DISQUS

omichels · 3 months ago

Negotiation and the free market sound like wonderful things, but they don't work for all situations.

I'm currently sitting in a hotel room where I negotiated a price directly with the hotel. I prefer it to the hotel down the street, but when I looked online last week and compared the online price here to the price of a more than adequate hotel two blocks away, this one was $50 more a night. I called, spoke to a manager, and negotiated the lower rate.

Not everyone feels comfortable doing that - and that's just at a hotel.

You say that you handle dental work on your own. When you see your dentist, do you haggle price with them each time someone needs a filling? How about when there is a dental emergency - do you do you shop around, or do you find a local dentist (perhaps your regular dentist, perhaps another if she is not available, or perhaps even one you don't know if you are traveling)? The cost may not be "catastrophic" to you, but if you are someone with no insurance whose credit cards are maxed out, you may well get the tooth pulled rather than fixed. Or not see a dentist at all, and arrive at the emergency room when the infection has spread.

The difference between the insured (or wealthy) and the uninsured (or poor) is easily seen in the approach to dental care. I don't really want to take the same approach to medical care, where the stakes are even larger.

Those who lament that "haircut insurance" is an awful idea ignore the fact that people who apply a strictly economic approach to healthcare choices - whether by choice or by circumstance - forgo the routine care that would often keep the "catastrophic" events from happening, and in the long run cost more to treat.

LASIK is not medical care. It is a luxury available to those who can afford to spend thousands of dollars on vanity, no different than purchasing a designer outfit or, for that matter, a ferrari; it just happens to be sold and performed by physicians. No one "needs" LASIK, and no one is sitting sleep-deprived in a doctor's waiting room after staying up all night with their sick child being asked to make a decision on LASIK.

Yes, the system is broken. People get unnecessary care; doctors order tests and procedures that may not be medically necessary for all kinds of reasons; people insist on seeing specialists for things that could be handled by generalists. All true.

But the mortgage meltdown has shown what happens when people who don't know how to negotiate important and complex issues are placed in an unregulated environment, where their own personal financial life is on the line, and are sitting across the table from someone who knows the financial ins and outs very, very well and has a profit motive. For the first few years, things go great. Until they don't, at which it's time for another bailout.

With medical care, the issues are more complex, the layman's knowledge is generally more limited, emotions run even higher, and the elements of fear, uncertainty and urgency are more acute.

Perhaps our commenters' routine "haircut" doctor appointments are largely rudimentary - "things look great; your cholesterol is a bit high, here's a prescription; see you next year" - but for many who are not so healthy they involve the management of chronic conditions or acute illnesses where serious decisions need to be made, and serious financial and health issues are on the line.

Adding the element of financial negotiation to this mix, and requiring people to negotiate against people with way more information and knowledge than they have, just seems wrong to me. I am all for a better way, and in general I'm as much of a free market advocate as anyone I know, but I don't believe it works in this case.

Josh · 3 months ago

I take issue with your recommendation for what seems to be a "nanny" state.

So, you would rather the government barter on your behalf? Please, these people cannot even execute a "Cash For Clunkers" program right. The individual is the only one who knows the nuances of their personal situation and is in the best place to judge what is right. They must take personal responsibility to learn the system, apply it to their situation, and make the call.

Also, the mortgage meltdown was a price correction to punish those biting off more than they can chew. There are/were winners and losers.

The idea of a government run single payer system is absolutely frightening to me. We already have Medicaid for the poor, Medicare for seniors, and Social Security for the elderly and disabled...all with gigantic unfunded liabilities. What on Earth gives anyone the idea that the government could administrate such a thing when there is horrible precedent visible everyday?

Like in any investment deal if the managerial team (in this case, the federal government) has failed with whatever idea they have tried in the past, even with seemingly endless supplies of money. Would you invest your money with that same team again no matter the idea? Not me.

Monty Kalsi · 3 months ago

Josh - Right on point.

"The idea of a government run single payer system is absolutely frightening.."

I totally agree with your reasoning here.

In addition as "individuals" we are prone to making better decisions over time and learn from our mistakes than a "committee" deciding our future. Sure there will be issues (fraud, mismanagement, faulty decisions etc.) with consumerism of health care like we have in other industries. If we have right controls in place we will be able to manage it like any other free market product and service and over time people will evolve and understand the details with an open transparent system and be educated by the competitive marketplace.

Vladimir Vukicevic · 3 months ago

Hey Josh, have you ever had to deal with cancer or any other major disease in this current healthcare system? I'm not sure "personal responsibility" would help someone very much in these types of situations. "Making the call" on picking the right chemotherapy or negotiating the price of one's radiation treatment would probably not end well...

The "nanny" state is the only system large enough to properly spread the risk while pursuing the right incentives - i.e. the health of its citizens as opposed to profit.

DaveinHackensack · 3 months ago

If you take profit out of the system entirely, you lose a lot of the innovation -- in creating new chemotherapy drugs and other things. In theory, you could argue that capital currently funding health care innovation in the private sector could be replaced by more public sector funding, but in practice politicians always have a greater incentive to spend money on their current constituents than allocate money to projects that may not bear fruit for decades.

From a personal perspective, my father had to deal with cancer in "this current healthcare system". He wasn't a rich man -- just someone who paid his Blue Cross/Blue Shield premiums every month -- and he got treated in one of the best cancer centers in the world, Memorial Sloan Kettering, where he was given innovative new medicines which were developed here, not in France, or Canada, or Britain. That's a democratic aspect of our current health care system I fear we'd lose if it's replaced by a more fully socialized one.

Vladimir Vukicevic · 3 months ago

I think you're probably correct about profit being necessary from the pharmaceutical perspective - i.e. for new, cutting-edge drugs to be developed there needs to be major financial incentive.

But I don't believe that doctor-patient interaction is based on profit - most doctors, nurses, researchers don't go into the profession for the sake of profit.

I agree that choice is necessary and integrally connected to what makes this country so great. But for those without insurance to have no choice is unacceptable. I've seen too many fundraisers for kids needing expensive bone-marrow transplants or similar such procedures. A civilized western nation shouldn't require a good portion of its population (including parts of the middle class) to have to beg to receive adequate medical treatment.

DaveinHackensack · 3 months ago

Drug development isn't the only area of innovation in medicine: there are also innovations in equipment, procedures, etc.

The high remuneration associated with medicine (particularly, certain specialties) is certainly one of the motivating factors for those going into the field. Conceivably though, we wouldn't lose much innovation if more physicians were paid on salary though, rather than on a per-procedure or per-visit basis.

Solving the problem of the uninsured does not require scrapping the entire current system. It can be accomplished in handful of simple steps:

1) Enforce our current immigration laws. That will eliminate at least a quarter of the uninsured.

2) Allow insurance companies to offer basic insurance -- insurance that doesn't cover chiropractic care, acupuncture, sleep studies, fertility treatments, etc., and allow consumers to shop for health insurance across state lines. That will lower the cost of insurance.

3) Require everyone to buy insurance. This can be enforced by increasing the employee portion of the payroll taxes by a few percent, and refunding this money back to taxpayers when they file their taxes, provided they include proof of having insurance coverage during that tax year.

4) Subsidize those who can't afford market-rate insurance, because the premiums would exceed a certain percentage of their income. E.g., let's say insurance would cost 20% of an individual's income: let him pay 15% of his income, and let the government cover the rest of it.

5) Require insurance companies to offer insurance to those with pre-existing conditions. If those with pre-existing conditions can't afford the premiums, subsidize them as in 4).

Those five steps would take care of the uninsured without scrapping our current system. This wouldn't do anything to control the runaway costs of Medicare, but neither would the current plan being debated in Congress.

fredwilson · 3 months ago

It doesn't have to be a negotiation. One can simply choose a less expensive MRI and drive 20 minutes further to have the procedure done

And the point about those who cannot afford the healthcare is right, but the author adresses that in his piece. I did not in my post

omichels · 3 months ago

Perhaps you can drive 20 minutes; perhaps you can't. And as consumers of MRIs, we're not necessarily qualified to know the difference. when it is referred to as something taken with a "20 year old piece of equipment" and a "technician", one forgets that there are differences in both machines and technicians. A one-year-old digital camera takes way clearer pictures than a 5 year old one, let alone a 20 year old one. A family member had an MRI recently that she brought to a doctor who immediately ordered another one precisely for that reason - the second scan, made on a newer machine, was able to reveal something that was inconclusive on the first. I suppose there could be a "yelp for MRIs" service, but ultimately we would descend into a world where the same hypesters who are on TV flogging LASIK would be trying to convince people that their MRIs are better, stronger, faster, and cheaper. We would be making decisions based on marketing, not based on medical need.

I read the piece, and I disagree that he addressed the need for healthcare for those who can not afford it any more than he addressed the definition of "afford". He suggests that catastrophic insurance not kick in unless something costs more than $50,000 - perhaps this is affordable for some, but most people I know would be bankrupted by an unexpected $40k hit. And nothing in life says that such a hit happens only once - so if, as happened in our family, one child falls off a bike and sustains a concussion that requires hospitalization, and shortly thereafter another child requires an emergency appendectomy, it's unlikely that someone with young kids who hasn't been working long enough to build up a massive HSA could afford it.

Insurance exists to spread the risk of bad things happening across lots of people, so if something bad happens to you and it doesn't happen to me, your life isn't destroyed financially while I sail off into a blissful retirement. I fail to see how one person's body getting sick or injured while another's stays well is not in the spirit of the concept of insurance. The fact that some of these "bad things" result in less expensive bad outcomes doesn't change the fact that the need for an MRI, an appendectomy or a cast on a broken wrist is not something one chooses, like one decides whether to buy a car or take public transportation, or whether to eat in a fancy restaurant or cook ramen at home.

Monty Kalsi · 3 months ago

I think the difference between 40K or 50K threshold is something that can be detailed out in the implementation of HSA and it maybe covered by subsequent additional re-insurance coverage for those that can't afford the "risk".

I agree with your logic on insurance to cover the "risk". But let us take insurance for what it is suppose to do which is just cover the "risk".

Here is an example for car insurance:

If your car is paid off or you buy it cash down
- you have to buy liability
collision and comprehensive is optional. If you feel comfortable paying $1000 to cover $5k-10K (residual value of car after 5 years),you take full coverage or else you go for only liability.

Again the point is individual and economic reality forces people to make smart choices.

Vladimir Vukicevic · 3 months ago

One can't make smart decisions under the stress and preasure of a major disease or injury. Even the potential of a disease automatically destroys many efficiencies that an open market might bring along.

Monty Kalsi · 3 months ago

I think we are confusing two things here.

1. Need to address "Urgency" of medical care
2. Payment for the "medical service"

I think number 1 can be addressed by implementation of a better "service delivery process" without the need for patient to be negotiating under stress and pressure.

I can see why you think the way you are thinking. Because we have only seen things working in one way. I feel alternative is not only possible but better.

Vladimir Vukicevic · 3 months ago

I've actually seen both extremes. I grew up in a socialist system where I saw the innefficiencies and corruption that such a model can bring about. And of course I've experienced the in-between Canada/UK systems along with the US way.

We do agree on one thing - an alternative of some sort would probably be better than what we have now. But seperating urgency and payment is very hard to do. It's hard (impossible?) to create an objective system so we could end up have "urgency" pricing - i.e. a premium for emergencies - which would probably be the worst thing that could happen.

Vladimir Vukicevic · 3 months ago

Thank you for stating this so concisely and clearly. I agree with you completely. Healthcare is unlike any other good or service and treating it as a regular good or a luxury good would be a mistake. This is especially true since there is almost no way to ensure perfect information in this market.

The other issues of geographic stickiness, emotions, difficulty in comparing results, and lack of time to make economically rational decisions all eliminate healthcare from being a purely open market system.

fredwilson · 3 months ago

That's a good argument. I'm just not sure its right. But it may well be

druce · 3 months ago

The Greenwald-Stiglitz Theorem states that in the presence of either imperfect information, or incomplete markets, markets are not Pareto efficient.

The consumer doesn't have good information about what he or she is buying, and little choice. For instance, a consumer might want to purchase catastrophic coverage and the rest a la carte, but that choice is not available in the market.

I think radical reforms, and pushing as much health care as possible into a transparent, competitive environment are part of the solution, but as Krugman points out, powerful rent-seeking forces block reasonable policies - http://www.nytimes.com/2009/08/31/opinion/31kru...

ShanaC · 3 months ago

Side point, Greenwald-Stiglitz and whatever that comes out of it, (which over time, should be a lot), because it is the base of information economics right now, should be a must be understood by anyone interested by the internet. It doesn't matter if the problem is massive amounts of not enough, It's the fact that they went about and tried to talk about the idea of macroeconomics and imperfect information and what to do. Such luminaries.

fredwilson · 3 months ago

Great points druce. I can always count on reasoned intelligent analysis from you. Thanks

ShanaC · 3 months ago

Correct. Further, what mopst people don't know is that the law intervenes on the side of insurance. Doctors cannot publish rates for actual medical care, nor can they discuss between themselves what their rates are. Their rate is set for medicare and medicaid the day they walk out of medical school, and they can't change it. Insurance companies can and do negotiate with hospitals and doctors, and one of the baselines is Medicare and Medicaid.
Start publishing, and you will feel much better.....

Michael Masnick · 3 months ago

Hi Fred,

Three years ago, economist Arnold Kling wrote a great book arguing (in great detail, with well backed up data) exactly what this article suggests. If you're interested in this, it's a compelling and educational (and pretty quick) read:

http://books.google.com/books?id=-6Yuj5wrXIoC&p...

Ethan Bauley · 3 months ago

That note makes me wonder why articles like this don't provide an extensive bibliography.

Also seems like a revenue model: pay for the annotated bibliography? Or: a related book club, led by the author?

fredwilson · 3 months ago

Yet another thing to send to my kindle! Thanks mike

MaxwellKennerly · 3 months ago

If there's any way to reduce coverage while making health care more expense for those who get it, it's the "consumer centric" model.

Provider reimbursement rates are among the most complicated transactions in the entire world, and that's even when done in sizable aggregates, as most insurers do. Suggesting that individual consumers could intelligently navigate and negotiate provider rates for health care is about as reasonable as suggesting that individual investors could intelligently manage their own investments with start-up technology companies.

As much as we all like to complain about "middlemen," some of them -- like yourself -- exist for very good reasons, most commonly as a way to delegating difficult, specialized, and time-consuming tasks, like determining the appropriate charge for the dozens of distinct medical procedures that occur even in routine health care.

The Goldhill approach would have one primary "benefit:" a dramatic reduction in access to health care for most of the population. Such would undoubtedly make health care a smaller portion of GDP, but by doing nothing more than simply making health care unaffordable to most. It would also expose ordinary consumers to an opaque and inherently uncertain "market" that would likely take them for every penny, much like with "consumer-driven" financial services (e.g., credit cards, check cashing, payday loans, etc).

Health care fraud is already a multi-billion-dollar industry, and that's under the watchful eye of aggressive insurers and government investigators who, I can assure you from personal experience, take a brass knuckles to providers they suspect of fraud. Exposing consumers to that is a recipe for disaster.

There's only one "simple" approach to solving the complex and opaque nature of health care markets, and that's to use a single-payer government system to set prices by fiat. Of course, that has all of its own problems, but that's a subject for another discussion. Point is: we cannot wave a wand, summon the free-market fairy, and make health care cheap and plentiful.

fredwilson · 3 months ago

This may well be true and its certainly possible that you know way more about this subject than me

But when I see one MRI session costs $2000 and another two towns away costs $850 or when I see an overnight stay in the ICU costs $12,000, I think putting people in the position to say "that's too much, I'm going elsewhere" is the right answer

MaxwellKennerly · 3 months ago

Part of that is an artifact of massive and correctable market distortions, such as how physicians can't publish prices and how providers are forced to create artificially high "sticker prices" because both private insurers and the government demand standardized "discounts." It's kind of like if every supermarket demanded Coca Cola give them a 40% discount on cokes: the result would be absurdly high priced cokes at convenience stores. We can correct some of these.

