Why Can’t America Figure Out Healthcare?

Our healthcare system is a mess.

The level of agreement is downright staggering – you know something is up when Fox News and The New York Times are rolling out the same headline. The case that American healthcare is broken practically writes itself:

  • US healthcare is freaking expensive. The US pays more per capita for healthcare than anywhere else in the world, and almost 20% of GDP (total value of everything produced in the country) is spent on healthcare.
  • What do we get for all that spending? The American healthcare system is ranked 37th in the world by overall health performance, between Costa Rica and Slovenia. Can you imagine if we left the Olympics 37th in gold medals? We’d have no choice but to divert half our defense spending to cloning Michael Phelps (actually… that may not be the worst idea).
  • Over 10% of Americans don’t have health insurance, meaning that 1 in 10 Americans pay full sticker price for the care they receive. Oh, did your appendix burst? That life-saving surgery you can’t avoid will cost $33,000. That’s enough money to feed a family of four – FOR TWO YEARS.
  • Navigating the healthcare system can be maddening. Studies say that 61% of people find their medical bills confusing, and over 90% of medical bills have errors.

Add it all up and the US healthcare system is enormously expensive, needlessly confusing, and doesn’t deliver top level-quality. Other than that, though, we’re totally crushing it.

To top it all off, talking about the healthcare crisis is painful. Those brave souls willing to try are met with endless jargon (we need to move from fee-for-service to capitation payments!), contradicting opinions (enter ObamaCare: the failing law that has been a disaster for the America people that is also a lifeline doing enormous good!), and slanted partisanship (see previous statement).

So why can’t America figure out healthcare? Before we can answer that question, we need to understand how our country got here in the first place. Let’s hop in the way-back machine and take a closer look:

HEALTHCARE HISTORY: HOW AMERICA GOT INTO THIS MESS

For most of human history, laughter wasn’t the best medicine: prayer was. Artifacts ranging from ancient Egypt to the Middle Ages reveal that illness was most often viewed through a spiritual lens. Physicians were often monks or priests, and healthcare was often tied closely to churches and temples.

A separation between medicine and religion began to emerge in the 1300s. The development of medicine based on observation and experimentation, rather than faith, was not an instant success. Medieval medical treatments ranged from drilling holes in the skull to release migraine-inducing “evil spirits” to sniffing jarred farts (yes, you read that correctly) to counteract the foul air of the Bubonic Plague.

Thankfully, we’ve come a long way from jar-farts.

Medicine improved rapidly as the scientific revolution reshaped our world. In the 1800s, French biologist Louis Pasteur discovered what would become the “germ theory” of disease – the critical idea that many diseases are caused by microorganisms like bacteria or viruses. Increasingly sophisticated and urban governments began their first forays into public health by pushing for more sanitary conditions in factories and cities. Health boards began to emerge by the late 1800s. The American Medical Association, founded in 1847, grew from eight to seventy thousand doctors between 1900 and 1910. Hospitals, once run by the church, were scientific institutions that valued cleanliness, executed surgeries, and administered painkillers.

Science continued to progress exponentially through the 20th century. New and better drugs were discovered, more sophisticated tests and treatments were pioneered, and the quality of healthcare got better and better. Through the lens of scientific progress, the history of healthcare is an unbelievable triumph. We went from praying for the best and farting in jars all the way to open heart transplants. Breaking Bad’s Aaron Paul said it best – yeah, science!

The history of medicine isn’t just a story of scientific triumph, however. Mankind has been buying round after round of scientific success – but we’ve been racking up a hell of a bar tab. The story of healthcare is also a story of dollars and cents.1

Rising costs emerged hand-in-hand with modern medicine. People were willing to pay the growing price for treatment when they were deathly ill, but large one-time bills posed a big problem for many patients. In 1929, an official at Baylor University began looking for a way to get regular folks to pay for healthcare the way they paid for housing or groceries – a tiny bit each month. They offered a plan in which local teachers paid fifty cents a month in exchange for Baylor picking up the cost of any hospital visits. The teachers loved the idea, and it gradually evolved into America’s first health insurance organization: the Blue Cross.

The insurance industry grew throughout the first half of the 20th century as prices continued to rise and rise. When World War II-era wage controls limited salary increases, American employers began to offer new benefits as a way to attract workers. Health insurance was used as a form of compensation for the first time. Government rulings in 1943 made health insurance tax-free to both employers and employees, sweetening the deal for both sides. The stage had been set to tie employment and healthcare together for decades.

The world stood at a healthcare crossroads following WWII. Scientific advances had improved healthcare faster than anyone could have dreamed – but high costs had officially become a problem. It was time for the governments of the world to take action. Most developed nations (such as France, Canada, and Germany) quickly passed some form of universal healthcare legislation, providing all citizens with access to healthcare via a centralized, subsidized, or government-run medical program.

