The November midterms elections are approaching, and one of the major topics is health care. Democrats are campaigning on retaining Obamacare, in many cases advocating that we move towards universal health care.
That would be pure socialism, retort Republicans, who would rather repeal the Affordable Care Act as they attempted in 2017, even if this leads to 20 million Americans losing coverage.
Is Universal Health Care Socialism?
Only if we believe that every other developed market-based economy in the world is socialist since the U.S. is the only one without universal coverage. We spend almost $10,000 per year per capita on health care, about twice as much as most developed countries. However, in terms of major health outcomes, such as infant mortality or life expectancy, we are laggards. In a recent OECD survey, we ranked 27th out of 35 countries in life expectancy. Japan spends about $4,000 per year per capita in health care, yet the average Japanese has a life expectancy of 84 years, versus 79 for the average American. Why?
Every developed country other than the U.S. has had universal care for decades. While Prussia’s “Iron Chancellor” Otto Von Bismarck implemented the first universal care system…in 1883, our health care history is a patchwork of partial reforms, an inefficient collage of private and public institutions. We first tied health insurance to employment in 1946, because business and conservative opposition would not allow universal coverage; then added Medicare in 1965 so that our seniors would have coverage after they retired; then Medicaid, a different one for each one of our fifty states; Continue reading…
In the final act of Shakespeare’s Richard III, the eponymous villain king arrives on the battlefield to fight against Richmond, who will soon become Henry VII. During the battle, Richard is dismounted as his horse is killed and in a mad frenzy wades through the battlefield screaming “A horse, a horse! My kingdom for a horse!” Richard shows us how market value can change drastically depending on the circumstances, or your mental state, and even the most absurd exchange rate can become reasonable in a moment of crisis.
This presumably arbitrary nature of prices should be the first thing about the US healthcare market that catches the attention of any student of economics. Prices for the same procedure vary greatly between hospitals on opposite sides of the street and even then appear to have no basis in reality. Further investigation reveals many other features of the healthcare market that economics teaches us will increase transaction costs and the misallocation of resources. The prices we discussed are generally not paid by the patient, but by a third party insurer. Often the patient isn’t even able to select the insurer but is assigned one by his or her employer. What the patient thinks of the insurer’s ability as a steward of his or her premiums is irrelevant. Further, contracts between providers or pharmacies and the insurer completely hide the true price from the patient’s view. In addition, anti-competitive certificate of need laws limit competition between providers and expensive regulations compel providers to merge to compete in a nuclear arms race with the insurers, although the real victim is the patient’s wallet over which the providers and insurers fight their proxy wars. The best way to explain the US healthcare system is if you took every economic best practice and then did the opposite. How does one get out of this mess?
Risk adjustment in health insurance is at first glance, and second, among the driest and most arcane of subjects. And yet, like the fine print on a variable-rate mortgage, it can matter enormously. It may make the difference between a healthy market and a sick one.
The market for individual health insurance has had major challenges both before and after the Affordable Care Act’s (ACA’s) risk adjustment program came along. Given recent changes from Washington, like the removal of the individual mandate, the market now needs all the help it can get. Unfortunately, risk adjustment under the ACA has been an example of a well-meaning regulation that has had destructive impacts directly contrary to its intent. It has caused insurer collapses and market exits that reduced competition. It has also led to upstarts, small plans and unprofitable ones paying billions of dollars to larger, more established and profitable insurers.
Many of these transfers since the ACA rules took effect in 2014 have gone from locally-based non-profit health plans to multi-state for-profit organizations. The payments have hampered competition not just in the individual market, which has never worked very well in the U.S., but in the small group market, which arguably didn’t need “help” from risk adjustment in many states.
The sense of urgency to fix these problems may be dissipating now that the initial rush for market share under the ACA is over and plans have enough actuarial data to predict costs better. There has been an overall shift to profitability. But it would be a serious mistake to think that just because fewer plans are under water, the current approach to risk adjustment isn’t distorting markets and harming competition.