Perhaps more importantly, radiological services are among the most simple provided, and so using them as an example may be misleading*. A MRI or CT scan is a discrete event using a particular piece of fixed equipment. But when it comes to, say, "treatment of prostate cancer," it's far, far harder for the oncologist to give you any realistic estimate of the upcoming fees given the number of variables.

But even if we strip away a lot of those distortions, the market will still remain inherently complicated. Moreover, every time we've tried to create incentives against excessive care (like capitation payments), the result was an uproar among patients and a concern among physicians that the appearance of greed had made interaction with their patients harder. Further, physicians utterly, totally despise billing patients directly, because it's hard to collect from most of them -- ask an emergency physician what they think of consumer-billed health care and you'll get an earful about how EMTALA has forced them to provide tens of thousands of dollars of uncollectable "charity care" every year.

Perhaps there's some areas ripe for more consumer involvement; voluntary cosmetic plastic surgery functions just fine in a consumer-driven market. But I think everyone will agree that's different. And while it's easy to say in retrospect, "boy, that's one expensive ICU stay," the fact remains that ICU stays are inherently unpredictable. The only thing you even could predict would be the "bed" cost, i.e. the standard daily rate. Once you're there, are you really going to ask about how much the cardiology consult costs? Are you going to say "no" to it?

The model proposed by the article would, IMHO, create a perverse system in which the most honest players do the worst. Dishonest health care providers would rip people off blind; honest ones would get stuck with uncollectable debt. Honest patients would forego necessary treatment, while dishonest ones would mooch off the system and not pay.


* I of course don't mean you intentionally used them to be misleading. I can't think of a better word at the moment.

Name · 3 months ago

"such as how physicians can't publish prices and how providers are forced to create artificially high "sticker prices" because both private insurers and the government demand standardized "discounts.""
But if consumers aren't paying for the services directly they don't care what they cost. They just want the best that they can get.

"Moreover, every time we've tried to create incentives against excessive care (like capitation payments), the result was an uproar among patients and a concern among physicians that the appearance of greed had made interaction with their patients harder."
This is why self pay is better- it's up to the patient. I'd rather decide what's worth it to me than to have the govt decide or pay for the hypochondriac's excessive care.

rickg · 3 months ago

Is the cheaper MRI as good? Can you, as a lay person tell? The $1150 difference would be well worth it if the more expensive MRI found a health risk that the cheaper one missed or if it forestalled other tests.

Given that there are other models in the developed world that deliver about the same quality of care as the US for half the price, I don't see why we feel the need to come up with something new and untried. It seems arrogant - if we didn't invent it, it can't be good.

mattmcknight · 3 months ago

It's not new and untried. It's similar to the Singapore model.
http://econlog.econlib.org/archives/2008/01/sin...

It's not arrogance, it's that this is the best way to reduce costs.

rickg · 3 months ago

Thanks for the link Matt, I'll check that out. I still come back to the fact that we can halve our costs if we implement the systems seen in Europe, Australia and elsewhere. Presuming this system works in Singapore that's one place and not one that's culturally similar to us. I'd like more datapoints before we anoint this the cure.

And cost isn't the whole issue - it's access to health care and quality of care as well. We overfocus on the economic aspect - who pays, what are the costs etc - but we also need to go up a level and ask the basic questions like "who gets care, what's covered, is healthcare at some level a basic benefit of being a citizen?

For myself, any system that cuts costs but doesn't address access is only dealing with one of the issues. The lack of universal access is an admission that we can't, or choose not to, provide a benefit to our citizens that every other developed nation provides. Why can't we? If it's choice, why do we choose not to? Some of the very people complaining about the cost of providing health care had no issue in spending hundreds of billions in Iraq to kill people... Let's talk about the worldviews we have and decide what we want. How to pay for that is really a secondary issue until we decide what we mean by the term 'healthcare'.

EDIT: Ok, after reading that it sounds interesting, but there's not a lot of real detail. For example, the government subsidizes a hospital stay at 80%. Sounds nice, but unless there's a sizable difference in costs between us and them, that 20% could still be a very high number here if it's not capped somehow. For elective procedures, meh. But for typical things (broken arm, appendicitis, etc) that 20% could be a very large number with our costs. And for chronic conditions (diabetes, say) or for catastrophic conditions? It could be VERY large.

fredwilson · 3 months ago

There's a link to the netherland's system somewhere in this thread and although I didn't click thru, the suggestion was that they also have a consumer centric system

fredwilson · 3 months ago

This consumer centric model exists in many parts of the world and works

Pete · 3 months ago

I generally like the concept of letting open markets drive efficiency, but I'm wary in this case, when two of the primary objectives are delivering good quality care, to everyone. Markets emphasize profits and revenue growth over all else. So if the market determines that certain procedures are unprofitable, or worse, unprofitable in certain geographies versus others, then quality and universal availability suffer.

Efficient markets also rely on educated consumers, and healthcare is incredibly complicated. How can people evaluate what they need and make intelligent choices? I'm not just talking about less educated people here. Who hasn't spent a few hours on the internet late at night, trying to determine the risks of a strange rash on your kid's stomach?

Doctors train for 12-15 years after they graduate from high school, and even they make mistakes. I don't see how an adult armed with a high school degree has a chance at the other side of that transaction. And to make the consumer's research more confusing, where there are markets there is marketing. How many "articles" will show up to help "educate" consumers on how to evaluate healthcare options?

At some point, the government would need to step in and help, and I think in this case, we end up back where we started or worse.

Dan Hung · 3 months ago

I second your opinion Pete. Consumer driven healthcare is a tempting idea to the educated and the wealthy who generally believe they can make intelligent decisions about their healthcare and have the funds to pursue care in such a form. To some degree, there's been a trend towards this (particularly towards the tail end of the Bush administration) with the proliferation of healthcare spending accounts, high deductible insurance policies, and the increasing popularity of walkin clinics (i.e. those that can be found in select Duane Reade locations).

Admittedly, the separation between the consumer (making the purchasing decision) and the payer (the insurance company) has a lot to do with the overuse and uncontrollable costs in our healthcare system. But, the reason third-party payers exist is because of the even greater information disadvantage between consumers and providers. It would take a very ardent belief in the efficiency of markets to trust the collective power of the market to police quality of care through the power of their dollars. While I consider myself generally well educated, I think it a bit audacious to believe that I could make all the right choices with respect to my family's healthcare let alone having to value each treatment, procedure, and consultation accordingly.

On the wealth spectrum, it is easy to see the positives of consumer driven care when one has enough wealth such that you can comfortable walk into something like a Duane Reade Walkin Clinic and comfortably spend $50-$100 for the convenience of a quick visit with a physician or NP. Imagine having only the disposable income to cover basic needs - rent, food, transportation to and from work, and if lucky some minimal insurance. If such a person were to be faced with a consumer driven healthcare plan, how could you incentivize them to make the choice of spending on routine, preventative care as opposed to putting food on the table? For the least economically well-off populations, only the rosiest dreams of health care cost deflation from increased consumer driven competition would improve access and, even then, said population would likely still have a difficult time making the choice between routine care and simply rolling the dice.

ShanaC · 3 months ago

Even if I had a graduate degree, I probably would do it if everyone started publishing rates. I started to notice that you could buy a lot of popular drugs cheaper (or cheaply) without insurance if you join drug store plans becuase they show you the rates. Your insurance doesn't. Most people never see the rates for this stuff and it drives me bonkers.....

fredwilson · 3 months ago

There is no choice between healthcare and food on the table. Once the money is in an HAS, you can't spend it on food

fredwilson · 3 months ago

I agree pete. But when was the last time you and your doctor discussed cost in assessing various treatment options? It never comes up. That's fucked up

Vladimir Vukicevic · 3 months ago

Do you really think that cost should come up when discussing life-saving/altering choices?

Unfortunately I have too much experience in this arena - both from living in the US and in a real socialist country. I know the good and bad of both extremes. If you want to seriously discuss how cost in healthcare can drastically affect the quality of treatment and create an unneeded and potentially disastrous emotional rollercoaster on top of everything else - please give me a call/shoot me an email.

mattmcknight · 3 months ago

Yes. It must. If there is a million dollar treatment that gives everyone another six months of life, it may not be worth it.

Vladimir Vukicevic · 3 months ago

Really? You would sell 6 months of your life for 1 Million dollars?

mattmcknight · 3 months ago

If I didn't have the million, I wouldn't demand that it be taken from others by force of law.

Vladimir Vukicevic · 3 months ago

I guess we differ on that one...

Pete · 3 months ago

You're right, I've never had a cost discussion with my doctor. It reminds me of that saying I've heard from my tech consulting friends: "cost, time, quality...choose any two." When it comes to healthcare, everyone should have access to the good quality care they need, whenever it is needed. Isn't this the goal of any healthcare reform proposal right now? If the ability of the patient to pay or otherwise finance a procedure come into play, then timely availability or quality will naturally suffer.

I'm not defending the status quo, and I'm not particularly inspired by my government's ability to set up an efficient system, but we have to take care of our people. Markets are not well known for making sure everyone is taken care of (I'm talking to you, financial services industry.)

S. Pandya · 3 months ago

My parents and I come from a country (once referred to as a 3rd-world nation, now called an emerging power) where consumer-centric healthcare is in full force. The problem is that economic incentives and effective care rarely align perfectly.

Unethical practices abound; the bad doctors become rich, and looking at them, the good doctors become corrupted; middlemen crop up. It's a bad idea and a bad approach.

In those countries, the wealthy don't have to worry about care. The poor are consigned, in the case without subsidies, to a short life. And the middle class takes a huge hit to their disposable income, which in the case of the United States, would already be disastrous, given that a majority of economy is run by discretionary spending.

fredwilson · 3 months ago

That's helpful. Can you tell us what country?

S. Pandya · 3 months ago

Some of your readers might have guessed by the name, but it's India. Nowadays, there are insurance plans, deposit schemes, and the like even there as well. But when we emigrated (early 90s), having an insurance plan was unheard of.

In theory, there are government subsidies, issued by the government at its various levels, that should help the poor and the lower middle class. In practice, what happens is that corruption is endemic and systemic and abuse is rife. In addition to doctors listed in the original post, drugs, syringes, instrumentation, etc. are frequently bought at "market prices" and used without a thought to medical protocol, safeguards, etc.

Ironically, the same country is now a huge medical tourism destination, while hundreds of millions of its people lack basic primary care.

That's the cruel and brutal irony of letting healthcare being governed by the free markets.

EDIT: I don't mean the tone of this to be pessimistic or demeaning. I love the land of my birth (my "mother country," if you will), just as I love my adopted land. I am a proud Indian-American, and therefore I have the right, and also the responsibility, of pointing out things that each country needs to be better at. I am not a being fan of a model that marginalizes the lives of people. I want India to try to reverse this, and I don't want the United States ever going down this road to begin with.

Rex Hammock · 3 months ago

I know this will come as a shock, but George W. Bush, toward the end of his presidency, in probably the boldest legislative proposition of his presidency, proposed a very similar reform. And, because he had lost all standing as a leader by then, the proposal went no where.

The proposal is captured in about 159 words of his final State of the Union Address (http://re-x.me/1C). Basically, it was to shift the tax-deductibility of health insurance to the individual rather than the employer and through such means as HSAs to shift health care payments to individual consumers.

So as not to hang this on Bush, and therefore get a knee-jerk "it must be bad then" response, I'll quickly add that Sen. Ron Wyden (Oregon) has long supported the idea of shifting tax deductibility to individuals. (http://en.wikipedia.org/wiki/Ron_Wyden#Health_care)

Also, I suggest looking to "the Singapore model" for a system that approaches healthcare in a "third way."

This is a confusing issue -- but critical to all. We need universal access and a way to pay that doesn't price individuals or small businesses out of the market.

My 25-person business has offered a great health plan to our employees for 18 years and I plan to do so always. However, if one of our employees has a catastrophic illness, it will raise the premiums for all...and the pre-existing condition will prevent us from shopping around.

The nuance of the issue -- everything from state-by-state mandates for specific kinds of coverage (we have employees in more than one state) -- don't become apparent until you run a business and are in charge of actually "shopping" for insurance. You then realize the system is broken and must be fixed.

When we all see healthcare as "consumers" -- like we do dentistry, as in your example -- we'll demand the same kind of market dynamics we demand in everything else in our lives.

Mike Altschul · 3 months ago

As I read this post, that's exactly what I was thinking: "So, in other words: galvanize the HSA of ~2006, but throw in some federal funding for low income families/individuals." And it's funny, but I've always thought this one of Bush, Jr's better ideas.

I actually had an HSA (when a past, progressive employer offered it) for a year and loved it. Employer contributed, I contributed, no red tape to see doctors; and, I had a separate policy that covered me in the event of catastrophe. The only issue I took was one of redistribution: if I and my healthy friends, took the HSA approach, then premiums for less healthy would sky rocket (let's be honest: healthy people's insurance subsidizes the less healthy), and this model is unsustainable. BUT, if the entire nation collectively took this approach and if the govt could equitably finance those in need, then I'm all for it!

fredwilson · 3 months ago

Yes. One of bush jr's better ideas. But I bet he didn't come up with it

kidmercury · 3 months ago

lol, thanks for calling him bush jr boss. i really hate how he got away with being "w." wtf is up with that. he's a jr who got his job through nepotism, let's be real about it.

fredwilson · 3 months ago

I know that bush proposed something similar but he didn't have the clout and maybe not even the conviction to push it through. Its not just about who gets the tax break. I think whomever funds the HAS (your company or your employee) should get it

Charlie Crystle · 3 months ago

Just like democracy, single-payer is the worst possible system--except for all the others.

I resent being considered a consumer when it comes to healthcare. I'm a person. I'm a citizen. My health is important to my contribution to society, and benefits the overall good of the country. As does everyone's. That's why healthcare should be universally available.

The payment system is skewed by the claims system. You claim you have an issue. Your doctor claims to treat you. The insurance company then withholds payment until they "adjust "your claim. The doctor or hospital then has to go through claims processing and payment processing, adding huge levels of complexity and bureacracy.

Indeed--in 1985 there were 2 admins for every doctor. Now there are 12. Lancaster General Hospital has 7500 employees; 500 just process payments.

There are now over 8,000 insurance companies in the US and 150 different forms.

Single-payer simplifies all of this--cuts out all of the noise, and the savings to businesses and individuals is anywhere from 40% to 70%, YET everyone is covered. Really? Yes, really. We pay so much for the sales, marketing, claims adjustments, defensive medicine (kill malpractice please), exec salaries, and the noise from claims processing throughout the system that we can't afford to cover everyone.

The Obama plan is terrible. Bu when I ask Attila the Hun conservatives in York, PA, or Lancaster, PA, or frankly anywhere, they prefer single-payer when it's laid out to them: you pay 6% of payroll, employees pay 3%, you pay 50% of worker's comp, and you never have to deal with healthcare again, and they say emphatically: "WHERE DO I SIGN?"

Why? Because currently they pay betwen 20% to 35% of payroll (depending on industry and payroll levels). This would be substantially less. Add school districts, cities, counties, etc, and suddenly we have removed a huge drain on our tax base and economy.