President Truman tried to follow the same path. He proposed a government-run health insurance fund open to any Americans that chooses to opt in. Participants would pay monthly fees, and in exchange the government would cover the participant’s medical expenses. The plan was similar to the “public option” idea that liberals still support today.

Unlike the rest of the world, however, the United States was gripped in the early years of the Red Scare. The idea of universal, “socialized” medicine was denounced and rejected as a Communist plot, with Truman and his team described as “followers of the Moscow party line.” Tying Truman’s plan to Communism sunk the proposal, and the United States failed to pass healthcare reform following WWII. By the time healthcare regained center stage in the political conversation, the healthcare system we have today – privatized insurance tied to employment, supplemented with government support for the poor and elderly – was largely entrenched.

So how did America end up with the healthcare system we have today? Our modern system was born from an experiment at Baylor University, a war-time wage restriction and tax loophole, and the all-American hate of anything labeled Communist. Sounds like the best way to design 1/5th of our economy, right?

In the meantime, science keeps getting more awesome and more expensive. Health spending has grown from ~5% of total GDP in the 1950s to 12% in 1980 and nearly 20% today. Presidents Johnson, Nixon, Carter, and Clinton all pushed for some form of universal coverage and fell short. The controversial “ObamaCare” plan marked the largest step the US had ever taken towards universal insurance, until a key pillar of the law – the individual mandate requiring all Americans to have insurance – was repealed just weeks ago (Curious what’s actually in ObamaCare? Check out the blue box at the bottom of this post for a high-level overview of the law’s contents).

For better or worse, America remains the lone developed nation without universal health insurance. While the rest of the world relies heavily on a centralized government authority to control healthcare, the American system is a jumble of for-profit private insurance companies providing services through a middleman (employers) and government intervention to support those who can’t get health insurance through their jobs (usually, the poor or elderly). With so many different players – each with different incentives, payment structures, rules, and policies – healthcare evolved into the confusing, inefficient behemoth we know and love shout at each other about today.

So here we are – we all agree the healthcare system is broken, yet no one appears to have an answer for how to fix it. Why is healthcare such a hard problem for America to solve?

THE PROBLEM BEHIND THE PROBLEM: CAPITALISM VS HUMANISM

The healthcare puzzle perplexes America because it forces us to choose between two of our most sacred values: capitalism and humanism. This conflict runs through the history of American healthcare, from Truman’s 1945 proposal to today’s debates over ObamaCare.

Capitalism is more than an economic system; it’s a way of thinking about the world. In a capitalist system, people are free to exchange goods and services by individually choosing what to sell and what to buy. Allowing people the freedom to make these choices will guide prices to naturally settle at the perfect level. Suppliers will work tirelessly to maximize their profit by finding ways to produce better or cheaper goods, which forces others to improve their products, which moves us all forward. This system is all driven by one key idea: choice. The wheels keep churning forward and we all prosper as long as our freedom to choose is protected.

Our second key value, humanism, is the idea that each individual human life is meaningful and important. Humanism shapes everything from our politics (everyone gets a vote!) to our businesses (the customer is always right!) to our art (beauty is in the eye of the beholder!). Humanism teaches us that each individual is to be respected, valued, and protected.

The clip below perfectly captures what happens when capitalism and humanism clash:2

Humanism views each individual life as sacred, creating a responsibility to help and protect each other whether the dollars make sense or not. Leslie echoes humanism when she insists that there must be a way for the government to look past the bottom line and help places that add community value. Ron Swanson provides the capitalist retort: “There is not. The free market is a jungle. It’s beautiful and brutal and should be left alone. When a business fails it dies, and a new better one takes its place.” Free choice and the free market will solve for all.3

That’s the conflict we see when humanism and capitalism view healthcare. Imagine you have invented a revolutionary new medicine that cures Alzheimer’s. Capitalist Ron dictates that you should charge whatever price you can to maximize your profits – you earned it! Others will see your sweet new Porsche and push even harder to find their own medical miracles, and in the end we’ll all be better off.

Humanist Leslie, on the other hand, leads us down a totally different path. You need to get this miracle drug in the hands of as many sick people as possible. Each life is sacred – this is no time for profits! We can’t allow the free market to leave sick people behind.

That simple example is the crux of why America can’t seem to figure out healthcare. We all agree that, ideally, each human’s health should be cared for. But what if the free market won’t provide that care? Should doctors, after years of hard work and training, have their salaries and fates depend on the government? Capitalism tells us that the researcher who developed that life-saving drug is entitled to his payday and his Porsche, yet humanism pushes us to protect the health of everyone regardless the cost.

