There are really two different trends that are causing medical services to be a problem. The first problem trend with medical is that health care costs are rising substantially. There is a rich history that explains why, but journaling all the reasons is not the point of this article, i’ll save that for the book. For the purposes of any Big Problem, Big Solutions article, the problem is just assumed as generally accepted. No matter what side of the different medical cost debates you may be on, the assumption of rising medical costs as a problem that has to be addressed is nearly universal.
Although there are thousands of metrics breaking apart the increased costs of healthcare, one quote from an article in the Balance online magazine gives a really good descriptor on the macro picture. The article outlines the total cost of medical care to the economy as a percentage of GDP:
In 2015, U.S. health care costs were $3.2 trillion. That makes health care one of the country’s largest industries, equaling to 17.8 percent of gross domestic product. In comparison, health care cost $27.2 billion in 1960, just 5 percent of GDP.
Those numbers give us a good snapshot on the current situation but they don’t really show the second major trend that’s causing Healthcare to be a problem. The second trend has to do with the structure of business in America. In the beginning as healthcare got more complicated and expensive it became more of a burden for all individuals to pay. Over time a system developed where employers payed for healthcare for the workforce during the working years and then the government took over when people were ostensibly too old for participation in the workforce. With some systematic bandaids for those who couldn’t hold a job, this system worked well when most people stayed at companies for longer tenures. Over the last several decades the working environment changed so that people would stay at companies for just a few years and transition to a different job or even career. The desire for the enhanced productivity brought about by adopting a just-in-time workforce means that more employers staffed with more part time, contract, and outsourced workers. The vast majority of these modern flexible workforce solutions had a negative impact on employer provided benefits, i.e. there was less of the ever more expensive healthcare provided by employers. It was great for the bottom line, but bad for the employees who were expecting to get employer provided healthcare when they entered the job market. In the instances where employers were providing healthcare they were working with insurance companies to hold down costs.
A baby makes it personal.
I have felt the impact of these trends personally over the last few years. When my first child was born, our total cost out of pocket was $250. When our next birthed child came, just four years later, we found out our out of pocket cost was nearly $4,000. This was a 13X increase in what I had to pay. To say that I didn’t take the increase in expense well was the understatement of the year. My wife hadn’t changed jobs, nor did she make any changes to the employer provided healthcare plan she was on. This wasn’t to say the company didn’t make any changes, they did. In order to keep the monthly expenses down they had transitioned the healthcare plan to one that included high deductibles. The theory behind these types of plans is that if the insured pay larger amounts of money out of pocket they will want less medical. It’s a classic supply / demand play. The challenge is that it took us by surprise. Our insurance company may have notified us of the change in the deductibles via the paperwork we received every year but there was no additional visceral exercise to let us better understand what was happening which included both an intellectual as well as an emotional level. For example there was no day long class that took us through the different use cases of the new high-deductible insurance plan. This stands to reason because if you go to a bunch of people and say “hey this thing that you used to get for working here called a low deductible is not something you’re going to get anymore because health care costs are going nuts and our solution is to make you pay more of it”, well that would get them royally pissed off at both the insurance company and their employer. So a memo comes out where there’s a webinar and that’s about it for training and insurance benefits comprehension. Also, we can’t forget the human nature component of all this. The consideration of how much your deductible will be is generally not something that comes to mind when a family is considering having a child.
The problem was that we weren’t cognizant of the changes until AFTER we were pregnant with our second natural born child. As it was intentionally designed the high-deductible plan will affect our desire to have a third child, but it doesn’t change the fact that we were many thousands of dollars in the hole unexpectedly with the second.
To reiterate from the workers perspective. Health care costs are going through the roof for a litany of reasons. In addition traditional market supply and demand isn’t working because of a system where the number of people involved in the transaction includes multiple service providers, the end-user, a facilitator known as an employer, and a third-party payer known as your insurance company. All of these stakeholders work under the auspices of government regulation. Looking at this complicated nightmare it’s easy to wonder if there is any way to fix this mess?
How a pug dog and a dying parent got me started on a solution
The idea of having to pay a high deductible as a deterrent to wanting potentially unneeded healthcare may have caused me personal great financial pain, but the reality is that it’s conceptually a good idea. The problem is that there is not apparent costs at the time of treatment. For most people, you have no idea what your signing up for and when you or a loved one is sick, the cost for care is one of the last things on your mind. You just want the pain to go away.