Change the payment system. Stop the gimmicks and games--subsidized care for those who can't afford it just adds more bureacracy (income verification, more forms, etc). Just cover everyone, pay from a single source, collect a reasonable amount.

I am not a healthcare consumer. I'm a citizen, a businessman, and a capitalist, and all three want the lower cost, universal, comprehensive single-payer system. I have no fear of public payment, private providers.

I fear our current system, and I definitely fear the Obama plan.

fredwilson · 3 months ago

I'd take single payer or consumer centric over Obama's plan

Adam Berkan · 3 months ago

I think this would backfire. Catastrophy-only healthcare encourages people to ignore health problems until they become catastrophies. I'm Canadian, and I see it happen in the US all the time, even amongst people with insurance because of the co-pay. Treating the catastrophy costs way more than preventing it.

In Canada when you get a bad cut, develop a rash, or have a really sore joint, you go to the drop-in clinic. 9 times out of 10 it's nothing, and they send you home 15 minutes later. 1 time out of 10 something is broken or infected and the doctor starts treating it before it becomes a catastrophy.

In the US I've seen kids get gushing cuts near their eyes, and the parents say "Well let's see if it stops bleeding on it's own, I don't really want to pay the $50 co-pay..." Fortunately those kids have turned out ok, but I'd hate to think if something had gotten infected...

fredwilson · 3 months ago

Agreed. But what if you had an health savings account to fund all those visits?

GeekMBA360 · 3 months ago

I think the notion of "consumer driven" health care is an interesting notion on paper. But, I have to say that it doesn't work very well in practice.

Looking at my family of four. We're a relatively healthy family with no major illness. However, for the past couple of years, each year the little ones had one or two emergency room visits. For example, a few months ago my son stayed at ER room for 5 hours, and then was discharged. The total medical cost? $25,000. My insurance covered most of it, but it's insane amount of money. But, when we were calling 911 and trying to get him to the closest hospital, did I bother the comparison shop? Of course not. Afterward, since I'm into this health care debate, I actually called the various hospitals, ambulance providers, doctor offices to ask for price sheet. But, there's no standard price sheets. I had to give every provider the benefit of doubt.

A consumer product can be easily compared (in term of quality and price), substituted, etc. Also, most consumer product don't require rocket science to understand how it works. In the case of health care, it's much more complicated.

I think this boils down to the fundamental issue of whether health care if a right. If it's, then just like freedom of speech, voting, etc., the government has to play an active role to enforce it.

fredwilson · 3 months ago

Don't you think there should be prices quoted publicly and that you should be able to shop around for an ER?

GeekMBA360 · 3 months ago

When an ER visit is needed, I'd go to the nearest hospital. Price comparison would the last thing for me on my mind.

jedc · 3 months ago

For an acute, true emergency, yes. But if you're the one deciding (and not an ambulance crew), it might not be that simple.

Real human decisions are quite complex. In your scenario, what if the hospital closest to you is just an average hospital, but another hospital one mile further away has a world-class trauma center? What if that's half a mile further away? How would that change if your insurance covered everything at either center, versus a particular cap on expenses? (And how sick are you, really?)

If price is a factor in a decision, a consumer will consider it, even in an emergency.

GeekMBA360 · 3 months ago

This is a very good point. And I had first-hand experience.

My kid was sick, and we called 911. The local hospital is 10 miles away, while the Children's hospital is about 15 miles away. We'd prefer to go to Children. But, apparently a key principle of emergency care is to go to the closest hospital for treatment before going to a further, but more specialized hospital.

So, we end up with two ER room visit. Initially we were treated by the closer, local hospital. Then, they sent us to Children's hospital for final diagnosis.

I think ER visit and some other medical visits are different from your typical consumer goods -- there are time, urgency, etc. in addition to price point.

Micah · 3 months ago

I couldn't agree more with this point of view. I'm not wealthy and need insurance and althought it would be a pain to start being more responsible for my families health care it is the only way to solve this problem. If we give up our freedom to insurance companies or the government for convenience of not having to shop around for our healthcare than we are losing money as well as freedom. Doctors and insurance companies battle constantly wasting our money.

So should there be legislation to restrict insurance companies from providing comprehensive healthcare? Should all plans be high deductible/catostrophic coverage? Technically this system is in place but people choose low deductible co-pay plans because it makes it easier to just go to the doctor whenever you want without worrying about price.

What if insurance companies have to refund you some of your premium for keeping your health expenses under certain levels? So you keep the same coverage but if you reduce your expenses by getting cheaper perscriptions shopping around to find the best prices and not going to the doctor for every sneeze and sniffle and for in general staying healthy. Put the responsibilty for staying healthy and keeping cost down in the individual's hand. Or maybe insurance companies could give discounts if you get an annual or bi-annual checkup and meet certain health measurements. Ie. bmi, cholesteral levels, STDs, etc. Wouldn't this drive costs down and ultimately premiums but more importantly the premiums for healthy people is lower.

bob struble · 3 months ago

This is absolutely the answer. I also agree that it is likley politically impossible.

We have seen the benefits as a company and I have seen my family's' behavior directly change (for the better) by instituting a high deductible health care insurance plan. If you have consumers behave like every drug cost just the $10 co pay, there is no way to reign in cost. If you have them choosing between drugs using cost as one varibale, you get consumer-driven improvement (the LASIK example is a good one).

On the politics, the Whole Foods CEO wrote an editorial in the WSJ advocating this course of action. Whole Foods has very successfully implemented such an approach. He was absolutely hammered by the left for departing from dogma, to the point of having a boycott organized against his company.

So good luck on getting that done.

nickdavis · 3 months ago

Your statement assumes that moral hazard is common in health care. Let me ask you - how often do you choose to go hang out at the doctor or hospital just because it's free? A vast majority of people abhor the idea of going anywhere near either of those places, yet we think an extra $10 on the deductible helps us make the right decision? I don't think so. I think it keeps people - especially lower-income people - out of the system, and in place for more serious illness down the road (which has been studied and proven several times).

So, then what about this (pretty common scenario): you raise the specialist deduction to $100 because those visits are expensive, and you want your employees to make difficult choices. An employee decides not to get that mole checked, and 2 years later your group is on the hook for a major event.

And if a drug is necessary, do you really want people having to choose whether or not to take it? Would you want that for your parents or children?

ShanaC · 3 months ago

Correct. For the first part. Long term, it is cheaper to get yourself checked out. It is also cheaper when spread across a wide variety of people across a long period of time to do minimally invasive procedures, even if the up front costs are expensive.

Drugs are complicated. Treatment management is not a field that's been fully invested in a long while. In theory, drugs that are minimally invasive, even if their up front costs are more expensive, should be cheaper to society. More active people.

It is extremely worthwhile to think about the fact that we may all be taking too many drugs (I know people with chronic conditions who are taking drugs to combat the side effects of other drugs...) Or the not quite precisely right drug, because there are so many similar drugs at very different levels of cost.

fredwilson · 3 months ago

Yes. But if everyone has fully funded HSAs, including the out of work and down and out, the situation might be different. Like the author said in the piece, the debate is so often about how to finance healthcare. Let's assume it is fully financed for everyone somehow. Then what is the best way to deliver high quality care at the lowest cost?

mattmcknight · 3 months ago

Unfortunately, in the aggregate, many forms of preventative care cost more. The basic reason is that you don't which of the people are going to get sick with disease X, so you use the preventative care on all of them that are susceptible. In addition, the ones who live through disease X live longer, thus potentially incurring more costs when they die of something else.

This doesn't mean preventative care is a bad thing, indeed, it greatly increases quality of life and we should pay for as much of it as we can afford. However, it is not a cost savings in most cases. http://content.nejm.org/cgi/content/full/358/7/661

nickdavis · 3 months ago

fair point

fredwilson · 3 months ago

I hope I don't have a boycott against this blog!

TNLNYC · 3 months ago

Combined a "medicare for all" (that would only fund catastrophic care issues) with an HSA model seems like the smartest approach.

As a Frenchman, let me point out a few things that work with the health insurance system there (BTW, much of the debate, as Goldhill points out in his article, is about health insurance and not about health care:
1. The focus of a lot of the French system is on prevention. Any prevention related care is actually paid by the government and there is a REQUIREMENT that you get a physical check up at least YEARLY in order to get coverage. Yes, that's government mandated but it's based on the assumption that it is cheaper to pay for an issue when it's detected early.
2. Not everything is covered. In fact, diseases that are known to be fatal are not. In France, private insurance is used for such care, as a way to augment your government provided care. So the choice in health insurance is whether to cover most of the people for most of the diseases or all the people for all diseases. The latter was seen as unaffordable so most democracies have opted for the former as an approach.
3. There may be waits for some procedures but, in the 15 years I lived there (and in the 40 years my parents lived there), it's not something that either I or my parents ever encountered. Short waits on preventive procedures, yes (for example, non-essential but preventive MRI usually have a 35 day wait but cost only about 50 euros while emergency ones are available immediately for the same price). So I'm not too clear on the long lines opponents of government-funded healthcare talk about.

Looking at the current debate, I have two simple questions:
1. What about medicare, medicaid, and COBRA? Why not pool all of those into a single public option that anyone could then buy into. The option would be much as Goldhill points out, with a critical care insurance component and an HSA for normal procedures.
2. In the debate about healthcare in the US, why isn't reassessment of the above options (Medicare, Medicaid, and COBRA) considered part of the dialogue? Those systems appear to work, why not figure out which parts do and expand those to all, while examining the issues that exist and figure out which ones to fix?
3. Why not make the healthcare debate a referendum on Medicare and Medicaid? They are forms of government controlled healthcare. If people are so opposed to them, why aren't they opposed to those?

nickdavis · 3 months ago

3. Natural selection. People in these programs love them and make up a disproportional amount of voters in elections (senior citizens). Politicians who are not keen to this fact don't get elected. People in the Medicare system overwhelmingly prefer it to those in the employer-provided insurance system.

TNLNYC · 3 months ago

Would you then argue that it's a case of "we've got ours so we don't want anyone else to get it". If such a disproportionate amount of voters are FOR medicare, why are they AGAINST medicare for all (aka the public option)?

nickdavis · 3 months ago

Possibly, but polling actually shows that people DO want this - 2/3rds of them in fact:

http://www.kff.org/kaiserpolls/pomr042309nr.cfm

It's cable news that says otherwise.

fredwilson · 3 months ago

The politics of this issue are totally messed up

TNLNYC · 3 months ago

I agree with you on this, Fred. Which is why I think the discussion frame needs to change. If the conversation is moved to a referendum on medicare, the politicians will align with public opinion as medicare is the third rail of politics. It has the added advantage of already having a system in place that seems to work (for the most part) and may need some adjustments but is far further than any other proposal on the table.

mattmcknight · 3 months ago

Except that the original health care reform we were pursuing was to control the runaway costs of Medicare. The system sometimes works for the patient, but at the cost of crippling our economic future. We're working with non-market set of prices on Medicare that are propping up costs in some cases, and insufficient in others. In all cases, it's encouraging overtreatment. It's a system in need of percentage based, means tested copays, in the manner of Singapore.

Blaine Cook · 3 months ago

I can't find the article at the moment, but this reminds me of an argument I heard a few years ago. The suggestion was, in essence, that the existing US system is suited to [young] men, whereas the Canadian system is more geared towards women.

In the US, young men that participate in risky sports can be sure that they'll be fine. Catastrophic fracture of your femur in 27 places? No problem, we'll just rebuild that, and send the $250K bill to your insurance company. I'm not into sports, and am generally pretty healthy, so I've been to the doctor once, maybe twice in the past five years, and both times it was because I wanted a fast resolution to a problem I could have just waited out. I'm highly unlikely to need any medical care whatsoever for decades, and in the event of a catastrophic event, I'll have medical coverage in the UK (or Canada). I pay relatively high medical taxes compared to the amount I use the system.

On the other hand, women need to see doctors routinely and constantly throughout their entire lives. To any guy: count up the number of times you've been to the doctor over the past year or five, and compare that to the number of times women you know have been to the doctor. The differences are probably shocking.

So to address the proposed approach of limiting the scope of medical insurance, the bottom line is that it is massively regressive. Low income people, especially women, would be required to pay vastly more over their lifetimes for health care than would higher income people and/or men. This is a result that's independent of competition; you can't just have a sex change (or income change) if you think the other side has a better deal. No company is going to offer insurance for women when they know that the claims will be higher than the income (and vice versa, no women will sign up for insurance that's more expensive than paying out of pocket).

Instead, we should approach health care as a question of basic rights; if a nation wants its citizens/residents to have access to a given quality of life (i.e., usually the best that's possible given resources), then some structure needs to be created to ensure that, and ideally do so in a way that doesn't massively favour any one group.

(FWIW, all of the commenters on this post are men. There's probably a selection bias, but it would be really interesting to see what women (and those with chronic illness) think of the proposal).

ShanaC · 3 months ago

OMG, that is so true, thank you for posting this....and then finding doctors to see you is hell on earth. My guy friends never show up. It's like they think they are immune to earth. Uhh, yeah, turns out they carry pestilence and whatever. Further, for some reason, women oriented doctors have really high premiums. And we have higher premiums. So we pay more to exist. Even though we carry your babies.

I lost my gyno, who I only saw once. And she wasn't an ob/gyno because rates are so high (and I don't need ob yet). Further, it's really hellish for me versus my friends. I'm taking some medication, and for whatever its reasons, it doesn't work with all birth controls. So now I can't take birth control without finding a really good gyno, who can work with all these doctors....sucks like hell.


Then, there are of course, as you get older, mammograms. A certain percentage will get breast cancer. even still, you are still going to yet another doctor...It's like you can't escape them.

mattmcknight · 3 months ago

Isn't food a basic right as well? Why not use govt funded health savings account as our food stamp equivalent instead of having the government effectively set the price of bread? We could have differentials for women, in the manner of a WIC check. Just because it is a basic right doesn't mean it can't benefit from a proven pricing approach.

The point is to limit the price desensitization that occurs with third party payers, such as insurance and Medicare. This will ultimately lower prices and allows us to expand care to more people.

tomob · 3 months ago

Fred:

Thanks for sharing this excellent article and commentary. I think it is spot on. Why do we need insurance for an annual physical checkup? That is like having haircut insurance.

TO'B

NotADoc · 3 months ago

@tomob: the healthcare / haircut analogy is probably not appropriate. The consequences of not going to the doctor vs. not getting a haircut can be devastating to life at worst and at best, costly to society in the form of lost productivity.

I know lots of people who have not seen a doctor for a physical checkup in several years. These ppl make a livable wage, have insurance to defray the cost of a checkup, and STILL don't do it. Ludicrous, I know, but it happens more than we'd like to admit. And common sense says even fewer people would obtain a checkup if it came out of their own pocket.

The impact on society: sickness and disease go unchecked for years. Preventative care goes out the window, and costs skyrocket because the healthcare system is firefighting disease rather than helping people live healthy, productive lives.

I admire the author's "consumer driven" philosophy, and many of his points seem to hit the nail on the head. But focus should be on further incentives for preventative care and healthy lifestyles rather than rolling back the few incentives we have to maintain our relationships with our doctors.

tomob · 3 months ago

@NotADoc My only point with this analogy is that it makes no sense to insure for known, manageable expenses - like routine physicals.

Having a system that pays for all the predictable + the unpredictable expenses (with an opaque, third party payor system) is a really bad way to deliver healthcare.

I'm for insurance for significant expenses - not for routine.

TO'B

fredwilson · 3 months ago

The reason that the haircut analogy worked for me is that if people tended to their preventative medical care they way they tend to their hair, we'd be a lot better off

It should just be part of how we live our lives and spend our money

fredwilson · 3 months ago

haircut insurance!

that's a great analogy

thanks

Adam Wride · 3 months ago

Hair cut insurance is great!

