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%.
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.
Lots of good stuff here I don’t have time to reply to. I can’t lay out the whole thing in one post, but one thing I do think needs to happen is a radical simplification in gating how costs are covered between the subscription model and the insurer.
Insurance as it exists today is the industry that needs to be blown up in my opinion. Those resources are better spent on the salary of providers.
my simple test remains “how much does it cost to do this on a cow?” Anything beyond that is bloat.
It's probably worth noting that the HMO/Kaiser Permanente model does work reasonably well. Kaiser's plans are generally lower cost than the alternatives from normal insurers, and people generally like them.
It doesn't magically cut doctors' salaries in half or change malpractice liability laws or anything, but it does align incentives and control costs to some extent.
In a follow up post I can check on how this works with existing incentives for insurance. Also if Kaiser exists by itself it also doesn’t compete down prices which could be an additional gain. Was aware of Kaiser but haven’t done a deep dive to be honest.
When I worked at Chase as a telephone banker the unhappy people who called in would always tell me "You're stealing my money" and I would always respond with "I just work here and I'm not Chase."
"Doesn’t it make it easier to imagine that you don’t have to do anything really hard to make the world better? It’s a psychic relief to imagine all you had to do was clap for the murder of one person!" - I felt this entire statement.
One thing I did this year that I hope made an impact - I bought a Christmas gift for a child in need who goes to school in the Bronx. I like to think that even the "smaller" things can make the world a better place, especially if you continue doing them as often as you can.
Step number two: I want to report something beautiful and almost unbelievable. HMOs were supposed to operate the way you describe under step number two. They were supposed to be incentivized to keep you healthy. Medicaid advantage plans were also supposed to be incentivized in a similar manner.
I live in Houston TX, and I have participated in two Medicare advantage plans. The second operates the way you describe in step number two. It has a five-star rating, which is awarded by plan participants. It consists of a large hospital system with Hundreds, if not thousands of doctors in plan.
Due to three separate ailments, I have been in the hospital no less than six times in the last 18 months. I haven't received perfect care, but I definitely have received adequate to excellent care, with very reasonable copays.
As I read Step Number two, I thought you were describing the Memorial Hermann Medicare Advantage plan, rather than describing a proposal.
Part of the reason why this may exist in Houston TX is the fact that we have a gigantic concentration of doctors and hospitals and the competition for patients must be higher than just about anywhere else in the United States. Someone has described Houston TX as “a great place to be sick.” Even the governmentally funded charity hospitals are far above national average.
Another one of the biggest hurdle is the medical guilds or AMA. Ask anyone about the entire med school pipeline. We are facing critical shortages in specialists. Doctors also do not want to have prices listed like a grocery store. Ironically it is a common practice in other nations to list prices out in the lobby with no loss in “prestige.” However I occasionally see neurosurgeon flaunting her Lamborghini and Porsches on social media because she needs to drive fast to perform emergency surgery.
The incredibly heterogeneous, chaotic, and dynamic nation known as the US has been an engine of medical advancement and innovation. Ask any wealthy person who becomes seriously ill where they go to get treatment: America is the answer. When the care is world class, it is unbeatable.
As to drug development, the bounty would never go only to the researchers. Someone needs to front the massive costs, and god help you if you need to keep a specific germ line of live animals alive and healthy for research. NIH has a whole institute, NCAST, to push drug discovery. Problem is we don’t have the biochemical mechanisms pinned down yet with solid research with experimental replication. The funding for that is nearly nonexistent as it is considered a fishing expedition. Methylization is still a hand wavy area of biochemical processes.
And people are a bit right to be freaked out about the doctor who self treated for cancer. We have safety checks to keep vulnerable desperate patients from falling victim to unethical practices. And at the same time she put everyone at risk and definitely is in the red zone for BSL protocols.
Agreed we have the best cutting edge care. I’m not looking to blow up any existing business models with the bounty system but to lay it out there as a competitor. It seems like that would make an incentive for curatives and you could get even get vc agreements to fund research in hopes of earning out the bounty. There’s lots I don’t know for sure.
Yes hope I conveyed more complications in the Gordian knot and not a takedown.
EMR is a huge issue for everyone involved. Charting is a huge unpaid time suck for doctors. And EPIC has dominated the space and can easily knock out entire hospital systems, clinics, and all operations when it goes down.
Need to send your suggestions to Elon Musk and JFK, Jr.
I agree with most of them. Lets give it a try. Can't be worse than what we have. Clearly everyone in healthcare hates health insurance in its current form.
I love your writing. Much of what you describe is how Kaiser works. It is a much more seamless experience, but… it is also not massively profitable or cheap.
