“The US has the best healthcare delivery in the world” — John Boehner
What Boehner said was perfectly true. The US has the best healthcare delivery in the world but it depends a lot on what you mean by that. If you’re broken and need to be fixed then the US healthcare system really is the best in the world. But it’s unfathomably ugly when it comes to keeping people healthy because it operates on a deficit model. If something’s wrong we’ll fix it, but we won’t do a thing to help you be healthy. If you want a system that will help you be healthy then you’re better off heading just about anywhere else.
Here’s why. The US healthcare system has the same business model as auto shops. The auto shop is designed around the principle that you will utilize them almost never and, typically, for small inexpensive things. This business model is called “fee-for-service”. You want something specific, you pay whatever the market will bear. If you need to be “fixed” or “repaired” at an American hospital, there’s no where better, but it’s not great in helping you avoid illness in the first place. Here’s why fee-for-service works for cars and not people. We don’t care about cars. We’re not interested in maintaining a car for 90 years. We keep our cars around for somewhere between 5-15 years before getting a new one. Secondly, if there’s an accident, you get a new one. Thirdly, not everyone needs a car, but everyone does need healthcare. Keep in mind that the auto shop has absolutely zero incentive to keep your car working properly. If you don’t do the basic maintenance it just means bigger fees for them later on, or, better yet, they’ll sell you a new car.
The current healthcare system got started during World War II. The government, as a wartime measure, capped wages to keep wages from skyrocketing because of labor shortages. In order to get around these wage restrictions, companies started offering insurance benefits since health care, then as now, was expensive. Eventually the wage restrictions went away at the end of the war, but the modern day healthcare system was born. Today, most American will get health insurance through their employer which is still not a system designed to keep you healthy and productive.
The insurance business model is dependant on actuarial tables. Again, a system that actually works pretty well for cars. An insurance company will collect massive amounts of data to determine how likely you are to get into a car accident and how much that will cost the insurance company. They simply charge their fees accordingly. It’s pretty simple. Especially since the greatest liability facing car insurance company is the total cost of the car. Unlike cars, what happens to a person tends to be vastly more expensive if, for no other reason, than the normal bargaining rules for consumer goods don’t apply. I can’t not get life saving medical care or I’ll die so I must then pay whatever is asked. Eventually the insurance groups figured out they could make a lot of money by being pretty abusive. For example, if you had a pre-existing condition the best thing for you is to get high quality and expensive care to get it fixed. This makes sense in the long run, but in the short run it drives down profits for large insurance companies and represents a huge risk for them. The actuarial business model is all about minimizing risk. It’s far far beyond the scope of this blog to detail in all the ways that insurance companies have been horrifically abusive to their own customers. However, the key concern here was there was no profit motive to change. Unfortunately that’s the only motivation business really have. Thus, legislation became necessary.
What happens is people don’t get health care when they need it and then can’t afford it when they do. This leads to long term problems and inefficiency as untreated underlying health problems become exacerbated. Even if this wasn’t an issue, young healthy people try to avoid paying for insurance which cheats a system that they will utilize later in life. The fee for service model also tends to drive up costs for individual services. Hospitals, for example, have a book that lists what they charge for each service. But these prices are vastly inflated. In other situations, this would be considered extortion. Hospitals probably feel justified since they tend to provide a lot of uncompensated care anyway (another huge source of waste and inefficiency). In a consumer market, you have the power to negotiate on your own behalf, or leave the market altogether. You can’t do that with healthcare. One solution would be a collective that could negotiate with hospital for a flat rate to take care of all it’s members but there’s no mechanism to do that.
To create a mechanism to do that, the Patient Protection and Affordable Care Act (PPACA) set up what are called accountable care organizations and forced changes in the way insurances do business. It will take years for the business model to move to these ACAs and away from fee-for-service plans, especially since fee-for-service doesn’t necessarily go away in an ACA but it’s a start. The ACAs are also hugely responsible for setting up best practices within the medical community. For example, there are times when you need the expensive name brand drug, and most other times when the cheaper generic will do just as well. How are you to know which is which? After all, it’s your decision. You could trust the doctors to make recommendations, (please note, Dr. Google is not a real doctor) but there’s a lot of pressure on hospitals and doctors when making these decisions and standards of care can vary widely. Your ACA could study the issue and make a determination, build the necessary medical infrastructure, and advocate for the best interests of the patient. Sounds great doesn’t it? It’ll probably be a while before they’re actually capable of that (if ever), but that is, in part, the goal of the PPACA.
The Pre-WWII medical care on which we’ve built this system was pretty inexpensive by today’s standards. They had some sulfa-drugs if you got an infection, they could set broken bones, and do some simple surgeries. Mostly people just died. They didn’t have the technology to treat complex illness that people are now living with. Consider how huge the medical field is to the economy. It’s actually really fantastic. But like all legacy systems that have refused to evolve, what once was a fantastic idea has become something monstrous. It’ll take a lot of time and a great deal of pain to fix. The current system was put in place with the best of intentions but it is an abject and utter failure the way it is now.