Similarly, why don't we get car insurance through our employer? Everyone expects employers to provide health car insurance but no one expects to get car insurance. That's because health care insurance is not taxable. This incentives employers to provide more benefit to their employee through health care than they normally would. This in turn pushes too many dollars into health care which in turn raises the costs of health care.

As an example, imagine if congress all of the sudden made car insurance a non-taxable benefit through employers. All of the sudden every employer would offer that benefit. Over time too many dollars would be chasing too few opportunities and prices would rise.

Mike · 3 months ago

Not to sound like Dave Biere (his comments are below), but for this analogy to be correct there would have to be evidence that a haircut today might somehow prevent a more catastrophic event down the road (i.e. baldness, just to keep the analogy going).

jim hirshfield · 3 months ago

Not a shot at Fred, but too much attention is given to the affordable side of the health care issue. Politicians love that sound bite because it conveys their compassion. But it just highlights why most people don't care and aren't vocal on this issue, especially the young and healthy: they have employer paid-for insurance...and it's just not an issue for them.

But when you see loved ones, friends, or acquaintances denied coverage or have to fight to get the coverage they need and deserve, you realize that the system is broken. Health insurance companies, driven by profitability, are incentivized to deny and delay coverage. Ask any doctor.

And I agree with some of the other comments that touched on start-ups. Healthcare costs/insurance is a huge cost for early-stage companies and something should be done about it.

Pascal-Emmanuel Gobry · 3 months ago

Yeah, this is an absolutely phenomenal article -- thanks a bunch for pointing it out on Twitter.

I agree that the ideas sound phenomenal, but they're also completely impossible to do politically.

Along those same lines, you ought to read Will Wilkinson (works at libertarian Cato Institue)'s health care fantasia here and Brad DeLong (liberal economist/blogger)'s utopian vision here (had to look them up to post them on Tumblr along with the story you're talking about).

All three are brilliant visions that have no chance of becoming real.

This is really troubling to me. If all I had to do was to snap my fingers to be able to start a company anywhere, I would choose on America (New York, in fact) in a heartbeat. But after visa issues, the one thing that is holding me back is healthcare. The environment for entrepreneurship in France is not great (though it's getting better), but I've never worried, not once in my life, about healthcare. As I understand it, in the US you can get the best healthcare in the world if you can afford it, but what happens if I get hit by a car on the road to getting rich?

gyardley · 3 months ago

This is a false fear - kind of like my Canadian family worrying that if I moved to America, I'd be shot, because everyone owns a gun.

If you moved to America, you'd likely shop around for a high-deductible plan that'd cover you in case of disastrous circumstances, so if you're hit by a car, you'd be covered. There's plenty of those out there, even for the self-employed.

Finding a low-deductible plan at a reasonable cost so you're not paying the full price of routine checkups is much trickier.

nickdavis · 3 months ago

You're making a large assumption that this person is insurable in the individual market: anyone who has either a preexisting condition, or any illness in the last decade pretty much is not. Because of a birth defect 32 years ago, which is irrelevant to my ongoing health, I am "uninsurable".

Pascal-Emmanuel Gobry · 3 months ago

You're right -- the "what if I get hit by a car?" is itself a false fear.
But I was using it as shorthand for something broader: wildly differing
quality of providers, hidden fees and costs, the possibility of incurring
debts and having to go through a kafkaian legal process and having your
credit score obliterated... These are all things that, yes, are unlikely,
but do happen, and if there's anything I've learned over the past couple of
years, its to worry about "fat tail" risks.

aaronklein · 3 months ago

If what you wrote is true, the 255 million people in the United States who have health insurance wouldn't have (a) good finances and (b) relatively long life expectancy.

The data doesn't support any of your points. This is like me saying I don't want to move to France because there's such a high chance of being killed by a nuclear power plant meltdown. When was the last time a large number of people were killed by that happening in your country?

Pascal-Emmanuel Gobry · 3 months ago

Number of nuclear plant accidents in France, since the dawn of time: 0.

Number of medical bankruptcies in the US, in 2007: about 674,520, according
to a Harvard study (link <http://www.msnbc.msn.com/id/6895896/>).

I'm aware that these numbers are disputed, and in another context I might be
among the first to pick them apart. But, as I said above, healthcare costs
are a long tail or fat tail risk that I can't completely discount -- worse,
don't know how to discount. Yes, it's a small possibility, but it's a
possibility nonetheless, and one that frightens me. And when you multiply a
very small number with a very large number (which is what you do when
assessing risks) you still end up with a pretty large number.

Starting a company involves assuming a smattering of various risks, personal
and professional, for the hope of a large payoff. That's fine. But I get
wary when additional exogenous risks are added to the mix.

aaronklein · 3 months ago

Don't believe every politicized study that you read. We have a lot of special interests at the trough of American health care. Fred's post is threatening to them because they wouldn't be making so much money from the inefficiencies in the market.

Did you notice that the point in the story was that we need to make insurance MORE expensive so it covers more kinds of haircuts (to use the analogy of another commenter here)? This is exactly the wrong thing to do, but insurance industry lobbyists love hearing that.

People who buy health insurance in the US worry about health care bankruptcy even less than people in France worry about dying from nuclear power plant meltdowns.

Pascal-Emmanuel Gobry · 3 months ago

I don't mind paying for healthcare, as long as it's transparent,
which is my point.

In France, we pay for healthcare. We don't pay for all of it, but we do pay
for some of it. And when I pay, I know what I'm getting.

Look, I hope you're right, and that I'm just scared by propaganda. I don't
think so, but it's possible. So -- who knows? I might be launching my next
venture from a café near NYU.

fredwilson · 3 months ago

Don't worry about the healthcare issue if you really want to come here. There are other issues like the cost of a one bedroom apt that are more serious

Pascal-Emmanuel Gobry · 3 months ago

Heh. Good point.

ShanaC · 3 months ago

http://www.freelancersunion.org/insurance/index...

You heard it from me, first. Probably if structured correctly, the majority of people in startups would qualify. (Only in New York, though, sadly) Spread the word.

harpos_blues · 3 months ago

Shana,

Coverage for people with pre-existing conditions is still uncertain (or extremely expensive) even under the Freelancer Union group plan. With some types of pre-existing conditions, such as congenital birth defects, a candidate can be denied under the group plan, but offered "alternative" often prohibitively expensive coverage.

I know this from experience, as I, like commenter nickdavis, also have a congenital birth defect. I'm in my mid-forties, and the opportunities for insurance coverage even within a group plan are far fewer -- to damn near impossible.

True fact.

ShanaC · 3 months ago

I know. It's interesting, we assume that people are "healthy", in an actuarial sense, turns out the more we talk, they probably are, but not in an actuarial sense.

Abhishek · 3 months ago

Healthcare has become business in America and like every business why Healthcare can not have competition that is yet to be understood!

Competition make business healthy and I am sure Healthcare services will improve because of this. We need many more articles like this from many more thinkers like David.

As they say "Pen is mightier than sword", I am sure this will have an effect in formulating the healthcare industry once again.

Rob K · 3 months ago

Fred- Thanks for sharing.
I am surprised that VCs are not more up in arms about health insurance for small businesses. See Business Week http://bit.ly/1b4IW9

Also- I'm all in favor of more control and more information for consumers. But consumers are limited in their ability to decifer the proper course of action. Frankly, it's a lot like when I go see the auto mechanic.

This is a great New Yorker article on differential treatment and escalating costs. http://bit.ly/12Qnw9

Arno · 3 months ago

If you ever go to the Netherlands or want to know how it works here, here's a little summary http://www.justlanded.com/english/Netherlands/N...

rdeichert · 3 months ago

Looking forward to reading the article in full. If you don't have print to PDF on your computer, you can save the print formated page as html and email it to yourself at Kindle.

davebiere · 3 months ago

I think it's really unfortunate that the health care issue makes everyone with a modicum of success mistake themselves for an expert in health care, risk management and public policy.

As for another reader's comment about "Haircut Insurance", anybody with a modicum of actual knowledge about the current health insurance system would know that there are already lots of plans that don't cover the first couple thousand dollars of expenses.

The fact that your reader thought it was a great comment, and you thought it was a "great analogy" shows only why it's so frustrating when people who have spent a couple hours of their life thinking about a problem suddenly mistake themselves for experts whose opinions are something more than noise.

billc124 · 3 months ago

Why not instead of putting down both Fred and the reader offer something constructive to add to the discussion? If you are an "expert" then enlighten those of us that are not. Your comment really didn't add anything to the discussion and useless comments are why the debate is so heated and frustrating in the first place.

Dave Biere · 3 months ago

> useless comments are why the debate is so heated and frustrating in the first place.

We agree on this completely. And Fred's comment is completely and totally useless in so many ways it's hard to begin enumerating them. That said, I'll mention a few:

1) He ignores the fact that he might as well be stating that he supports cake over fiber optic cable. There's nothing even resembling a road to implementation on this idea, for a country such as this.

2) He ignores the fact that he's suggesting *massive* experimentation starting in the world's largest economy.

3) He conflates the provisioning of fully optional procedures with that of mandatory, and possibly emergency procedures.

4) He fails to realize that if you insure for catastrophic care, then you're changing essentially nothing about the costs involved with catastrophic care.

But most of all, he fails to recognize that a person who knows nothing about a topic probably shouldn't advise hundreds or thousands of people to read a paper by somebody else who knows nothing about a topic, unless that person's sole goal is to add pointless noise to a debate.

Monty Kalsi · 3 months ago

"An optimist may see a light where there is none, but why must the pessimist always run to blow it out?" - Michel de Saint-Pierre #pat

fredwilson · 3 months ago

I'm not advising anyone. First, as I said before, I stated that I am a layman right upfront in my post. Second, I read and linked to an article that clicked for me because I've felt this way myself for as long as I've been a consumer of and a payor of healthcare. Third, this is a discussion. You can disagree. In fact we want you to. But your holier than though attitude will not win you any friends in these threads

fredwilson · 3 months ago

i stated in my post that i am no expert on health care policy or the industry itself

but i am a consumer of healthcare, my firm does pay around $100k/year in premiums, and i do understand that insurance is not the best way to fund ordinary expenses

Dave Biere · 3 months ago

It's disingenuous of you to claim "insurance is not the best way to fund ordinary expenses" when I just noted that there already high-deductible plans that don't fund ordinary expenses.

Okay, the deductible is currently $6k/yr instead of $50k/yr, but they exist, and for most people, $6k/yr more than covers their personal medical expenses. As such, I'm confused as to why you'd again claim that this isn't the case.

Are you trolling me? Because I have trouble understanding how an intelligent person could read my comment, then write yours.

fredwilson · 3 months ago

Am I trolling you? That's not how we do it here

My point is yes there are high deductible plans. But what we need is all plans to be high deductible and supplemented by HSAs for ordinary run of the mill expenses

We should do away with insurance for ordinary run of the mill stuff

Dave Biere · 3 months ago

p.s. the email notifications from your 'disqus' site contain a bad link in the 'to turn off notifications' line.

Now I don't even have a good way to remove notifications letting me know that you're still trolling me.

fredwilson · 3 months ago

We don't call it trolling here. We call it discussing and/or debating. If you don't enjoy it then don't participate

Daniel Ha · 3 months ago

Hello Dave, we broke a URL redirect momentarily yesterday. It's fixed now.

You can disable notifications here: http://disqus.com/account/notifications/

Mike · 3 months ago

Fred,
Great article. I'd only add that Atul Gawande's piece in the New Yorker remains the #1 article worth reading on healthcare, just in case you missed it. I'd be interested in hearing both your and the AVC community's thoughts on it:

http://www.newyorker.com/reporting/2009/06/01/0...

fredwilson · 3 months ago

I'll send it to my kindle right now

Dave Biere · 3 months ago

congratulations Fred, you own a spam factory:

How to spam using disqus:

Step 1) Write a post and forge the 'email', and choose 'subscribe to all comments'

Step 2) Respond to that post with the spam.

Despite the fact that you have not verified your email address in any way, nor confirmed that you want to accept the emails from disqus, the spam will go to the victim's email... and they will have no way to unsubscribe.

Further, if they try to do so, some incompetent asshole will tell them that it's their fault that disqus's worthless support just claimed that unsubscribe works, when it doesn't...

And heck, even if the unsubscribe worked, it's rather troubling that the followups are sent via email *before* the user confirms that they're really the one who subscribed.

---

Seriously fred, your venture Disqus is a bad joke... it's run about as well as you think:

1) they send out emails with broken unsubscribe links.

2) when told about this, they suggest I log into an account (which I do not have, so is impossible)

3) when I note this, they tell me 'You can simply click unsubscribe at the bottom of those notifications emails.' which, was the original problem...

4) when I tell them that was the whole fucking problem, I get told "If you read before it will be fixed later tonight. Wash your mouth." despite the fact that he had just directly told me that "I can simply click."

fredwilson · 3 months ago

They just released an entirely new version last week. Cut them some slack. And me too. Or just don't stop by here anymore if you don't like me or the comment system

thisisananth · 3 months ago

One point here is that regarding health, we would like to take the least risk. Even if we know that the surgery the doctor recommended is available at a lesser cost, we would want to go by what our doctor says. Of course if someone can create a brand around affordable healthcare, then our wishes might be true...

vanelsas · 3 months ago

The idea is compelling, but I would be worried about those that aren't in a good (financial) position to make such choices. Health care needs to be affordable for all, not just the government, but also the people in need of health care. I like the 3-fold approach. it's sounds better than anything I've heard about so far.
And while I'm a great fan about consumer-centric thinking, health care is one area where I feel "consumer" or "economic" thinking cannot always be combined with the fact that a person simply is in NEED of it. A consumer has choice, that choice provides him power (essentially giving him the best deal). When you are chronically ill, have a specific condition, get into an accident, have a low income, etc, you don't really have a choice, nor the power to get the best deal. all you can hope for is that you can help to deal with that situation.

fredwilson · 3 months ago

Right. He talks about all of those issues in the last section of the piece

Vladimir Vukicevic · 3 months ago

It seems that this approach is very susceptible to a dangerous slippery slope - i.e. insurance companies and not patients deciding what falls into catastrophic and what doesn't. Then we are left with an even lesser consumer-based system.

In the end, it all boils down to the difference between believing that healthcare is a good (like any other important good) or a right.

aaronklein · 3 months ago

Fred: excellent post, and excellent points. You hit the nail on the head that insurance is a poor way to finance every day expenses. Another example would be if you had to pay for the overhead of insurance claims every time you took your car in for an oil change.

The one person I know who is following that exact plan recently needed a MRI. He called around to six different providers, finding prices ranging from $1,800 to $875. Lo and behold, since it was coming out of his pocket, he drove the extra 20 minutes to a provider priced at $875. Amazing what happens when you let the market work.

I'd like to see the system reformed in the way you state, but there are two key hurdles that need to be overcome.

First, we need a national standard lowering the bar for what health plans must cover. Many state legislatures have made this reform impossible by regulating what health plans must include - which is often driven by the latest special interest group or drug company lobbyist (i.e. Viagra, birth control, this drug, that drug, etc.). It's like the state mandating that not only must you have liability on your car, you have to have comp, collision, vehicle rental and velvet glove repair service insurance too.

Second, we need to take out the 50 barriers to competition. Right now, there are 50 different markets for health insurance in the US, and we need one national market to increase scale and get catastrophic insurance rates even lower. The cheaper these policies can get, the more health care comes into reach for the 45 million Americans who don't currently have it.

nickdavis · 3 months ago

I don't think the oil change analogy is valid:

1) Auto insurance doesn't cover mechanical failure, and mechanics aren't rrequired to fix every dying car that shows up on it's doorstep.
2) Auto insurance is required for anyone with a car.

