The Future of Health Care: Cut Out the Insurance Middleman

We’re used to random health care insurance increases of 10% to 20% every year or so. But in December my policy was simply terminated without anything changing on my part.

When I applied for a new policy I found out the reason. It was too affordable. The lowest price I got was 44% higher. Is this due to Obamacare or just continued insanity in health care costs?

It’s likely that it’s both.

Just a few weeks ago, I read an interesting article in Time magazine “What I Learnrned From My $190,000 Open-Heart Surgery,” by Steven Brill on January 19.

To make a long story short, the main point was to align the interests of quality care and low costs by having the large care provider systems become their own insurance company. The two-pronged approach of prescribing the care and paying the bill cuts out a layer of bureaucracy and eliminates that incentive that the U.S. is famous for…

Over prescribing!

I’ve often suggested that the insurance system should revolve around catastrophic care and then people use their saved premiums to pay for their recurring and routine care so the patient becomes more accountable for the costs vs. the benefits. In the typical system where insurance covers 80% or more, the patient has the incentive to ask for more care, not less — and of course, the doctors and specialist providers love that.

Do you know that only 12% of health care costs are paid out of pocket? It was 50% in 1960. No wonder there’s no accountability!

I also favor a one-payer system for the most routine and basic services, which would save massive overhead and create greater economies of scale. Households that want more can always pay for it through insurance or directly.

You think it’ll happen? No. It just isn’t going to happen in this country… even though it’s been proven efficient and effective in many others.

What I like about this approach is that it levers the free market system that we already favor and it brings in a new angle. Have the care providers be responsible for both the quality and the costs.

They are, after all, the sophisticated party in a complex arena of knowledge — more so than most patients that are biased by the extreme fear that accompanies any health threat.

As patients, we just aren’t rational most of the time, even perhaps with the right incentives, and that’s why we overspend and do so many things that aren’t proven to be effective and can be very expensive. We’ll pay anything when our life is threatened, or to keep a loved one alive for a few extra months.

And again, the doctors and providers only benefit while our insurance costs keep going through the roof.

It’s well-known now that our costs per capita of health care are roughly double that of other westernrn countries. We spend $3 trillion each year and it’s constantly increasing. That is more than the next 10 countries combined: Japan, Germany, France, China, the U.K., Italy, Canada, Brazil, Spain and Australia.

Can you believe that?

We overuse care and expensive machinery. We have 31.5 MRI machines per 1 million people vs. 5.9 in the U.K. It is the largest industry and employs 1/6 of the workforce. And not surprisingly, it spends twice as much on lobbying as the next largest military-industrial complex.

In his article, Brill uses the examples of some of the up-and-coming industry leaders in quality and in costs.

He starts with the Cleveland Clinic whose heart program dominates his region while attracting clients from all over the world. Toby Cosgrove runs this $6 billion franchise, but claims he can’t grow too much or the FTC would be all over him. Brill suggests that we should encourage the dominance of specialty firms like this instead of restrict them. Such specialists are the answer to quality care.

He got his best insights from Jeffrey Romoff, CEO of the University of Pittsburgh Medical Center (UPMC). After growing to dominate his market, he’s starting his own insurance company and looking to divorce from Highmark Insurance. His in-house company will provide insurance that provides full access to his broad range of facilities.

The promise is local, high-quality care — and UPMC foots the bill… so there is finally an incentive against inflating costs or overtreating! There would also be substantial savings in overheads and bureaucracy, more like the single-payer approach.

In fact, this is more like a decentralized and free market version of single payer.

There would need to be some simple regulations if such a system was encouraged: self-insuring regional health care providers who get sanctioned as such an oligopoly would have to make concessions for the benefits of greater market dominance:

  1. There would have to be a minimum of two such dominant providers in each region, no monopolies, only oligopolies. Larger markets like New York or L.A. should have four or more.
  2. Cap the operating profits at 8% vs. 12% on average currently.
  3. Cap the professional salaries at something like 60 times the lowest paid workers.
  4. A streamlined process for appeals by patients who believe they were denied appropriate care.
  5. The CEO must be a licensed physician, not just a bean counter, to ensure quality of care is paramount.

Such sanctioned oligopolies would be required to insure a certain percentage of Medicaid patients at a stipulated discount and charge no more to uninsured patients than they would charge the competing insurance companies that they accept. Brill estimates these changes should save at least 20% of health care costs, or $400 billion a year.

All of this won’t get us to where most westernrn systems are at, but that sounds like a pretty good start to me. It’s about making the free market system both more consolidated for scale and more accountable for care and costs.

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Harry Dent

Bestselling author and founder of Dent Research, an affiliate of Charles Street Research. Dent developed a radical new approach to forecasting the economy; one that revolved around demographics and innovation cycles.