I am in total agreement that fundamental concepts of economics describe the world as it really is. Someone wrote a book called “Two Cheers for Capitalism.” This acknowledges the fact that the capitalist model can possibly be improved with some tweaking, e.g., Workmen's compensation.
IMO, the biggest challenge to ordinary Americans living under the current incarnation of capitalism is the lack of long-term employment stability. We hear about companies that cannot find candidates for skilled employment, and we hear about laid off workers. That makes me think that Americans deserve a new economic right: free lifetime job retraining. This will solve a core problem of much of the proletariat without strangling the capitalistic goose that might still just lay some golden eggs for us. For more details see:
I sent it to my ex, who is a primary care doctor working for a large health system. I am curious to see what he thinks.
I do have one half baked idea to improve something. It's not even half baked, but sort of still in the mixing bowl.
So, factory farming is terrible, and apparently all the cows are bad for our environment. I think we should repair the great plains and grow herds of buffalo to near the numbers they used to exist in. Then instead of factory farming, we get our meat from hunting again.
We would have to tinker with this in different regions; but the bottom line is that we don't eat domesticated animals.
And I know this is needs a crap ton of workshopping to even make sense.
A lot of good ideas. Balance of emotion/analysis is off though, a lot of unnecessary humor and rant that hides the gems of policy ideas. Article should have been 80% shorter with an emotional follow up, for added color.
Very welcome though, we are indeed at the point of breakage on many socioeconomic issues, and new ideas should be promoted.
Yesterday I put up a six paragraph rant on this very topic (both the attitude regarding the assassination and the problems in health care). Obviously my take is very simple and incomplete.
Then I read yours this morning.
Dude, this is Exhibit at-least-25 why your Substack has become required reading for me. Outstanding work.
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%.
This is good to know!
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.
Lots of good stuff here I don’t have time to reply to. I can’t lay out the whole thing in one post, but one thing I do think needs to happen is a radical simplification in gating how costs are covered between the subscription model and the insurer.
Insurance as it exists today is the industry that needs to be blown up in my opinion. Those resources are better spent on the salary of providers.
my simple test remains “how much does it cost to do this on a cow?” Anything beyond that is bloat.
It's probably worth noting that the HMO/Kaiser Permanente model does work reasonably well. Kaiser's plans are generally lower cost than the alternatives from normal insurers, and people generally like them.
It doesn't magically cut doctors' salaries in half or change malpractice liability laws or anything, but it does align incentives and control costs to some extent.
In a follow up post I can check on how this works with existing incentives for insurance. Also if Kaiser exists by itself it also doesn’t compete down prices which could be an additional gain. Was aware of Kaiser but haven’t done a deep dive to be honest.
What we learned in our economics class:
1. A thing is worth what people are willing to pay.
2. Demand is infinite.
3. Supply is finite.
4. Whatever you subsidize, you get more of.
That’s pretty much it.
I wish more people had that level of education.
Step 0: Recognize that the Whole Concept of Health Insurance as Currently Legally Mandated Longer Makes Sense
TYPO: Missing the word no.
Argh, fixing now
There is also one place where you write counties when you meant to write countries. Just do a search.
Working on it. Thanks for the catch.
Commenting on a few different points -
When I worked at Chase as a telephone banker the unhappy people who called in would always tell me "You're stealing my money" and I would always respond with "I just work here and I'm not Chase."
"Doesn’t it make it easier to imagine that you don’t have to do anything really hard to make the world better? It’s a psychic relief to imagine all you had to do was clap for the murder of one person!" - I felt this entire statement.
One thing I did this year that I hope made an impact - I bought a Christmas gift for a child in need who goes to school in the Bronx. I like to think that even the "smaller" things can make the world a better place, especially if you continue doing them as often as you can.
Good on you for buying that gift. I need to find one of those with my wife this year.
Step number two: I want to report something beautiful and almost unbelievable. HMOs were supposed to operate the way you describe under step number two. They were supposed to be incentivized to keep you healthy. Medicaid advantage plans were also supposed to be incentivized in a similar manner.
I live in Houston TX, and I have participated in two Medicare advantage plans. The second operates the way you describe in step number two. It has a five-star rating, which is awarded by plan participants. It consists of a large hospital system with Hundreds, if not thousands of doctors in plan.
Due to three separate ailments, I have been in the hospital no less than six times in the last 18 months. I haven't received perfect care, but I definitely have received adequate to excellent care, with very reasonable copays.
As I read Step Number two, I thought you were describing the Memorial Hermann Medicare Advantage plan, rather than describing a proposal.
Part of the reason why this may exist in Houston TX is the fact that we have a gigantic concentration of doctors and hospitals and the competition for patients must be higher than just about anywhere else in the United States. Someone has described Houston TX as “a great place to be sick.” Even the governmentally funded charity hospitals are far above national average.