If #1 were mandated (that auto insurance cover mechanical failures, and mechanics must fix all cars) without #2, you'd better believe you'd be paying for all the uninsured claims.

aaronklein · 3 months ago

There are faults to every analogy, but Fred's overall point is: insurance is good for dealing with big unexpected expenses. Why are we using it to finance routine health care expenses?

nickdavis · 3 months ago

Because studies have shown that preventative care is good and saves society tremendous costs in the long run. By making routine care more expensive for individuals, especially lower-income individuals, we are simply adding a cost to the system years down the road (we see this in action today).

http://www.rand.org/pubs/research_briefs/RB9174...

aaronklein · 3 months ago

That's a very faulty argument I hear all the time for defending the status quo. People aren't incentivized to do routine care purely by dollars - they do it for quality of life.

It's like saying "let's force people to buy comp and collision for their cars so they won't skip changing their oil."

Make consumers out of health care recipients and they will make smart decisions that drive down costs and increase competition (oh wait - the health care lobbyists don't want that).

nickdavis · 3 months ago

I have no incentive to defend the status quo. The current model is broken, but that doesn't mean that HSAs and "Consumer Centric" are. I'm not just making an argument. Go look at the data. This was based on serious research.

But let's take your point:

>>People aren't incentivized to do routine care purely by dollars - they do it for quality of life.

I agree with you. Your statement is true. But the flipside is also true: people are disincentivized from getting routing care because of the dollars, especially people with lower incomes.

aaronklein · 3 months ago

My point is simply that we've tried it the other way with $5 co-pays and I still know tons of people who don't take the time to haul themselves into the doctor's office.

Making people become consumers and THINK about their health care could be the best thing that ever happened to preventative care.

nickdavis · 3 months ago

I agreed with that point, which is restated by "My point is simply that we've tried it the other way with $5 co-pays and I still know tons of people who don't take the time to haul themselves into the doctor's office.".

But I also contend the flipside is true:

While making deductibles cheaper might not help get some people in for routine care, studies have proven that making deductibles more expensive does prevent many people from receiving routine care.

What policy would you propose that makes people "think" more? I can assure you, no one spends much time thinking about this until they are forced to think. Then they think of little else.

aaronklein · 3 months ago

"no one spends much time thinking about this until they are forced to think. Then they think of little else."

I completely agree.

Making people consumers of their health care - rather than just recipients - will make them think and make conscious decisions about their health care choices.

In an ideal world, you'd be responsible for 100% of your costs for things that are optional, and then it's a sliding scale all the way down to being responsible for 1% or 2% of huge catastrophic costs.

Having routine care be "all you can eat" and financed by insurance instead of consumer choice is driving people to pick the $2000 MRI instead of the $875 MRI -- after all, what's the difference to them? My friend will assure you, there was no difference in the quality of that MRI.

nickdavis · 3 months ago

Based on what evidence?

I just ask, go read the research. It contradicts what you say.

http://www.rand.org/pubs/research_briefs/RB9174...

There's actually lots in there that would support all cases for reform, but the telling bit:

>>On the other hand, the HIE showed that cost sharing can be a blunt tool. It reduced both needed and unneeded health services. Indeed, subsequent RAND work on appropriateness of care found that economic incentives by themselves do not improve appropriateness of care or lead to clinically sensible reductions in service use.[3]

So yes, charging for basic care would reduce the use of services - but it would reduce necessary AND unnecessary services.

ShanaC · 3 months ago

Ok, so what kind of incentives do make people want to go to the doctor, if we see this as a necessary social good.

Dan Hung · 3 months ago

I think a great example was described in one of the comments. In France, participating in subsidized healthcare requires yearly physical checkups. This encourages one aspect of routine preventative care by predicating access to catastrophic insurance on patients making a good faith attempt at preventing such incidences.

aaronklein · 3 months ago

Maybe in the market-based approach, you have the same condition as a requirement to buy the catastrophic insurance plan.

This is like saying "Let's not sell people car warranties for just the drivetrain. They might not change the oil."

Dan Hung · 3 months ago

Aaron, I think that your perspective as a person with the financial wherewithal to afford an $875 MRI out of pocket (or at least not be shocked by such a practice) is clouding your perspective. Yes, we make purchasing decisions based on quality of life in addition to price. But, if you were a person with minimal resources and otherwise healthy, would you really choose a routine visit to the doctor - 90% of the time of which will yield no tangible benefit - over a little more food on the table or maybe an investment in making yourself better at your job so you can someday afford an $875 MRI? To some, the opportunity cost of paying for routine healthcare does outweigh the theoretical/probabilistic benefit we believe they will gain from it.

For the least well off people in society, it's not as simple as to chastise them for being irresponsible or not thinking about their healthcare. Sometimes, it's about making a very hard decision and allocating capital to everyday life over long term health.

aaronklein · 3 months ago

Dan, right now the people driving up the costs in the system are not the people who can't afford the $875 MRI. They're not getting one anyway, or getting something free under Medicaid (and nobody suggested eliminating that).

Here's the question: why do people think that the same rules of economics that have made the technology industry thrive don't apply to health care?

The people driving up the costs in the system are people like me, and it's not even by choice. $15,000 in insurance premiums were paid on my behalf over the last 12 months. I don't have any choices with this organization. It's either the all-you-can-eat Cadillac plan, or nothing.

800 people here each pay in $15,000 to the system and don't have any clue whether they are getting $875 MRIs or $2000 MRIs.

How much better if I could pay $9,000 in premiums, and then be responsible for 30% or 50% of the cost of things like MRIs, so that I'd be incentivized to buy the $875 one, or choose to spend more to get the $2,000 one if I thought it was better.

My out of pocket would still be the same, and the health care system as a whole would be better off because competition would drive costs down and quality up.

Markets work. We need to apply the magic of markets to health care, while safeguarding the vulnerable. It can be done.

Dan Hung · 3 months ago

I see your point. And, I concede that maybe I was thinking too black-and-white. Maybe, consumer driven healthcare for those who can afford it can offset some burden on the system and drive prices down which would allow us to better extend coverage to the uninsured and underinsured in the country.

I do have to disagree that the people driving up healthcare costs are those of us choosing the $2,000 MRI over the $875. Taken as a whole, those of us who can afford this level of treatment, don't use it. Our premiums are used by insurance companies as part of a community rated pool to subsidize the higher cost participants - i.e. the catastrophic or chronic illnesses. I'm not saying that a lack of price shopping is not at least partially responsible for inflated costs, but it's not those of shopping around for routine (or maybe even not so routine procedures) that are moving the needle.

Further you are state that we should "safeguard the vulnerable," yet you're also implicitly arguing to take away your subsidy to them by wanting to lower the premium you pay in order to elect to pay some of your individual costs out of pocket.

Also, just out of curiosity, do you have any ideas of what such a "public/private" system might look like. What is the cutoff point for those of us who elect for high deductible, consumer driven style plans vs. those who will be taken care of by a public option? And, how would you ensure that the "protected" group of people doesn't undermine the competition inducing consumer driven group?

aaronklein · 3 months ago

"I do have to disagree that the people driving up healthcare costs are those of us choosing the $2,000 MRI over the $875. Taken as a whole, those of us who can afford this level of treatment, don't use it."

You're telling me that you know the cost the last time you had a non-routine procedure? :) I don't know anything about actual medical costs. I pay $5 or $15 at the front counter and money is never discussed the rest of my visit! So I think we do "choose" the $2K MRI without realizing it. There is no incentive for whatever health care facility we're at to be price competitive. We pick it based on location, "brand" or the basic feel of the place. Some people track deaths per patient. That's all cool, but why shouldn't price also be a factor?

(By the way, I'm not suggesting that price competition will drive everybody to the lowest price. There are many things I'm willing to pay more for. I'd pay more for a better wrist surgeon; I'd be willing to go cheap on a x-ray.)

"Further you are state that we should "safeguard the vulnerable," yet you're also implicitly arguing to take away your subsidy to them by wanting to lower the premium you pay in order to elect to pay some of your individual costs out of pocket."

Not sure how you read that from my comment. Did I call for eliminating Medicare or Medicaid? Using competition to reduce costs while increasing quality should INCREASE access to health care by those with less money, not increase it. If you bend the cost curve, health insurance should get cheaper to provide, and by creating more competition for it, the premiums should go down.

And my suggestion was that my out of pocket be about the same if I chose the same care, but I be incentivized to drive costs down. So if I want cheaper care, why can't I save money? It helps the system as a whole, because my downward pressure on the cost curve helps other people (including those less fortunate than me) save money too.

I think there is more common ground on health care than both sides care to realize. But the solutions are not laissez faire (old-style Republican approach) or government takeover (old-style Democratic approach) -- they are in letting the magic of the market work to cut costs, increase quality and increase access to those with fewer resources.

fredwilson · 3 months ago

Bottom line is we have to get cost into the discussion when treatments are being discussed

fredwilson · 3 months ago

Yeah, but if we fund HSAs for them which they have to use for this kind of stuff, what happens?

Jim · 3 months ago

@FredWilson Good primer to the issues to be sure of, but higher recommends to taking on THE INNOVATOR'S PRESCRIPTION http://bit.ly/1kmLfv

marshal sandler · 3 months ago

Dear Fred, thanks for the share-- I have Medicare Blue Cross and get my Scrips from The VA-without these services I might be dead as Custer-Until you are diagnosed with a life threatening illness health insurance takes a back seat to other priorities on the Coil-I think if medicare were set up properly it might solve the problems on a Universal System-but it take Medical Professionals to solve it and the Business Community-http://marshalsandler.com/2009/08/our-physicians-newland-medical-associates/ The Insurance Industry plays the Percentages ! In Michigan Blue Cross has six executives the earn a Million Dollars a year they also have a Three Million Dollar Art Collection in their Office's- obviously as a non Profit they are above Scrutiny !

John Carlin · 3 months ago

Fred,
I read your blog daily and follow you on twitter and thoroughly enjoy it. You have given me great leads on new music as well! Thanks for passing this article on. We definitely need a SIGNIFICANT change to healthcare.
I am surprised, however, that someone who has made a living investing in businesses started by entrepreneurs, and is in fact an entrepreneur themselves by definition (An entrepreneur is a person who has possession of an enterprise, or venture, and assumes significant accountability for the inherent risks and the outcome - which in essence you do by investing in these small companies), would come to the following conclusion: "I'd prefer the government run the healthcare system to the way we are doing it now."
As a small business owner, I therefore take a very capitalistic approach to many things including healthcare. The open market can "solve" many things, not all, and should always be considered an option, because when individuals have choices, and the freedom to make informed decisions, we are all winners.
Your closing sentence saved the day..."But an even better approach would be to let us run it ourselves."
Amen.

nickdavis · 3 months ago

I am also a small business owner.

I guess it really comes down to a fundamental philosophy about how we see the world. Is our health care something we should bear the cost of individually, or as a society?

Sure, I could have found a very cheap policy when I was 21 (and did, through my employer), but that shifts the cost higher to our grandparents. It's fundamentally true that we get sick as we get older. So, why not even the cycle out and let young people pay more, and older people pay less.

Most illness is random - do we really want to penalize individuals for getting a brain tumor? Or as a society, would you rather pay a little more to know that when fate hits you, we all have your back? I would, but reasonable people may disagree.

fredwilson · 3 months ago

I think society should bear the costs. This isn't about how to finance it. Its about how to manage the costs and deliver better care. I think by putting people in charge of their health care spending, we'd do better than putting the government and big insurance companies in charge

fredwilson · 3 months ago

The problem with the current system is we pay for it but we let insurance companies control it. At least single payer gets the insurance companies out of the mix given that we are subsidizing their profits anyway

schmiddi · 3 months ago

isn't the problem here that we have insurance for cross subsidies? the check up subsidizes the bypass surgery? if we would pay ourselves for 90% of all doctor visits and only use health insurance for the really dramatic stuff (also, who defines what is dramatic? at which cost level is something dramatic? i think that Fred probably would consider a certain procedure not dramatic, while I would and someone else would consider the totally unsubsidized cost of a check up as dramatic) then wouldn't the insurance cost go up? isn't the problem with health care that nearly everyone of us will at one point at least have a dramatic procedure? in car and fire insurance there are a lot of insured who never will need the insurance. with health that is not the case. so we insurance companies only collecting money to secure dramatic procedures we would increase the insurance premiums and make insurance even more unattainable for the masses.

i think the biggest problem in the whole debate is that people think of health insurance like a good. i think the debate should move to make it a right ... similar to education.

bknotts · 3 months ago

I desperately want/ need consumer-centric healthcare. I just left my job to make a run at starting my own business and I know it will be nearly impossible for me to be a responsible consumer because healthcare providers generally have no idea what their service is going to cost me.

Also, I'm fearful of your comment "I'd prefer the government run the healthcare system to the way we are doing it now." Government run is probably better in the short term, but government makes it impossible to have a normal competitive market.

nickdavis · 3 months ago

Competitive markets would only work if insurance companies are required to cover any applicant. Otherwise, we're in the exact same boat as today.

I also left the corporate world and am self employed, however because of a birth defect 32 years ago, which has no bearing whatsoever on my health, the insurers in my state deem me uninsurable.

And also, Medicare is actually very good. Look up the studies done on people's happiness with the system: people on medicare consistently love it - especially compared to private insurance.

fredwilson · 3 months ago

I agree. But we don't have a normal competitive market now either. Shutting down the insurance companies and replacing them with the government won't change much

Steven Kane · 3 months ago

Fred, always glad to see you in the Far Center

And thanks commenter Rex Hammock. Here's then-President George W. Bush's actual words from January 2008:

"To build a future of quality health care, we must trust patients and doctors to make medical decisions and empower them with better information and better options. We share a common goal: making health care more affordable and accessible for all Americans. The best way to achieve that goal is by expanding consumer choice, not government control. So I have proposed ending the bias in the tax code against those who do not get their health insurance through their employer."

mstone · 3 months ago

I look at health care in a slightly different way. While you cannot legislate discipline people somehow need to be pushed into being more proactive. Eating right and exercising are crucial components.

The cost inflation in the system is unsustainable at 8% per year. The burden this places on business is too much to handle. Our policy quote (this year) was 18% higher than last year --- 18%! And this is the worst economy in our lifetime, right?

President Obama IMHO has done a terrible job of articulating the problems and the solutions. I have always had a problem with his lack of experience. His problems have clearly manifested themselves during this debate, one that he is losing at the moment.

The country needs radical reform of the health care system. Will it fail because we have an ill-equipped president? I hope not.

andyswan · 3 months ago

A few questions for those who support government-run care/insurance:

1) What government institution is giving you so much confidence? USPS? Medicare? Social Security? IRS? Public Schools?

2) How is it economically possible to cover more people for more things at a lower overall cost? Isn't this just redistribution?

3) Do you not find government-run health care to be directly at odds with the US bill of rights, specifically the 10th amendment?

4) If abortion decisions are untouchable by the government because of "privacy" interpretations of the US constitution, how is government involvement in decisions about "knee replacement" or other medical treatments allowable?

5) Do we really want to live in a world where every-other political ad is a promise to reduce wait times or increase funding for doctors research or other nonsense that the private sector is already doing? Is this REALLY what we want elections to be about?

6) Is it not at least possible that our private system is subsidizing a vast majority of the world's health care technology advancements? When's the last time a miracle drug came out of France or Canada?

Sorry for so many questions....I really want to hear answers. I hate federal government involvement in the daily lives of citizens, so I loathe the concept of uncle sam telling you what flu shot you're eligible for.

