health care delivery should look more like Southwest, perhaps the better question is, why cant American, Continental, etc., look like them?
Answer that one first, and then we can talk health policy.
Read between the lines.