Capitalism and humanism are core American values – but what do we do when the two values are in conflict? America can’t solve it’s healthcare crisis because, deep down, it is really an identity crisis.

CLEANING UP THE MESS

How do we get out of the healthcare mess? We need to start somewhere that Humanist Leslie and Capitalist Ron can both feel good about – and there’s an obvious target. Reducing waste and inefficiency in the healthcare system can drive down costs without forcing us to compromise on choice or care. Cutting costs by cleaning up waste isn’t a magic bullet, but every tough question about healthcare gets a little easier if the bill gets smaller.

And good news – there’s a ton of wasteful spending to cut! One study from 2011 estimated that wasteful healthcare spending in the US ranges from $558 to $1,263 billion a year. Even the low end of that range is nearly 20% of all US healthcare spending… which is nearly 20% of national GDP.

In other words, $1 out of every $25 worth of the total value of everything produced in the entire freaking country is spent on healthcare that doesn’t actually make anyone healthier. Finding ways to stop lighting money on fire like the Joker feels like a good place to start.4

One way to cut down wasteful spending is by getting rid of administrative tasks and steps that don’t add any value. Let’s call this the No More Dumb Rules Act. Healthcare spending due to administrative waste, such as failing to standardize basic forms, cost the US between $107 and $389 billion in 2011. Getting rid of needless administrative spending starts with Public Enemy #1: insurance companies.

For example, a common insurance practice called “prior authorization” requires your doctor to request the insurance company’s approval before prescribing certain treatments. This extra approval adds layers of back-and-forth while incentivizing doctors to avoid specific treatments (and the associated bureaucratic bullshit that comes with those treatments). While insurance companies claim this helps weed out errors or over-prescription, studies show that prior authorization leads to worse care for patients and millions of hours of lost productivity for doctors. On the plus side, however, prior authorization ekes out small savings for insurance companies by helping them avoid paying for high-end treatments. Wait – that’s not a plus at all.5 No more dumb rules!

Another way to trim down wasteful spending is to set up payments that encourage efficient and effective care. We’ll call this the Pay for What You’re Buying Act. The healthcare industry largely runs on a “fee-for-service” model, under which patients pay for every healthcare service provided (a doctor visit, a prescription, an X-ray, and so on). This system sounds logical at first. The problem, however, is that no one really wants to spend their money on a medical service. When I buy an X-ray, it’s not because I’ve been jonesing to get a closer look at the bones in my right arm. I buy an X-ray because my arm is broken and I need it healed. I am trying to buy the health outcome of a healthy arm.

Imagine if restaurants charged for meals using a fee-for-service model. There would be a cost to call and check if any tables are available, followed by a small fee for each interaction with your waiter, until finally your food arrived. Of course, your food is priced per component – $7 for a beef patty, $2.50 for a bun, $1.74 for condiments. Once you finish, just pay for your waiter to check that everything went as planned and head on home.

Um, no thank you.

No one goes to a restaurant to buy waiter visits or a hamburger bun; we go to a restaurant to buy a full meal. In a fee-for-service restaurant, it’s in the restaurant’s best interest to push as many individual services as possible. The more times the waiter stops by the table or refills a glass of water, the more money the restaurant makes! When payments aren’t aligned to what people are actually trying to buy, we end up encouraging behaviors that don’t add value.

That’s exactly what is going in healthcare. Paying for each medical test, doctors visit, or prescription – rather than for “diabetes treatment” or “healing a broken bone” – incentivizes doctors to provide more services rather than better services. If payments aren’t tied to quality outcomes, there is no incentive for your physical therapist to coordinate with your general practitioner. There is no incentive for doctors to focus on preventative, “upstream” care. There is no incentive to put cutting-edge medical research that streamlines care into practice faster.6 The only incentive is to provide more stuff. The wasteful spending caused by inefficient delivery or coordination of care in the US totaled between $285 and $425 billion in 2011. America has been driving towards quality-based payment for years,7 yet fee-for-service remains the dominant payment model in US healthcare. No more paying for waiter visits!

One more way to tackle waste in healthcare is by fixing pricing failures – we’ll call this the Show Me The Damn Pricetag Act. Pricing failures occur when lack of transparency or competition in the market leads to unjustifiably high prices. To put it lightly, this is not the capitalism Ron Swanson signed up for. Americans pay more for health services, like an MRI8 or CT scan, than anyone else in the world – a cost that totaled between $84 and $178 billion in 2011.

One source of pricing failures is lack of visibility into healthcare prices. When it’s time to buy a new car, I can easily comparison shop to find the dealer offering the best deal on a new ride. If my TV breaks, I can hop on the internet and find the lowest price on a replacement. When was the last time you hopped online and compared the price of doctors visits or prescription drugs? Insurance companies make it needlessly difficult to see and compare prices for healthcare. Most of us wouldn’t even know where to start.