That said, I could make a strong argument for a federal catastrophic insurance program....where anytime a healthcare bill goes above x% of one's annual salary, the government fund picks up the rest of the tab. No one should go broke getting healed....but I shouldn't be paying for your stitches/abortion/ACL-tear either.

Dan Hung · 3 months ago

Hi Andy, not trying to be argumentative but just want to provide some responses to your questions. Also, full disclosure, I'm no expert, merely someone very interested in the economics and politics of healthcare.

1.) This question evades the real issue and that is a question of access. In the case of public schools, does not everyone deserve education? Even if all our schools are not "best in class" isn't the government's provision of public education valuable in and of itself? Furthermore, those that argue that public services such as medicare, social security, and public education are lacking tend to be the ones which choose to underfund them and make them that way (http://tpmdc.talkingpointsmemo.com/2009/08/stee..., potentially biased I realize). Maybe I'm an optimist, but I believe that if we truly wanted our public services to be "best in class," we could do so. Heck, I think we can all agree that we trust the government to provide us with the most technologically advanced and powerful military in the world.

2.) It is economically possible to cover more people for less cost. Moreover, "more things" is a rather naive view of healthcare. More treatments or more procedures does not in and of itself equate to better healthcare. In the United States, we have a secondary and tertiary care weighted system which almost necessarily means we over utilize expensive treatments while underutilizing cheaper, preventative primary care. Research has shown that more is not always better and a single-payer controlled system could help reign this in while both controlling costs and making care more accessible to all. (http://www.ahrq.gov/news/qualfact.htm)

3.) I'm not a constitutional lawyer. If Medicare and Social Security didn't alarm states' rights evangelists, why should this?

4.) Again, can't say I know much about the legality involved in this. Would love to read more specifically as far as why you think this is an issue.

5.) If we have real political debate about how best to provide healthcare to our country or best practices and health care efficiency, I think we'll have made a real step forward. It'd be better than mudslinging, fear mongering, and intolerance of gays, wouldn't it?

6.) I think this is a terribly narrow view of the way drug research is done these days. Most pharmaceutical companies are multinational corporations which make drugs for the WORLD market. While we may hold up our new biotechs as leading the way in pharmaceutical innovation, these companies couldn't get many of their drugs to market without funding and support from larger pharmas. Two of the largest participants in funding late stage trials happen to be Roche and Novartis, both from Switzerland a country with a universal healthcare mandate. In fact, Roche recently purchased our crown jewel Genentech. So, are these innovations "ours" or "theirs"? Moreover, recent research has found that our European counterparts may be every bit as "innovative" as we are if not more so (http://blogs.wsj.com/health/2009/08/25/european...).

nickdavis · 3 months ago

All great points Dan.

andyswan · 3 months ago

It's no coincidence that the only govt program we have that is "best
in class" is also the only one authorized by th constitution.
Everything else best in class we do comes from free thinking people
enjoying liberty and pursing their own interests.

Just my .02 and thanks for thoughtful answers

Dan Hung · 3 months ago

Andy, you've really kind of ignored the greater message of my response and fixated on this idea of "states' rights." And, actually, if I'm reading this response correctly, you don't really care much about the 10th amendment so much as the belief that the federal government should just generally not be involved in anything except defense and enforcing property laws.

Moreover, let's get back to the topic at hand - healthcare. Do you at least agree with the principle that healthcare, as with education, national defense, and the timely delivery of mail, is something which all people should be able to benefit from/have access to? And, if so, how would you propose that we go about it?

andyswan · 3 months ago

"the federal government should just generally not be involved in
anything except defense and enforcing property laws."

That's the reason the 10th amendent is there.

nickdavis · 3 months ago

1) What government institution is giving you so much confidence? USPS? Medicare? Social Security? IRS? Public Schools?

Let's take the obvious one: Medicare. People are overwhelmingly happy with Medicare, and it's cheaper and run more efficiently than private insurance.

Source: http://www.commonwealthfund.org/Content/Publica...

2) How is it economically possible to cover more people for more things at a lower overall cost? Isn't this just redistribution?

Yes, we do, and should, redistribute health care costs - or do you want Grandma paying 25k a year? We all get old and sick. Will it cost more - probably. But I believe that in such a rich country, it's an absolute travesty that we have 50 million people without access. And then, many of those without access cost the system a tremendous amount of money, both from using the most expensive option available (hospital ER) after delaying minor treatments for extended periods of time.

3) Do you not find government-run health care to be directly at odds with the US bill of rights, specifically the 10th amendment?

I suppose, if you also say the 10,000 other things regulated nationally are at odds.

4) If abortion decisions are untouchable by the government because of "privacy" interpretations of the US constitution, how is government involvement in decisions about "knee replacement" or other medical treatments allowable?

I'm not sure why you're conflating arbotion into this argument, except to confuse things. Let's argue the issue at hand.

5) Do we really want to live in a world where every-other political ad is a promise to reduce wait times or increase funding for doctors research or other nonsense that the private sector is already doing? Is this REALLY what we want elections to be about?

This doesn't happen now, and Medicare is a huge program. And successful - so successful that politicians rarely propose any changes lest the huge senior voting population not like what they say. And let's not argue about future political commercials. It's pretty irrelevant.


6) Is it not at least possible that our private system is subsidizing a vast majority of the world's health care technology advancements? When's the last time a miracle drug came out of France or Canada?

I suppose it's possible, but this is true of tons of things. America has been the leader in all advancement, and to say that's so for healthcare simply because of our insurance model would leave no explanation for the 1000 other fields we lead in advancement.

andyswan · 3 months ago

I'm not comfortable with ignoring the constitution and the medical
privacy precedents just because it's convienent or it "clouds" the
issue.

Medicare is broke and so is the country.

nickdavis · 3 months ago

So, I took the time to craft thoughtful answers and your retort is that "Medicare is broke and so is the country".

Can you please point me to any serious study, research, or otherwise that shows how "Medicare is broke"? Everything I see is in direct contradiction to this.

Dan Hung · 3 months ago

By my understanding, the Medicare trust fund was projected to be exhausted by 2017 by the Medicare trustees (http://articles.latimes.com/2009/may/13/nation/...). While this doesn't mean Medicare would be "broke", it does mean that we'll be forced to fund Medicare through tax receipts from that point on. And, given uncontrolled inflation in health care costs as well as a shrinking payroll tax base due to the current economy, the outlook at that point will be quite bleak indeed.

Andy seems to believe this is evidence that we should give healthcare back to the "invisible hand". My contention would be that this is but an even more urgent call for reform in our country.

nickdavis · 3 months ago

I am projected to be worth seventeen billion dollars in 2017, so I supposed the point is moot.

I honestly can put no faith in such predictions, especially so far in the future. Can we go back and look at their record of accuracy in making predictions?

And I agree, we need fundamental change. So, let's just give everyone the medicare option - forcing young and healthy people into the system (individual mandate) helps solve the medicare cost problem.

aaronklein · 3 months ago

Nick, if you don't believe that Medicare is broke, you're not reading enough. There are more older people and less younger people. This is simple data. Not a difficult or hard prediction.

I think the nonpartisan former head of the GAO, David Walker, is a pretty good source.
http://www.newsweek.com/id/70378

We're not going to solve a fiscal tsunami by increasing the height of the wave. Economics 101.

nickdavis · 3 months ago

I read plenty. I think what you're saying is that Medicare is PREDICTED to go broke in the future. I do not believe that such predictions can be accurate. The estimate I read is 2019. I'd love to find a chart of the wild swings in these GAO predictions. They make a TON of assumptions, and any of those being incorrect bring down the whole model.

What we're talking about is changing the model. It seems like you're saying, "Medicare is Broke! Let's do nothing!"

We can solve a fiscal tsunami by changing the ocean.

First, require an individual mandate. Make the young (usually healthy) people pay into the system. Let those individuals buy into Medicare if they choose. They will eventually get old and/or sick.

What do YOU think we should do?
And I never heard many slogans in Econ 101, especially not that.

andyswan · 3 months ago

http://seniorjournal.com/NEWS/Medicare/2008/8-0...

It's another in a long line of govt programs that will need more and
more income confiscation in order to maintain barely adequate services
that are avoided by all with means.

Additionally, my main concern is constitutional, so if that is
irrelevant to you (as it has been to many for the past 50 years of
deficit govt)...there's not much of a conversation to have.

nickdavis · 3 months ago

OK then - let's assume Medicare is broke in 2019.

That all assumes things go as today. What do you propose we do to counter that?

andyswan · 3 months ago

Eliminate all federal programs that violate the 10th amendment, repeal
all income taxes on individuals, and let local governments respond
directly to their local citizens.

MaxwellKennerly · 3 months ago

I figured your analysis would have been fleshed out by now, but apparently not, so I'll ask you directly: what "federal programs ... violate the 10th amendment" and why?

I presume your answer is something similar to 'every federal program not specifically created by the constitution.' So, my next question is, what's your understanding of the commerce clause? Do you believe health care does not affect interstate commerce?

south dakota vs. dole · 3 months ago

i second this; i can't wait to hear andyswan's 10th amendment analysis on the issue.

andyswan · 3 months ago

Commerce clause: "“The Congress shall have Power…To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes…"

When I read that, for some reason I do not take it to mean that the federal government has the right to force citizens to buy insurance (or be fined) or to administer a federal insurance program. "Regulate" is very distant from "run"...as anyone who's ever had to deal with a regulator will tell you :)

Why can't we try this kind of program fail in California before we force it down the throats of the States and people that DO NOT WANT IT?

south dakota vs. dole · 3 months ago

andyswan, you brought up the 10th amendment. i'm interested in your 10th amendment analysis

fredwilson · 3 months ago

That's why I like HSAs for everyday stuff and insurance, possibly government funded, for catastrophic stuff

nickdavis · 3 months ago

I would urge anyone with interest in this subject to read Gladwell's 2005 short article in the New Yorker titled "The Moral Hazard Myth".

http://www.newyorker.com/archive/2005/08/29/050...

It actually simplifies the debate quite a bit. "Moral Hazard" in regards to health insurance has been driven into our heads for decades, but virtually all sociological experiments testing this theory have proven it wrong (from a health insurance perspective).

Health insurance is designed as a "social insurance", meaning the young and health subsidize the (older) and more-likely-to-be-sick (thus the importance of the individual mandate - we NEED the young and healthy to pay in - they will eventually be old and unhealthy!). This is why analogies to auto insurance are invalid: auto insurance is based on an actuarial model.

This debate really comes down to that. Do we want a social model, or an actuarial model?

MattCope · 3 months ago

Here's the beauty of Goldhill's idea: we don't have to wait for the government to enact it.

Setting up a HSA and catastrophe plan for myself this week - I've been running the numbers over the past year, and it just makes sense for me.

fredwilson · 3 months ago

We are headed there too in our firm. I want to get the HSA right to minimize paperwork

MattCope · 3 months ago

A lot of my peers (aged 22 - 30) are looking seriously at this option, too - but it's *complicated* if you don't have the background.

Perhaps there's a market for health care fiduciaries...

jasonspalace · 3 months ago

on a completely different spectrum of this discussion there is a need for complete reform for how health care utilizes the internet. it is really sad regarding how the industry is approaching the implementation of technilogical reform (the whole digitization of medical records) from insiders i have spoken with, the govts organization for the rollout is the only decent part as it appears that no one really knows what what they're doing and i worry that if everyone keeps overlooking the matter, we are going to set ourselves back from moving forward there. and it also appears there is a real big opportunity for entrepreneurs who are willing to delve into this sector with the right knowledge.

fredwilson · 3 months ago

Yes. But is is fraught with regulatory and political risk

Emil Sotirov · 3 months ago

Before even reading the comments under this post, I want to voice my agreement with the direction and the thinking in that article.

DaveinHackensack · 3 months ago

"David Goldhill makes the point that we are using insurance for the wrong things in this country. We are using it as a way to finance healthcare broadly when it should only be used to fund catastrophic situations that cannot be paid for any other way (which is what insurance is designed for)."

Goldhill's approach sounds similar to the one that's been advocated by many conservatives for years: pairing a high-deductible, catastrophic health insurance policy with a medical savings account which individuals use to pay for their everyday medical expenses.

It also makes all the sense in the world to subsidize those who can't afford insurance rather than radically ditching the whole system because a small percentage of the population doesn't have health insurance (either because they can't afford it or don't need it). I suspect the reason why some on the left prefer a single-payer system is that they generally prefer a universal entitlement (e.g., Social Security) to one narrowly focused on those who need it (e.g., Welfare).

Incidentally, one way to reduce the uninsured population by perhaps 25%-33% would be to simply enforce our existing immigration laws.

RacerRick · 3 months ago

sorry to interupt the healthcare discussion, but Instapaper.com has a great Firefox plugin for sending long webpages to your Kindle. Works GREAT.

fredwilson · 3 months ago

Yup. Heard about that on twitter. I'll check that out

William Mougayar · 3 months ago

There is no reason why healthcare in the US should remain at 18% of GDP when it's an average of about 9% for the rest of the OECD countries. Let's hope that the current reforms being put in place will not only make it more accessible, but also more affordable.
btw- it's interesting to note that $499/eye is also about the lowest cost for Lasik in Canada.

DaveinHackensack · 3 months ago

One reason health care consumes a smaller share of GDP in other countries is, presumably, because they are free-riding off of a lot of innovation paid for by U.S. consumers. This raises an obvious question: who will be left for us to free-ride off of, if we go the way of the single-payer countries?

It's also worth noting that not just physicians but allied health professionals get paid very generously in the U.S. Registered nurses, physical therapists, profusionists, etc. can (and often do) make six figures here. These are also fields where one can make a decent living without having an connections or degrees from elite universities. In other words, they are essentially islands of credentialed meritocracy in our economy. It's not politically popular to rail against well-paid physicians, nurses, and allied health professionals, but I suspect this is another reason why health care consumes a larger share of our GDP than it does other first world countries' GDPs.

Dan Hung · 3 months ago

Pardon my harsh language, but it's incredibly arrogant to believe that just because the United States spends a lot on healthcare the rest of the world is "free riding" off of us. Healthcare and its provision is necessarily a localized service (with the exception of pharmaceuticals and to a much lesser degree capital equipment) so I think it's pretty tough to insinuate that our spending keeps the rest of the world healthy. Further, given the nationalistic slant that such a statement carries, shouldn't you be in favor of anything which discontinues this subsidy to the rest of those no-good free riders?

Second, it's unbelievable to me how often we point at medical professionals' "six figure salaries" as some sort of fiendish plot to hold us all hostage by our health. I know plenty of kids who graduated college and have salaries a stones throw away from six figures without the need of studying day and night for MCATs, doing 36 hours shifts on call, being in school for an extra 8 years and then doing a grueling residency of 60-80 hours a week over 4 years for <$50k a year. I can think of MANY ways that you can achieve a six figure salary (if not a lot more than that) that don't involve the sacrifice and passion that we require of medical professionals - particularly doctors. These are the people we entrust with our lives and, yet, whenever healthcare costs are debated its the medical professionals salaries which are the first thing that we should cut. Is making six figures really SO exorbitant? Do you not want to make six figures doing what you do?

Let's look at it this way. Most people who read this blog probably believe that a smart, motivated individual can make himself wealthy pursuing just about anything. If that's the case and I'd like to have smart motivated medical professionals taking care of me, I'm more than happy to pay them accordingly. Otherwise, why pursue a career in medicine at all?

Dan Hung · 3 months ago

Okay. Apologies for the rant. Let me provide something more beneficial to the conversation. The belief that our healthcare costs are inflated due to overpaid doctors and inflated pharmaceutical costs are to blame for our healthcare troubles is uninformed.