Today THCB is happy to publish a piece reflecting the learnings from Charles Silver and David Hyman’s forthcoming book Overcharged: Why Americans Pay Too Much For Health Care, shortly to be published by the libertarian leaning Cato Institute. In subsequent weeks we’ll feature commentary from the right radical libertarian zone on the political game board (Michael Cannon) and from the left (Andy Slavitt) about the book and its proposals. For now please give your views in the comments–Matthew Holt
There are many reasons why the United States is “the most expensive place in the world to get sick.” In Part 1 of Overcharged: Why Americans Pay Too Much For Health Care, we show that the main reason is that we pay for medical treatments the wrong way. Instead of having consumers purchase these treatments directly, we route trillions of dollars through third-parties payers – both government and private insurers.
Relying on third party payers has many consequences — few of them good. To start with, this arrangement removes the budgetary constraint that would otherwise cap the amount consumers are willing to spend. By minimizing the direct cost of treatments at the point of sale, third party payment arrangements alter everyone’s incentives fundamentally. Consumers no longer need worry about balancing marginal costs against marginal benefits; instead, they have an incentive to use all treatments that have any potential to help, regardless of their prices. When millions of consumers act on these incentives, total spending skyrockets and consumers collectively wind up worse off, because their fixed costs spiral upward too. Heavy reliance on third party payers creates a classic failure of collective action.
It isn’t just consumers. Providers love third party payment as well. And why not? Once providers have access to the enormous bank accounts of third party payers, the sky is the limit, at least until third party payers start setting limits on the amounts they will pay and saying no to unproven and/or cost-ineffective treatments that doctors want to provide and patients want to receive.
Not surprisingly, it has turned out to be extraordinarily difficult and politically unpopular for third party payers to set such limits. Obamacare’s appeal derives largely from two requirements: health insurance plans must accept all comers, including applicants with preexisting conditions that require expensive medical treatments; and health plans must provide unlimited benefits (i.e., no annual or lifetime spending caps). From an individual consumer’s perspective, what could be better than having access to unlimited amounts of money to spend on medical needs? From society’s point of view, though, this combination is a recipe for disaster.Continue reading…
A blistering attack by the national editor of the New England Journal of Medicine against the “less is more” movement in medicine omitted that the publication’s former editor-in-chief played a foundational role in popularizing the idea of widespread medical waste.
The commentary in late December by Dr. Lisa Rosenbaum, “The Less-Is-More Crusade – Are We Overmedicalizing or Oversimplifying?” has attracted intense attention. Rosenbaum berates a “missionary zeal” to reduce putative overtreatment that she says is putting dangerous pressure on physicians to abstain from recommending some helpful treatments. She also asserts that the research by Dartmouth investigators and others who claim 30 percent waste in U.S. health care, in which she once fervently believed, is actually based on suspect methodology.
What Rosenbaum fails to mention is that the policy consensus she seeks to puncture – that the sheer magnitude of wasted dollars in U.S. health care offers “the promise of a solution without trade-offs” – originated in the speeches, articles and editorials of the late Dr. Arnold Relman, the New England Journal’s editor from 1977 to 1991.Continue reading…
A spin-off of the popular 3 CEOs session from the Fall Conference, the 4 CEOs and Their VCs session is made up of four, back-to-back interviews between digital health CEOs and the VCs who believe in them. Hear exclusive insight into what’s happening in health tech investments with conversations between:
Venrock and Robin:Robin is a brand new digital assistant for doctors. Hear Venrock Partner Bryan Roberts and Robin CEO Punit Son discuss the opportunities Venrock sees in Robin.
415 and Lemonaid: Patient experience has gotten easier with Lemonaid’s accessible online platform. Lemonaid CEO Paul Johnson sits with investment firm 415 to talk about their business strategy.
Thrive Capital and Honor: An online service that connects in-home caregivers, seniors and their families, Honor sits down with its investor Thrive Capital to discuss the purpose of their investment.
Grandrounds and Venrock: Owen Tripp of Grandrounds and Bob Kocher of Venrock discuss their working partnership, and give insight into what those closed-door meetings look like.
From Seed to Series C, don’t miss the opportunity to join the session that is representing each unique stage of the investment cycle. Tickets are selling fast so register today!
Health 2.0 caught up with some of our favorite investors who have a strong pulse on what’s happening in digital health care both past and present. We talked about company evaluation, unmet needs in health care, and their biggest surprises yet.
“Pretty much all of my investments are in first time CEOs, which is not particularly what the venture capital playbook tells you to go do. But I find those people to be very hungry and largely underappreciated by the rest of the world. They’re also very willing to bash their head against a brick wall with me for a while, in order to try to succeed at something that is hard to do.” – Bryan Roberts, Venrock on what he looks for in an investment.