This problem extends beyond individual consumers; our government doesn’t behave like a capitalist when it comes to healthcare either. Did you know that the US government isn’t allowed to negotiate drug prices for Medicare? Read that again. The government doesn’t even try and negotiate drug prices. They just pay what the providers tell them it costs, and pass those prices along to citizens. Capitalist Ron would be furious! Polls show that a majority of both Democrats and Republicans support negotiation of Medicare drug prices, and even President Trump has said “we don’t bid properly and we’re going to start bidding.”9

When it comes to prices, America somehow managed to hold onto the worst parts of capitalism (like valuing profit above human decency) while tossing out the best parts (competition and free markets setting prices). Start negotiating prices and show me the damn pricetag!

Fixing healthcare won’t be as simple as cutting administrative waste, changing broken payment models, or encouraging fair prices. Accidents of history created a healthcare system that puts our values in conflict, turning any conversation about healthcare into a battle over who we are. Focusing on problems like wasteful spending can be a first step towards healing American healthcare without compromising what it means to be American.

The humanist and capitalist sides of our society have been yelling at each other over the healthcare mess for decades. The only way to clean up the mess is for Leslie and Ron to stop arguing and start picking up the trash.

 

WHAT’S AN OBAMACARE?

Welcome to our “What’s an ObamaCare?” blue box of learning! When ObamaCare comes up in conversation, most of us are basically Brick Tamland from the first Anchorman:

Not ideal! Here is a quick summary of the five big things that the Patient Protection and Affordable Care Act (yes, that’s what it’s actually called) really included:

Individual Mandate: ObamaCare mandated that every citizen has to have health insurance each month, or face a tax penalty. This law essentially meant that everyone had to have health insurance, like it or not. The individual mandate is the only part of ObamaCare that the Trump administration has managed to repeal; it is no longer in effect.

Pre-existing Conditions: ObamaCare made it illegal for insurance companies to determine the cost of insurance based on how healthy someone is. This rule meant that insurance companies could not make people with pre-existing conditions (such as a diabetic) pay more for health insurance just because they have health problems already.

Insurance Exchanges: ObamaCare required that each state set up an online marketplace, or “exchange,” where citizens could choose and purchase a private insurance plan. The government organized the plans into tiers based on level of coverage and price, set rules about the types of coverage allowed on the exchange, and helped subsidize/ limit the cost of policies sold on the exchange (with extra help going to low-income citizens).

Taxes: How is the government going to pay to control the costs of policies listed on the insurance exchanges? Taxes! Folks who make over $200,000 were taxed an additional 3.8% on investment income and .9% for Medicare. Several other, less substantial taxes were also introduced. These included a 40% tax on super-comprehensive “Cadillac” health plans and (humorously) a 10% tax on indoor tanning services (take that, Jersey Shore!)

Center for Medicare and Medicaid Innovation: ObamaCare established the Center for Medicare and Medicaid Innovation to research different ways to improve quality and reduce costs. The Innovation Center tackles questions like how to better coordinate healthcare services across providers or encourage better health by changing how payments work.

The full bill is over 900 pages long and contains many additional provisions, but those five ideas capture the gist of what ObamaCare actually put in place. Congratulations! Now you know what we’re yelling about.

 

  1. To paraphrase the Wu-Tang Clan, cash really does rule everything around me.
  2. Is there anything Parks and Recreation can’t do?
  3. Every single thing Ron Swanson says in this clip is comedy gold. “Capitalism is what makes America great, England okay, and France terrible.” Ron Swanson is a treasure.
  4. We got here by taking 20% of 20% of GDP, which lands at 1 in 25… Sure, it’s fuzzy math, but you get the gist.
  5. And obviously, prior authorization is not the only tactic insurance companies deploy to churn out a bit more profit without adding a drop of value to the healthcare system.
  6. A classic stat estimates it takes seventeen years before medical research makes its way into actual clinical practice. That means if you conceived a child tomorrow, the child is born 9 months later, and the child gets in a car accident the first day they get their driver’s license… they still won’t get care based on medical findings the day they were conceived.
  7. The Department of Health and Human Services has been pushing for a move to quality-based payment models for over a decade, including a 2015 plan to have half of all Medicare dollars paid via “alternative” reimbursement models by 2018.
  8. For example, an MRI in the US averages over $1000, while an MRI in Switzerland costs ~$500.
  9. To be fair, we all know Trump doesn’t mean what he says. It’s about what he actually does. Or what he tweets. Or what he says he does? I can’t keep track, I’m too exhausted from all this winning.

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