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LarryBirdsMoustache's avatar

I'm an actuary who consults with companies when they make decisions about how to structure their health insurance plans, so I know some stuff about this.

As other people pointed out, your proposed payment structure is how many HMOs and Medicare Advantage plans work. In the insurance industry, we call it "capitation".

Another point I would like to push back on a bit is the claim that Medicare operates as "infinite money" that bids up the cost of healthcare. Maybe that is somehow true in a very counterintuitive, roundabout way, but directly, a typical contracted rate for an inpatient facility is around 240% of the Medicare rate, so Medicare pays less than half of what private insurance would for a typical hospital stay, even for the same services.

There are not really any private insurance plans (other than Medicare Advantage plans, which pay Medicare rates to providers) which pay as little as Medicare does. The most aggressive cost management strategy in common (not that common) use is something called reference-based pricing, where the insurance company skips all the networking and contracting and just tells the hospital "we're paying x% of the Medicare rate, take it or leave it". This is generally considered really unpleasant for patients, because sometimes the insurance company loses the game of chicken and the hospital just sends the patient the bill, even though "x% of Medicare" is usually around 160%.

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Feral Finster's avatar

The "subscription model" you write about is basically the HMO, which came about when, for a fee, Henry Kaiser offered the ese of Kaiser medical facilities to Kaiser employees and their families for non-work related injuries and illnesses.

Anyway,

1. Healthcare is not a market good. In order to have a "market", one needs an infinite number of buyers and sellers, price transparency, and no information asymmetries. Healthcare offers none of these things, except perhaps an infinite number of buyers.

Unless you have medical training or otherwise have a fair amount of smarts and a *lot* of time on your hands, neither you or I have any idea whether a recommended course of treatment is:

*medically necessary

*not the standard course of treatment but supported by an educated minority of informed medical opinion

*generally safe and effective but cheaper options are available

*pure quackery

*contraindicated in your particular case

*an appropriate treatment but you can get something similar for less at the other clinic down the street

*an appropriate course of treatment but another provider can perform it better

*palliative at most

*superseded by new methods of treatment

*something else

*more than one of the above

Now, imagine that you are lying flat on your back in the ER in Stutsman County, North Dakota. Are you going to look over a menu of treatment options and bargain and discuss qualifications with that nice Dr. Finster, washing between his toes over there? Or are you going to take your chances and hope that you don't bleed out before you can Uber it over to the next nearest ER, which is only 40 miles away?

Then throw in health insurance. That means that we are mostly spending other people's money. At the same time, medical procedures are expensive enough that for most of us, paying out of pocket is not really an option.

2. Anyone with as brains as God gave a baby rabbit can tell that the US healthcare system is utterly dysfunctional. By any objective measure, it delivers substandard outcomes and does so at exorbitant cost.

The problem is that all those inefficiencies mean profits. (Market theoreticians say that in a perfect market, everyone breaks even, which in turn demonstrates just how imperfect the US healthcare market is, but that is another matter.)

Everyone agrees that reform is needed and inefficiencies eliminated. The problem is that the there are a lot of people and institutions that profit off those inefficiencies. None of them want their slice of the pie to be touched, all of them are entrenched and all of them have their congressmen on speed dial.

To give a few examples:

*The AMA

*The trial lawyers

*The HMOs and hospitals

*The insurance companies

*The alternative medicine industry (because legit medical care is expensive)

*The pharma manufacturers (generic and name brand have somewhat different interests at stake here)

*The unions (many of which run their own health insurance plans)

Any real reform will put some of the above out of business, and will substantially limit the profits available to others.

For instance, can you imagine the howling from the AMA if reforms had the effect of reducing doctors' salaries to European levels? "How am I supposed to keep two ex-wives and a Porsche on a measly $85K a year?" For that matter, the ex-wives and the Porsche dealer won't be too happy, either.

These interests don't necessarily line up with one political party or the other, so it's not like we can just vote Team D or Team R and we got the problem licked. The people in charge of these interests have careers and vacation homes at stake, and they are going to fight against reform a lot harder than someone not invested in the status quo will fight for reform.

3. I have often heard it said that state run healthcare will kill entrepreneurship. Quite the opposite. A lot of people would love to set up on their own, but health insurance costs make it impossible. That goes double if you have a kid with a pre-existing condition.

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