Read this article comparing Canada with the United States. http://www.denverpost.com/opinion/ci_12523427. Moreover, the Canadians receive their benefits without a significantly increased tax rate versus the United States. And, it would seem that canadian doctors don't make any less than their American counterparts - http://mdsalaries.blogspot.com/2007/10/canadian.... Yet, somehow they spend 10% of GDP versus our 17-18% of GDP of which 45 million citizens don't even participate!

The problem is an over reliance of emergency care due to the significant uninsured population, 31 cents of every dollar going to overhead and administrative expenses, and poor controls over medically unnecessary procedures. That's where we should point our efforts for reform and health policy.

fredwilson · 3 months ago

I totally agree with this comment dan

DaveinHackensack · 3 months ago

"The problem is an over reliance of emergency care due to the significant uninsured population, 31 cents of every dollar going to overhead and administrative expenses"

How does this explain the spiraling costs of Medicare? Medicare patients are, by definition, insured (by Medicare); Medicare is often credited with low administrative costs; and, since Medicare patients are insured, they generally aren't using emergency care as a stand-in for scheduled treatment.

We already have a public option in Medicare. It hasn't contained costs. Why not? I suspect I know the answer*, but this is a question advocates of fully socialized medicine need to answer before claiming that a single-payer system would lower costs here.

*I suspect the answer is that, although Medicare sets reimbursement rates, it can't set them too low, because the government does not have monopsony power in our health care system: a physician can always decide to not accept Medicare patients. However, if we had a "Medicare-for-all" type of public option, conceivably, the government would become the monopsony buyer of health care, and have more power to set prices. A relative handful of physicians could buck the system and run concierge practices for wealthy patients, but the vast majority of physicians would need to accept government-insured patients, and accept whatever reimbursement rates the government set.

DaveinHackensack · 3 months ago

"Healthcare and its provision is necessarily a localized service (with the exception of pharmaceuticals and to a much lesser degree capital equipment)"

And surgical techniques, medical protocols, etc. The lion's share of that research and innovation happens here, and much of it is financed by the market aspects of our semi-socialized, semi-market health care system.

William Mougayar · 3 months ago

I disagree about your first point. Research is paid for by consumers? Research budgets typically come from voluntary funds, and I'm not sure these are counted in the cost of health care "delivery". Lots of great medical research is being conducted and yielding results in other developed nations, such as Canada, France, Sweden UK and Germany.
But I agree with your 2nd point. The high costs are absolute, not only relative. A $636K bill for 5 weeks of healthcare is expensive. 31% of US HC costs are for hospital care and 21% go to physicians.

DaveinHackensack · 3 months ago

"Research is paid for by consumers?"

To the extent that the consumers pay for their health care (i.e., indirectly, through insurance premiums for the most part), yes. The profits that drug companies (both American and foreign) make selling drugs in the U.S. market finance a lot of drug discovery and development, for example. The cost + 10% or whatever pricing countries such as Canada impose on drug manufacturers doesn't finance any of this. There's no reason why rich countries such as Canada shouldn't be carrying more of the load on this. We pay market prices for Canada's oil; Canada can afford to pay market prices for drugs developed here.

andyswan · 3 months ago

General Electric invents, produces and hopes to sell imaging and diagnostic equipment precisely because there is a potentially large profit for building a better mousetrap. Same for every drug maker in the world, especially those that raise $200m chasing a single drug that is 80% likely to fail.

It's silly to think that the innovation and technology LEAPS of the last 7 decades came from anything other than "selfish" ingenuity.

DaveinHackensack · 3 months ago

It's worth quoting former Genentech CEO Arthur Levinson on this:

Since 1976, when our company was founded, the biotech industry has lost $90 billion in aggregate. I think it's the biggest money-losing industry of all time. It is hemorrhaging. There are some exceptions: We are doing well, and Amgen is doing well. But for most of the 1,300 to 1,400 companies -- 300 or 400 of them public -- this is a money-losing enterprise.

You don't just crank these drugs out. My lab cloned a portion of the breast-cancer gene in 1982. And we started making antibodies to it in the mid-'80s. Then we got cell-culture results in the late '80s and by the early '90s we were getting animal results. And then approval was in December '98. So this goes back a long, long time. Unless these companies can get a return, we are not going to get the new medicines that are making such a difference to patients' lives right now.

andyswan · 3 months ago

But wait I thought profit was EVIL in healthcare! :)

hypermark · 3 months ago

One general comment is the tried and true, "What Would Apple Do?" (if they were to release Health Care 2.0).

Is there any doubt that they would work backwards from the consumer experience, then figure out what the baseline solution needs to deliver, and how to deliver it as a high margin business that nonetheless delights customers?

Now, of course, the counter to that is that I am not sure I would be ecstatic about having to stay at AT&T General. :-)

p.s., those who don't like the LASIK analog, should check out Atul Gawande's "Better," which (among other things) looks at price and post-op recovery in specialty shops like LASIK clinics. Great read, too. Quickie summary here: http://bit.ly/4R9GY

DonaldFoss · 3 months ago

I don't believe that markets exist the same way for medical offices and procedures the way they do for LASIK. Doctor's offices are frequently owned by hospitals or other healthcare group providers, where the doctor doesn't even set the rates. For that matter, many hospitals and doctor's offices in California are owned by Kiaser, an insurance company. How's that for having the fox in the hen house?

No doctor wants to spend time individually negotiating his rates or competing with the guy across town; they want to spend time treating patients. I think that if we were to go to a consumer-centric, like the article suggests, we'd end up with a few medical giants, much the same way we have with telecommunications. Look at the mobile phone market and you'll find that the handset models are frequently controlled by the carriers, and choice is limited (iPhone on T-Mobile anyone, or Palm Pre on Verizon?).

I as a health-care consumer would rather select my doctor on traits that make me feel as if I'm receiving adequate and compassionate health-care and leave the rates for someone else to manage.

LukeG · 3 months ago

From my perspective there are two central issues in health care:
(1) no one has figured out (and scaled) a way to capture the long term value in preventive care, and
(2) health care providers are paid based on treatment volume rather than treatment quality.

The second point is probably most relevant here - in many ways it's the financial structure of the health care delivery & reimbursement system that is responsible for the disaster. People respond to structural incentives, even when they're not entirely conscious of doing so. They ran experiments in the 90s that showed that doctors ordered X% more tonsillectomy's when they were being paid per procedure than those paid a salary - *even though the docs were unaware that they were doing so.* (fwiw, I have 4 practicing docs in my immediate family and 4 more on the way in my extended family)

Until we can change health care providers' incentives to reward quality of care vs. quantity of care, we'll go (almost) nowhere. See this interview w/ Atul Gawande for more: http://bit.ly/17qFOr

fredwilson · 3 months ago

He's been recommended already in this thread. I'm going to go read his stuff. Thanks

Bob Labarre · 3 months ago

The LASIK example is a bad analogy, because that is purely discretionary unlike, say the need to have an emergency coronary bypass operation or an urgent mastectomy....the former decision (doing LASIK) is like choosing between a Rolls Royce or a Honda...strictly bank-account or mood-driven. The latter two life-threatening emergencies do not represent the time to be shoppin' around for cost.

Even elective procedures like mammograms and colonoscopies should not be considered discretionary, with an eye towards 'purchasing' them in lieu of the latest Wei (or not doing so, in order to pay for the new video station).

fredwilson · 3 months ago

Hey Bob. Thanks for joining this discussion. I bet you can add a lot to it

I agree about emergency procedures. They need to happen and happen fast

But not all bypass surguries are emergency. Don't you think shopping around for the best surgeon at the best price has merit when the patient and his doctors have the time to do that?

andyswan · 3 months ago

I've changed my mind. I'll even go one step further:

FOOD is a basic human right. Therefore, the government should be in charge of paying for food, determining who gets what food, and forcing citizens to participate in a food fund. I can't believe we are letting greedy companies make a profit off of a basic need. I saw a $19 hamburger yesterday as I was stepping over a homeless person begging for money. Obviously, the system is broken. Obviously, we should turn the system over to the group that has run the USPS, schools, Fannie, Freddie, the IRS, the patriot act, gitmo, amtrak, social security, medicare and washington DC so well.

Who's with me on FoodCare? YES WE CAN!!!

Bob Labarre · 3 months ago

I think a lot of people are missing the point by being focusing on whether Health Care is a "right" or not.

The bottom-line situation is this: We ALREADY pay 2.4 Trillion dollars per year for health care...it is already in the kitty. With 300 Million Americans, there is therefore ALREADY $8000 per American per year for HealthCare, and almost every American from age 0-30 uses only about $10 of it. So there is already plenty of money for affordable HealthCare for everyone; it is a moot point if it a "right" or not. The problem is that too much of it is siphoned off by encroachers, and so there is mis-allocation. As an Invasive and Clinical Cardiologist, I would suggest that Device and Drug companies, Home Health Care companies, Insurance middle-men salesmen, and Medicare Fraud are the leading contenders for diverted allocation of resources that are already available for real health care. But I may be biased, and others may point to different candidates.

andyswan · 3 months ago

I agree that arguing over whether it is "right" or not is inane. The
argument for me, as usual, is the role we want the federal govt to
have in decision-making (ie rationing).

I believe that individuals and local governments/groups are always
more rational and efficient at rationing decisions than a small group
of people very far away with a ton of money and power will ever be.

fredwilson · 3 months ago

As I said in my post, I've got an untrained eye on this subject. You, however, have well trained eye. I'm betting you are right

So will consumer centric healthcare work if it is properly financed?

DaveinHackensack · 3 months ago

"As an Invasive and Clinical Cardiologist, I would suggest that Device and Drug companies, Home Health Care companies, Insurance middle-men salesmen..."

I.e., everyone but you is responsible for health care being expensive, right?

fredwilson · 3 months ago

Andy. You crack me up. I don't always agree with you. In fact I often don't. But your voice and opinions need to be heard. Thanks for hanging in there against some heavy headwinds

roblevin12 · 3 months ago

Many good points raised in the article and the comments below but here's my fundamental question; Why is it an employer's responsibility to pay for health care for it's employees?

I know exactly how and when this started and why it's become so entrenched but that doesn't mean it makes sense. Why should I be burdened with the cost and you be subject to my willingness to provide this insurance? Not to mention the fact that if (when) you lose your job (whether my choice or yours) you risk losing your insurance? What if that were true for car insurance? (Which, by the way, in my state, NJ, is mandatory to drive. Heath insurance is not. I wonder why?)

And for those of you who rebuke a single payer or government sponsored system, you must realize that between Medicare/Medicaid and VA, the government is already the single largest payer and sets the bar for what everyone else is charged. The reimbursements that are established by insurance cos. are a multiple of the gov't rate. They dictate what they will pay for services and we all get charged a multiple of that amount. Take a look at the ICD-9 treatment codes. These are government published and used by every insurer to baseline costs.

Finally, the idea that a single payer would be more expensive because of end of life care and the like fails to recognize that those over age 65 (you know the people everyone points to as "bending the curve") are already covered by the existing single payer plan.

It is time to give everyone access to basic preventative care under a reasonable system. I think a combination of consumer driven preventative care, pre-tax savings for health care and a single payer indemnity plan for unforeseen catastrophic illness works best. First you eliminate the myriad of intermediaries (brokers, administrators, financiers, networks, providers, insurers, et. al.) that add little to no value but drive up costs. Second it makes individuals responsible for their own care. The way it is now, the employee who is provided health insurance from his employer has no incentive to even ask about cost. The cost to them is whatever is deducted from their paycheck every two weeks. Where else would that make sense? Do you present your car insurance card each time you go to get gas? (How great would that be? A $20 co-pay for stations in network and $30 for fill ups when you're out of network.)

Finally the employer/employee bond here needs to be broken. We've moved well passed the wage inflation of the 1940's for this to make sense. If you want to keep the tax incentive. give it directly to the individual. I would gladly take the money I spend now to provide health insurance and give it to my employees. I'm sure they would make much better choices about what to do with it.

fredwilson · 3 months ago

Its messed up. You are right

Guest · 3 months ago

As the wife of a family physician who had no choice but to opt out of taking all insurances and Medicare a few years ago (he is now a "concierge" physician and will take on only 500 patients) - I heartily agree with this article. We have lived this medical crises for 20 plus years. Insurance companies should, as Fred says, be for insurance against major procedures - not for the cost effective administration of primary care. This is a place where I will ramble too long if I start - but needless to say, we both agree with Fred. When he dropped all insurances (it was either that or stop practicing medicine, as reimbursements are so low in our area there were periods of time where we paid for the privilege of his seeing patients, after paying staff, malpractice, etc) we were afraid nobody would pay 2000.00 per year. But the value they get for their money is worth it to the consumer, especially those trapped in a system of red tape and black holes of lost tests and care. As the patient's advocate as well as care provider, it is well worth it to some.
He wrote an interesting article today about Electronic Medical Records and if anyone is at all interested in the topic it is worth a read (a primary care point of view). www.livingsocialmedia.com. This is another area where there are major concerns.

fredwilson · 3 months ago

A real world story. I love it. Thanks for sharing it donna

Lucas Dailey · 3 months ago

I think the article attempts to apply broad economic theory, but forgets some important parts. A few quick notes.

Imperfect markets
For markets to function properly, which is required to bring about these proposed “savings”, there must be sufficient competition, lack of collusion or monopoly, etc. Basically, only a few major cities in the country even have the population density to support a myriad of health service providers in a reasonable proximity to compete. Also note, it’s easy to argue in favor of individual ala carte procedures, shopping around for an MRI for example, but such compartmentalized services are a minority of health services.

Asymmetry of information
Another requirement for markets to function properly is for customers to have the information essential for making the best choice of product. Even with the proliferation of great health information on the internet, it is difficult or impossible for even an intelligent consumer with spare time to learn what they need to best select a health service provider.

Backward incentives
Incentives work, but you have to make sure you’re incentivizing what you actually intend. Any proposal that increases upfront costs for preventative care will worsen the health of the population and increase the overall cost to the country. The higher the burden and the greater the cost of preventative care, the less likely people are to use it. See next.

Behavioral Health
In general, people don’t make great long-term planning decisions. That may sound like a broad opinion but the data is there. You can disagree with their proposals (though you probably won’t), but read Nudge <url>http://www.amazon.com/Nudge-Improving-Decisions-Health-Happiness/dp/014311526X/ref=sr_1_1?ie=UTF8&s=books&qid=1251816648&sr=8-1<url>for a great compilation of behavioral-health/wealth-choice research. We don’t do long term abstract planning well, particularly about ourselves. Many “pro-competition” health care policies rely on a degree of long-term planning that is beyond the majority of the population (and has nothing to do with intelligence).



I don’t have a specific idea for a health care system, but I don’t like to see economics abused to justify bad policy.

ShanaC · 3 months ago

I love Nudge, and your right, Stiglitz-Greenwald needs to be applied here when it comes to the massive amounts of information that needs to be applied en mass to this market.

Monty Kalsi · 3 months ago

You made some interesting observations that are true. I think if we try to solve the massive health care problem as a whole, it will be difficult to comprehend let alone make progress. The reason, even though we have political and public motivation, no significant progress has been made due to complexity, competing interests, priorities, etc.

We may need to take a step by step measured approach to the modification of health care system. Let us go with what you call "minority of health services" first and see if we can make them more "consumer" centric and disengage insurance companies from telling the patient and provider on what to do. If that is successful, then let us do the next step and so forth.

fredwilson · 3 months ago

I'm with you. I prefer lots of small steps to one big one. Its almost always better

Capone · 3 months ago

Gosh, you are so right. The health care system is a mess. As long as there are billions of dollars to be made, the motivation to do things for the right reasons becomes secondary to greed.

