Healthcare has been a commonly discussed topic recently. The problems seem to remain the same and primarily are; the exorbitant cost and individuals without coverage. However, the solutions we continually hear, and the cause of the problems seem to differ drastically.
The main concerns with healthcare are the rapidly increasing costs. The average annual health care cost per person in 1970 was $355. In 2018 the average annual health care cost per person increased to $11,172. Even accounting for inflation, that’s still a 600% increase.
See the below chart for reference from healthsystemtracker.org:
So, what’s causing the massive increase in healthcare costs? And what can be done about it?
Well, the increase in costs is multi-factorial, and cannot be pinpointed to one specific problem. We have a highly regulated market, which creates large barriers of entry making it difficult for new competitors to enter the market. This makes it particularly difficult for small competitors to enter the marketplace. In the world of economics, we refer to this as regulatory capture (sometimes also called regulatory segregation). A lack of competition often leads to increased costs and decreased customer service, among many other problems.
Once the large barriers of entry were created, large insurance companies were able to create their own mini monopolies which we refer to as HMOs or PPOs (networks). This gave the insurance companies leverage against hospitals and healthcare providers in their network, resulting in insurance companies demanding large discounts from those providers. Hospitals normally could not afford the large discounts demanded, which resulted in hospitals artificially inflating the costs of products which lead to the creation of a secret document called a chargemaster. A chargemaster is a comprehensive listing of items billable to patients in which prices are normally inflated by several times.
All of this resulted in a lack of transparency. If you ever read my article over why it’s your moral and patriotic duty to pay less in taxes, you may recall that one of the best ways to fight corruption, or in this case astronomical over pricing, is with transparency.
All of this, among many other issues led to the current marketplace. Our current healthcare marketplace is an attempt to maintain a capitalist market, but we have completely removed the consumer. Ideally in a capitalist, or free market, there will be many competitors which puts power back in the hands of the consumer, who should get to choose their provider. There should also be a vast array of providers that range in price and quality. In theory, the price should correlate to the quality, but we know that isn’t always the case.
However, we no longer have a system that operates in that manner. We now have a system in which more than ½ of Americans under the age of 65 get their health insurance through their employer. Which is often only one insurance provider that has a limited network. This has removed the power of the consumer by limiting our choices. To further complicate the upside-down system, if you as a consumer were to call a hospital or healthcare provider to inquire about the costs of a service or procedure, you will likely be asked “who’s your heath insurance provider?” Which makes absolutely no sense, why should the cost vary based on who’s paying the bill (hopefully)?
So, what is the solution? I believe the best solution would be a dramatically less complicated system. Health care regulation could literally be a few bullet points, instead of a 2,400-page bill. We should also have less of a focus on regulation, and more of a focus on supervision. Ideally, I’d implement the following regulation:
- Everyone living above the poverty line must get healthcare, if they don’t the government will fine you and select a provider. I’d also be a proponent of providing or at least supplementing the costs for those living below the poverty line.
- This would have to be done to increase the pool of people. In the insurance industry a larger pool of people will generally lead to lower premiums due to the diversification of risk. It also must be done in order to make up for the cost of people that will require more care than others, and those with pre-existing conditions.
- All health insurance providers, doctors and hospitals must be transparent and disclose all prices.
- The transparency would hopefully lead to lower prices due to competition. Us as consumers knowing that one service or procedure would be cheaper at another hospital or doctor’s office should lead to providers competing for our business.
- Get rid of networks, and all hospitals and doctors must take all insurance.
- This would remove the leverage insurance companies have over doctors and hospitals. It would also keep doctors or hospitals from discriminating against consumers.
- If a Dr. deems that a treatment or procedure is necessary for a patient’s heath, then the insurance companies must pay the bill.
- This would keep insurance companies from attempting to deem a treatment to be unnecessary in order to seek profit.
The above may not be perfect, but we will never have a perfect system. It’s arguably better than our current system, which really isn’t saying much.
While I cannot provide you the above solution today. There is another solution that many employers are turning to; Medical Cost Sharing Communities (MCSCs). You can see my original article covering MCSCs in more detail here, but to highlight some of the key benefits:
- Monthly premiums are on average 30-60% lower than traditional heath care premiums
- Initial Unshareable Amount (IUA), similar to a deductible, normally doesn’t exceed $1,500 and can be as low as $500
- No restrictions due to a network, HMO or PPO
- Overall reduced cost of care
- Promotes healthy lifestyles
- Increased convenience due to technological implementations
MCSCs put more power back in the hands of the consumer. Based on personal experience and the feedback of current clients, they also provide better service and care. MCSCs do require more of a hands-on experience for the “insured,” but the reality is that we should be more hands on when it comes to our healthcare. I’d wager that most people spend more time planning their next vacation than they do looking into a major surgery, procedure or general healthcare.
While there are some great benefits to employers implementing a MCSC to their current healthcare offering for employees, there are some downsides. MCSCs are great for those who are willing to be proactive when it comes to their healthcare, but they are often not ideal for:
- Tobacco users over 50 years old
- People with pre-existing conditions
- People who have a history of illegal drug use
- And people who have high cost prescriptions
Another great benefit to MCSCs is the ability to offer extremely competitive pricing for small employers. Many MCSCs only require 3 employees to enroll, which opens the door for many small businesses to provide affordable yet robust health care benefits.
I’m sure this may have raised some questions, which I’m always happy to answer. I’m also happy to help any employers investigate an MCSC as an option for you. If you’d like to do so you can contact my office here, or reach me at my contact information below.
Founder and Managing Partner, Finance For Thought