“There are so “many tech people who want to work their way into health care venture capital. When I started in health care venture in 1998 you couldn’t give it away. I wonder how long it will be before the cycle ends?”
– Lisa Suennen, GE Ventures on what surprises her about the industry right now.
Catch up with Lisa Suennen, Bryan Roberts, and others at Health 2.0’s WinterTech event on January 10, 2018 in San Francisco where you’ll hear more on investment trends, IPO, and the rise in consumer choices. Register today for WinterTech before the early price ends.
Dr. Simon Kos had big shoes to fill when he took over the role of Microsoft Chief Medical Officer from Dr. Bill Crounse last year. Dr. Kos said himself that they were some “big scrubs to fill”. However, at the time he had already been with Microsoft for six years and in Health IT for more than a decade before that, so he was no doubt up to the challenge.
As Chief Medical Officer, Dr. Kos is responsible for providing clinical guidance, worldwide thought leadership, vision and strategy for Microsoft technologies and solutions in the healthcare industries. He made the move to Health IT after working a few years as a Medical Officer in Sydney, Australia. It was then that Kos decided to go back to school to study software engineering, and later his MBA. He then worked with InterSystems and Cerner and helped them to implement e-Health initiatives in Australia. In 2010 he joined Microsoft as a Health Industry Manager “with the appreciation that improving health and healthcare was about more than just putting in EMRs.” Even back then Dr. Kos had the vision to know that the future of healthcare would be in the data analytics and the AI applications that Microsoft would eventually release.
In a recent conversation, with the team here at Health 2.0, Dr. Kos talked about Microsoft’s current framework of digital transformation and highlighted their four pillars; Patient Engagement, Clinician Empowerment, Advanced Analytics, and New Models of Care. As a once practicing doc, he knows that technology needs to help not hinder the healthcare workforce and that AI will be able to improve diagnosis speed and accuracy without replacing or interfering with the clinician. He is a fervent believer that it is important to be constantly evaluating the tech models that may not be viable today but will be in the future. He is excited about Microsoft’s work on patient chatbots and VR/Mixed reality physician education platforms and will be demoing that technology on the Health 2.0 Stage on Monday, October 2nd.
“There are some enterprises in which a careful disorderliness is the true method” – Herman Melville, Moby Dick
Asymmetry of Error
During the Ebola epidemic calls to banflights from Africa from some quarters were met by accusations of racism from other quarters. Experts claimed that Americans were at greater risk of dying from cancer than Ebola, and if they must fret they should fret more about cancer than Ebola. One expert, with a straight Gaussian face, went as far as saying that even hospitals were more dangerous than Ebola. Pop science reached an unprecedented fizz.
Trader and mathematician, Nassim Taleb scoffed at these claims. Comparing the risk of dying from cancer to Ebola was flawed, he said, because the numerator and denominator of cancer don’t change dramatically moment to moment. But if you make an error estimating the risk of Ebola, the error will be exponential, not arithmetic, because once Ebola gets going, the changing numerator and denominator of risk makes a mockery of the original calculations.
The fear of Ebola, claimed Taleb, far from being irrational, was reasonable and it was its comparison to death from cancer and vending machines which was irrational and simplistic. Skepticism of Ebola’s impact in the U.S. was grounded in naïve empiricism – one which pretends that the risk of tail events is computable.
An old disagreement between Uwe Reinhardt and Sally Pipes in Forbes is a teachable moment. There’s a dearth of confrontational debates in health policy and education is worse off for it.
Crux of the issue is the more efficient system: employer-sponsored insurance (ESI) or Medicaid. Sally Pipes, president of the market-leaning Pacific Research Institute, believes it is ESI. Employers spend 60% less than the government, per person: $3,430 versus $9,130, per person (according to the American Health Policy Institute). Seems like a no brainer.
Pipes credits “consumerist and market-friendly approaches to health insurance” for the efficiencies. She blames “fraud,” “improper payment,” and “waste” for problems in government-run components of health care.
But Uwe Reinhardt, economist at Princeton, counters that Medicaid appears inefficient because of the risk composition of its enrollees. Put simply, Medicaid recipients are sicker. Sicker patients use more health care resources. Econ 101.
The points of tension in their disagreement are instructive.