This is awesome to know. It would have to be far into the future but I’d like to look at that.
Getting mad a Taylor Lorenz is admittedly not the most productive outlet.
1. AMA
2. US has best cutting edge care
3. Drug development is crazy complex
Another one of the biggest hurdle is the medical guilds or AMA. Ask anyone about the entire med school pipeline. We are facing critical shortages in specialists. Doctors also do not want to have prices listed like a grocery store. Ironically it is a common practice in other nations to list prices out in the lobby with no loss in “prestige.” However I occasionally see neurosurgeon flaunting her Lamborghini and Porsches on social media because she needs to drive fast to perform emergency surgery.
The incredibly heterogeneous, chaotic, and dynamic nation known as the US has been an engine of medical advancement and innovation. Ask any wealthy person who becomes seriously ill where they go to get treatment: America is the answer. When the care is world class, it is unbeatable.
As to drug development, the bounty would never go only to the researchers. Someone needs to front the massive costs, and god help you if you need to keep a specific germ line of live animals alive and healthy for research. NIH has a whole institute, NCAST, to push drug discovery. Problem is we don’t have the biochemical mechanisms pinned down yet with solid research with experimental replication. The funding for that is nearly nonexistent as it is considered a fishing expedition. Methylization is still a hand wavy area of biochemical processes.
And people are a bit right to be freaked out about the doctor who self treated for cancer. We have safety checks to keep vulnerable desperate patients from falling victim to unethical practices. And at the same time she put everyone at risk and definitely is in the red zone for BSL protocols.
Agreed we have the best cutting edge care. I’m not looking to blow up any existing business models with the bounty system but to lay it out there as a competitor. It seems like that would make an incentive for curatives and you could get even get vc agreements to fund research in hopes of earning out the bounty. There’s lots I don’t know for sure.
Yes hope I conveyed more complications in the Gordian knot and not a takedown.
EMR is a huge issue for everyone involved. Charting is a huge unpaid time suck for doctors. And EPIC has dominated the space and can easily knock out entire hospital systems, clinics, and all operations when it goes down.
Need to send your suggestions to Elon Musk and JFK, Jr.
I agree with most of them. Lets give it a try. Can't be worse than what we have. Clearly everyone in healthcare hates health insurance in its current form.
JFK Jr is unreachable
He’s an interesting guy for sure. I read somewhere he attacked some guy with a falcon or something when he was younger.
Ok, I’m going on to my library app to look for a book on economics
Basic Economics by Thomas Sowell is good.
Today we have bozos pushing Modern Monetary Theory. I'm no economist, but the late great Milton Friedman made a great deal of sense...
I love your writing. Much of what you describe is how Kaiser works. It is a much more seamless experience, but… it is also not massively profitable or cheap.
All we have to beat is 1%!
I am in total agreement that fundamental concepts of economics describe the world as it really is. Someone wrote a book called “Two Cheers for Capitalism.” This acknowledges the fact that the capitalist model can possibly be improved with some tweaking, e.g., Workmen's compensation.
IMO, the biggest challenge to ordinary Americans living under the current incarnation of capitalism is the lack of long-term employment stability. We hear about companies that cannot find candidates for skilled employment, and we hear about laid off workers. That makes me think that Americans deserve a new economic right: free lifetime job retraining. This will solve a core problem of much of the proletariat without strangling the capitalistic goose that might still just lay some golden eggs for us. For more details see:
https://kathleenweber.substack.com/p/dems-can-win-by-selling-one-big-idea
Super interesting!
I sent it to my ex, who is a primary care doctor working for a large health system. I am curious to see what he thinks.
I do have one half baked idea to improve something. It's not even half baked, but sort of still in the mixing bowl.
So, factory farming is terrible, and apparently all the cows are bad for our environment. I think we should repair the great plains and grow herds of buffalo to near the numbers they used to exist in. Then instead of factory farming, we get our meat from hunting again.
We would have to tinker with this in different regions; but the bottom line is that we don't eat domesticated animals.
And I know this is needs a crap ton of workshopping to even make sense.
Buffalo that run around 12 months a year get very tough. That's why the delicacy was a Buffalo calf or a Buffalo tongue.
My guess is that he will hate it
A lot of good ideas. Balance of emotion/analysis is off though, a lot of unnecessary humor and rant that hides the gems of policy ideas. Article should have been 80% shorter with an emotional follow up, for added color.
Very welcome though, we are indeed at the point of breakage on many socioeconomic issues, and new ideas should be promoted.
Yesterday I put up a six paragraph rant on this very topic (both the attitude regarding the assassination and the problems in health care). Obviously my take is very simple and incomplete.
Then I read yours this morning.
Dude, this is Exhibit at-least-25 why your Substack has become required reading for me. Outstanding work.