I learned about the first solution when my dog got sick. I had a Pug, her name was Lady (I didn’t name her). Unfortunately she got a degenerative back issue. We don’t know why it happened, but we did know it was going to get worse over time. Eventually she couldn’t hold herself up when she was going to the bathroom and would plop on the ground when we took her out to do her business. Apparently over time, the loss of control of muscles and the closeness to the bacteria in the ground created an issue in which her entire bladder became so filled with little calcium bits that she couldn’t go to the bathroom. It was like a beanbag that’s so packed there was no room for her waste. The Vet advised surgery and we acquiesced because we had more emotions than sense when it came to that dog. A little over $1000 later my Pug came home being able to go to the bathroom again, and I had a vial filled with some of the little calcium balls as a souvenir.
It took a few years worth of paying for different health care events for myself before I actually put it together. My dog had a three day stay at a healthcare provider, had an operation by a doctoral level trained surgeon with nurses and anesthesia, and ultimately recovered . All this for around one thousand dollars. As a human, my experiences lead me realize that I’d pay that just for walking into some hospitals and giving them my name. This is before ever receiving the first service by any of the healthcare professionals in residence. I asked myself over and over, what was the difference? Why did the dog’s surgery cost me $1000 yet a human equivalent would be tens of thousands?
The flip side of this experience was something I witnessed when my father was in his final days. Dad had incurable liver cancer and the way that particular disease works is that one of the final stages of the disease is when the kidneys stop functioning. You can’t get a kidney transplant as the non-working liver will just poison the new kidney. When my dad’s Kidney’s finally went I was in the room when the doctor gave him the news. The Doc said “Mr. Peluso, you are in the final stages. We can put you on dialysis, which is a very difficult and painful process for someone in your condition, or you can go home and make the most of the last few days of your life in comfort. I advise you go home and enjoy your time surrounded by your family”. My dad, channeling the obnoxious brooklyn based teen inside him, told the doctor. “ So let me get this straight, If I go to dialysis, I live, if I follow your advice, I die. Send me to dialysis!”. His attitude with the doctor still makes me smile today.
The thing we didn’t think of at the time was the cost of dialysis which is a big busines when your just getting regular treatments at a dialysis center. It’s obscene when it happens in a hospital. This was after the insurance company spent probably hundreds of thousands of dollars fighting the disease over the last few years of his life. My dad was a practical man. I wonder what would he have said if the family had to pay for his last few weeks out of pocket? What if the doctor’s question really was “Well Mr. Peluso you can pay $10,000 a day out of your savings, money your wife won’t have to live on, or you can die a bit sooner and your family will have a more solid financial future.” I have a hard time thinking that my Dad, who loved his wife more than anything (even his boats or guns) would say “put me on the expensive machine so I get a few more days / weeks / months.” He would have looked at my step-mom and said “My time’s done, don’t waste the money” then he would have looked at me and said “Go feed the Triops”. Like I said, practical to the end.
So what were my takeaways? Lady Pug’s treatment was relatively inexpensive because we were ok with care that didn’t border on perfection. We didn’t have an operation in a room that was audited by government organizations and filled with millions of dollars of machines. She was on the table in the vet’s operating room. A vet who met our prefered ratio of service level to price. If my dog got an infection, she got an infection. If she died, she died. Dad’s lesson was a bit more complicated. I realized there was a need for the high cost of healthcare in his last few years, but I questioned the need in the last few weeks. Together this got me thinking about the changes needed to enact a solution.
Changes needed for the Solution
Change Number One: Eliminate the third party payer as much as possible. The key is to have a system where the vast majority of standard healthcare costs are paid out of pocket and directly to the service provider with the transaction at the time of service. You don’t get invoiced for your cheeseburger from McDonald’s six months after you get your meal. Why do you get invoiced from a primary service provider, a secondary service provider and the hospital all months after you have received a service from a visit to the emergency room? Why would you even go to the emergency room in the first case? Any patient should be able to go to the Walmart equivalent of the doctor’s office. Go into a doctor’s office and see the costs on the wall just like the menu at any fast food restaurant or oil change place. Talk to the tech, get advice, and then make a decision. Pretty much anything other than a catastrophic event should be handled like this.