ShanaC · 3 months ago

In my short life on Earth (and on this blog as a commentator), I think this has been probably the most touching post. Mostly because of the arguments. I've seen too much, heard too much, been through enough to not wonder what to do, and I recognize that I am not the wisest to know. I wish I were.

I wish I could even share some of the little things I have seen, and know about, but I know long term it would damage the collective privacy of many people and organizations. Certain things are discussed among families, communities, friends, not blogs (sorry).

What I can tell you is this: Everyone is a bit scared. Especially the people my own age, who can barely tell their own future. Medical issues are frightening for this group, especially if they ever have to worry about the idea of genetics. Insurance seems to leave people more lost than found, because it isn't clear what is going on. Even with insurance, a large amount of what actually needs to be covered is not covered, and what is covered is usually not necessary.

If we see health as a communal issue, then the best thing to do is act like a healthy community. We don't talk about it, but there are circles of behaviors surrounding health. If a yoga class overall were cheaper in the long term for chemo patients dealing with pain, would you pay? Would you participate even if you didn't have cancer. These are radical cultural shifts, which we don't do. One of the reasons the Bender and Bender ads work is that for most people, there is no community to help step in when one is not mentally strong.

Alex Hammer · 3 months ago

Consumer centric (and by extension consumer driven to a significant degree) healthcare should be the future. I devote a chapter to this in my book "This Great State" as I run for Governor (of Maine)

marko · 3 months ago

Fred, my respect for you and your blog keeps growing.....not afraid to go wider and open up the big, hot button issues.

I am amazed by the amount of free market fundamentalism that persists. That anything the government attempts to participate in or regulate is nothing short of communism.....I feel like I'm watching Rocky IV over and over again. How soon we forget the near nuclear meltdown of the banking industry recently. How close the entire financial system was to complete failure. Had the government (yes, that evil distorter of freedom and good health) not jumped in and handed billions of tax dollars to the banks we would have seen 'iceland x 10' happen across the globe. Pensions–gone, personal savings-gone, value of your house–gone, jobs–gone, value of fiat currency–gone, gone, gone. The only difference between the bank bailouts and socialism is that the government did not have the fortitude to get a fair deal for the taxpayer – equity stakes with corresponding decision making authority and further regulatory oversight and concessions. This is not free market. And this is something far worse than any kind of collectivism, its 'privatize gains, socializes losses'. It is a system uncomfortably close to russian oligarchism where small groups of government leaders and businessmen go behind close doors and divvy up the nations assets with no accountability or transparency. But this ripping-off of the taxpayer happened not because the government chose to intervene (was there really any choice at that point?), but because the government did not proactively regulate and participate beforehand, even though it was inherent that they would be the benevolent backstop for the whole house of cards when it came crashing down. I think we have to take these recent lessons and consider them in terms of healthcare also. Healthcare is too important to fail therefore the government is inherently involved. It is merely a question of how involved. I don't have a detailed answer to this complex issue but the government (read: us) have a responsibility to proactively discuss and agree better solutions. ...there isn't any issue more important, both on an individual well-being and national economic competitiveness level.

I just hope that the healthcare discussion can move away from blatant fundamentalism and focuses on exploring the grey area of how the government should play its role, not if – which was the purpose of your blog post in the first place....on with the discussion :)

fredwilson · 3 months ago

Yeah. The discussion is always the goal. I have my views. You have yours. I learn from yours and hopefully you learn from mine

bcarroll1234 · 3 months ago

Great post. Glad you bubbled this topic up.

My main problem with consumer-financed health care is that something like 50% of healthcare is spent in our final year of life. If you're going to die, why wouldn't you pour your very last pennies into prolonging your life? As long as inheritence taxes are high and you can't transfer wealth to your kids, I think most people would dissipate their networth on herculean efforts to squeeze every last ounce of life out of their dying bodies. And society would be worse for it.

So basically, the market mechanism fails because of an incentive problem.

Guest · 3 months ago

Make a living will now, while you are healthy. If everyone did this, it would be a non-issue.

Prokofy · 3 months ago

Maybe it's easier to pay for your own health care if you are a venture capitalist, I suppose.

I don't have health insurance because I'm an independent contractor, and I have to pay as I go, which often means postponing care, especially of the preventive type. Health insurance as it is now is too expensive for what you get, given that you are often left still paying all kinds of co-payments and bills. The most expensive feature of health care is often the repeated tests and the medicines, not the doctor visits, which are $100 or $150 at the walk in clinics in NY, and therefore tolerable for most working people. Usually the doctor will give you a free sample of antibiotics or the medicine you're prescribed, so your $100 gets you a package. I've found even with my children being on state health insurance that there are so may out-of-pocket expenses that if there are chronic diseases you easily meet the threshold for starting to declare medical expense on your income tax. And that there are so many things that aren't covered, like, let's say there's surgery, the state insurance covers everything, but the anaesthesiologist, for whom you may have to pony up $1200.

This has made me become very, very hard-nosed about health care over the years, whether it involved delivering a baby or having required surgery. I would bid out the job, absolutely seriously. I would call up 3 or 4 doctors and say, look, I don't have insurance, I have to pay this out of pocket, what can you do for me? And can you see me through more than one day in the hospital (as most of these jobs/health care usages turf you out of the hospital after 24 hours, making you fall prone to post-surgical infection, pneumonia etc.).

Surprisingly, this has worked well as these doctors shape up and give me a bid that is a third of their cost as reported on their fee schedule as they pad it out for insurance. Or they simply are part of a caring local community and give you a low bid.

If there were a legal ebay of health care services, especially of the preventive kind (mammograms, pap smears, stress tests, dietary counseling, etc.) we'd get somewhere. Imagine if there were a Craigslist for health care and you could drive down the cost that way.

Many people insurance themselves up out of terrible fear of what will happen to them if they land in the hospital. If you adopt a more brazen approach and tell doctors you will be bidding out and taking comparative bids, it's amazing how the fear evaporates. They need health care dollars, and they will bid for them by offering a better deal.

fredwilson · 3 months ago

You are making the case for consumer centric health care. Pls don't think I am suggesting everyone pay for their health care. Certainly I should. But maybe you shouldn't. Maybe the government should help you shoulder the cost. That's not my point. My point is however we finance it, you and I should be incented to get quality health care for us and our families for the lowest cost

kidmercury · 3 months ago

the healthcare discussion needs a broader perspective so that we can realize just how much govt does what they do best, which is f things up.

1. the business of practicing medicine is too regulated. you need to be board certified, AMA approved, etc. this limits alternative medicine. it limits entrepreneurial efforts. most detrimentally, it standardizes and controls the knowledge base doctors are exposed to. lots of medicines that cost nothing are not known about and utilized because of this. it also makes the process of becoming a doctor far more burdensome than necessary.

2. people get sick because they eat like crap. like all govt regulatory bodies, the FDA is bought and paid for by big pharma and big agra. the pharmaceutical companies ensure all sorts of terrible drugs get approved and labelled as "medicine," and help to create a culture where the solution for every illness is to visit a drug dealer (aka pharmacist) and develop a new habit. the FDA also wages economic war on organic and small farmers, imposing cost-prohibitive restrictions that prevent them from being able to effectively compete with the food giants. they also do things like make sure the "USDA organic" label can be used on food products that are not actually organic. wtf.

that's just scratching the surface. cancer rates are up, autism is up, STDs are up. of course government spending is up too. not just a coincidence, i assure you.

fredwilson · 3 months ago

But how do you really feel kid? :)

Ellen · 3 months ago

In real life it took me 3 telephone calls just to find out what my insurance paid for a cat scan w/out dye and radiology read. I received a bill for $3616 from a Partners Hospital Newton Wellesley Hospital Newton, Ma.. I saw a minus on the bill for $3591. I knew full well Blue Cross is not going to pay that absurd price. That is the list price for people without insurance. After a half hour of telephone calls I find out that Blue Cross allows $844 and they paid out to Partners $ 814.. This was my first ever cat scan and I have been a subscriber with the best individual policy money can buy since I was born as my parents had Blue Cross for us. All the non Partners Hospitals in Ma. have been screaming corruption because Partners had a private deal with Blue Cross to get 30 % more in reasonable and customary charges on all covered services than all the other hospitals. The other hospital ceo's feel as if they were fleeced. With all the various forms of coding and bundling of services we will all need complex computer programs to find out what is a good deal at all and if you are stroking or having a heart attack you can't compare prices.

Guest · 3 months ago

I had to come back and see some of the follow up comments. Some of these names, I know them so well and respect so much that they have to say. But about healthcare? I have to say this. You need to live it to really understand what is going on. You need to be a physician or live in his home with him as his family.
We all THINK that we live it, because we see bills for our tests (totally fictional - you think BC/BS actually pays that amount?). Look at your EOB (explanation of benefits) sometime. Look what your doctor charged and what he actually got. He had no choice, the insurance company said "take our price or you can't have our patients". You see and hear about the huge amounts spent in the last 30 days of life. Do you think you would want that if it was YOUR last 30 days of life, or that it's needed? Or do you think (with a very rational thought process) that doctors fear that if they don't DO something, the family will sue them for whatever test they left out on dying granny. If we actually knew the amount spend on malpractice prophylaxis, we would be appalled. This, in my opinion, is one of the main reasons other countries can have the health systems they have. They can treat patients reasonably, with what they need. Not because they are afraid of being sued. You will not hear this. The attorneys have deep pockets, big lobbying groups, and are our government is made up of them. But this is defensive medicine, and doctors have to practice that way. Nobody wants TORT reform, but they want free medical care. This makes no sense to me.

Not to be crass. But as I posted in my last comment, my family (the family of a primary care doctor) has been suffering through this for decades. Not suffering through patients, as they are his love.

Many of you want government insurance. When is the last time you went to get a referral for a procedure? Oh, there will be referrals. How long do you think you will wait for them? Do you think the primary care doctor will be monetarily penalized for sending you for a procedure (like he was with HMOs?). Or that he will have "incentives" for "low utilization", which was also the case with HMOs. Or that he will worry about attorneys and being sued for not doing so.

How many of you have gone to the trouble of filling out a living will? A very easy step - one that expresses your wishes during those last 30 days. Possibly makes them your last 120 days or your last 10 - but regardless they are your wishes. Tests are not being done "in case I get sued". They are being done because you wanted them done, and there are no attorney problems to worry about when it's over.

I could go on and on. I understand that healthcare prices are out of control. My family pays 1800/month for health insurance. A huge number - a send a kid to college number - and nobody ever goes to the doctor!!!. There is a major problem here. But getting the government involved? Making more paperwork and layers of adminstration that costs money? And then who pays for that, the primary care physican again? Insurance companies have the deepest pockets (notice the CEO salaries of the insurance companies?? but a primary care physician average in the USA is 140k/year at his/her prime, after going to school for 7 years at minimum AFTER college with endless loans for a 5 figure starting salary?).
I do not know what the answer is, if it was easy than we wouldn't have 225 comments on this board.
But I do know that medical legal issues and insurance companies are a very large part of the problem. They also have the deepest pockets to make their interests known.
If we can somehow leave them out - and oh, just lop off some of those CEO salaries to help fund healthcare for those who can't afford it - - I will just come out and say it. With substantial TORT reform and insurance for the purpose of INSURANCE ONLY, the government would have plenty of money for the uninsured.
Nobody thinks the uninsured aren't taken care of, do they? Hopefully everyone knows that a sick person who walks into an emergency room MUST be treated, whether or not they have insurance. And it won't be any different than if they DID have insurance. And even if that person doesn't pay, and they have a bad outcome, they can sue the hospital for the outcome!

We are fortunate that my husband has never been sued, but we know what it does to the lives of those who are. There are cases where there should be compensation, but if you want healthcare like they have in other countries, then accept the compensation they give you for errors in other countries. In Australia they have set dollar amounts for each limb, body part, etc. If we did that, how this entire picture would change.

fredwilson · 3 months ago

We gotta get tort reform as part of healthcare reform

Philip · 3 months ago

According to the AMA, (http://bit.ly/fNc4t) 62.1% of all bankruptcies in 2007 were medical; 92% of these medical debtors had medical debts over $5000, or 10% of pretax family income. The rest met criteria for medical bankruptcy because they had lost significant income due to illness or mortgaged a home to pay medical bills. Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance.

So, even if you have insurance you can be right out of luck. We could try a market-based approach - but, like any other market-based commodity, you may still not be able to afford it and in case of healthcare its quality rather than price that should rule. I doubt a market-based approach would have helped the folks in the AMA study. But indeed some kind of government-supported insurance that covers 100% of catastrophic situations as a backup to a market-based approach might be interesting ...

Ellen · 3 months ago

Are you nuts tort reform. First of all my doctors do no do tests so they won't get sued. They do tests to find out the cause of a bad symptom They do tests to find out answers. If we change the system where a pcp gets a lump per year to pay for tests and specialists and the pcp's income is penalized by ordering tests and gets to keep the whole years worth of money for doing nothing and then the patient isn't allowed to sue if the pcp is greedy and disallows any lifesaving tests, then I think we are going to have a problem. I lived this with medicare with my mother in 1995 and it was horrible and a nightmare. The doctor would not admit her to the hospital for a month in a half and she was presenting some very bad and life threatening symptoms. Thank g-d Fred none of your loved ones had very serious life threatening illnesses where medicare or blue cross denied hospitalization because the doctor got a bonus for keeping the elderly out of the hospital.

Here in Massachusetts you have to be on death's door before you get admitted to a hospital. If you are elderly which is 65 and you need hospitalization beyond your diagnosis related group, YOU can forget about it. You are out. No matter what. Get a stupid hospitalist who cannot diagnose properly and you have lost your one chance at life.

I don't know why people complain about $1800 for a family membership insurance premium when our 2 person family pays $2400 a month. My sister pays $1400 a month

gorbachev · 3 months ago

I read the article when it came out. I think he diagnosed the problems of the healthcare system brilliantly.

However, he really needs to spend some more time with the common folks before he offers any more advice on how to actually fix the problems. A $50K threshold for catastrophic illness insurance coverage would bankrupt a large percentage of anyone who'd be unlucky enough to have healthcare related costs between $20K and $49,999.

I make good money, but a sudden unplanned medical bill of $20K - $40K would definitely put me in the "how the hell do I not foreclose my house" category VERY quickly, especially if combined with loss/reduction of income.

fredwilson · 3 months ago

He proposed borrowing against HSAs for that purpose.

Ellen · 3 months ago

Just to be clear. Universal health care has worked so well that my $1200 premium will now be $1485 a month starting November. When everyone must buy health care then everyone is at the mercy of the health insurance companies. The reason why everyone was made to get health insurance was Mitt Romney
did not like the way the Massachusetts budget looked with all the "free care through the state." so he decided to make it illegal for poor people not to pay for insurance. So now the insurance companies can charge what they want. The "low - cost" plans of $550 a month are useless to most. I feel so discriminated against because I have to pay so much and can't even get dental because I do not belong to a group. Why can't I get a discount for lack of usage like in my mandatory car insurance premium as in good driver points.

mbrosen · 2 months ago

HERE IT IS: The one paragraph Health Care Reform bill

http://bit.ly/pVRFw

Some roughly fleshed out thoughts on #hcr and some practical solutions here (Start at the bottom):

http://bit.ly/ZoQCf

mbrosen · 2 months ago

And here's an interview with the author from Dennis Miller's radio show on 9/4.

Great segment. (iTunes Podcast link. If the link expires/is expired, let me know. I have it saved and can send it your way).

http://bit.ly/uHXwz