Change number two: Let more and more people in healthcare provide more and more basic services. As long as the medicine is a common treatment, consider basic antibiotics as an example, then experience in addition to a basic credential should be enough. This is especially true in the age of automation. There is no reason why an Registered Nurse with a few years under their belt or a pharmacist shouldn’t be able to prescribe something like basic blood pressure medicine or antibiotics. Remember, not only do they have their own experience, they also have a computer to cross reference the treatment with symptoms, patient history, alternative possible medicines etc.
If we are paying out of pocket, and there is a menu of services and costs at the local healthcare provider, then customers have a choice. They can say “I’ll take the minimum standard treatment from the nurse and computer” or they have the option of saying “I’d like the ‘doctor reviewed treatment service add-on” for $99.” How many people are going to have the Doc review their service when it comes to something like the flu and amoxicillin? Variants of this model are starting to appear. I’m seeing more and more MD practices where the doc is eschewing the third party payer for different versions of direct pay practices. It’s not been a single model. I’ve seen pay for al-a-carte treatments and subscription services where the customer is paying the doctor directly. In all instances the doc’s in question are unequivocally ebullient in their proselytizing about how much better their life is by walking away from the existing insurance based third party payer system. They talk about how much time they get to spend with patients and how they go home at 5pm and don’t have to work all weekend. In every instance the Doc talks about how much they love going to work again and how they are making nearly the same, sometimes more, as they made under the old systems. That tells me the model works.
Change number three: Eliminate the for profit health insurance industry. The next step is the catastrophic health care need. It can be heart bypass surgery, it can be cancer, diabetes, strokes, long term care, etc. I’m not saying that we need a socialized government single payer system. I am arguing that everyone (i.e. mandatory enrollment) needs to be a part of some sort of non-profit health insurance system for crisis level healthcare. I think of it as a collection of pension plans targeted at medical, but structured like a whole life insurance plan. Everyone pays. Everyone has part of their money in cash growing for end of life treatments, the rest goes into services spread across the whole population. I like this model because at some point someone should be able to make the decision that they want to use the cash for their family or for long term care at the end of life.
So the model works like this. You are required to pay for catastrophic event and end of life insurance one way or another to one of several designated member based insurance organizations (several means competition). For the sake of argument you can use the Obama care model. Your employer makes the contribution to your chosen organization, you can pay yourself, or if your completely destitute the government picks up the tab. For everything else, from a hangnail to pneumonia, you pay cash for treatment from a larger pool of approved service providers (Larger pool means greater supply) . This is where the for-profit insurance system can come in. If you want the nice medical care facility with the MD to prescribe your antibiotic, then you can pay a lot out of pocket, or you can pay some for profit supplementary insurance and use that. If you just want to go to the Window at Walmart and have the pharmacist give you something then you do that. If you want to save the money and go through the sickness with minimal or no treatment, then you can do that as well (More people who opt out of treatment means lower demand). The combination of the elimination of profit motive for the big insurers, the increase in supply, the reduction in demand of services and more direct transactions all would work in concert to drop costs.
Will everyone get cured under this model? Probably not, but honestly they aren’t now. I do think this will arrest the rising costs of healthcare services. Drug prices are a completely different conversation but with 3/4ths of drug prescriptions being generics, a huge amount of the actual drugs people take should be affordable.
Big Problems, Big Solutions aren’t about what’s going to happen or what should happen. It’s about what could happen if we looked at the problem from outside the boxes we have built up in over time. In this case, getting rid of a complex care network and simplifying the majority of transactions between a service provider and a consumer shouldn’t seem radical, but sadly it is. I don’t think there is a high probability that this particular group of solutions will come to pass. I do think medical is filled with massive systemic challenges that must eventually be addressed. The ultimate solution for the next century will be something like completely socialized healthcare or some currently unimagined model facilitated by massive technical disruption. It may be something in between. I suspect there will be many challenges for everyone from the service provider to the patient to the medical insurer. On the positive side at least it will be fascinating to watch, which for me will be a good thing. I figure as I get older and need something to do to fill all the time I’ll be spending in doctor’s waiting rooms.
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-Mike.
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