29 Feb First Party Financing – Lets Get Real About Health Care
Financing (fə-năns’) v.
- To provide or raise the funds or capital for: financed a new car.
- To supply funds to: financing a daughter through law school.
- To furnish credit to.
The crisis that is American health care continues to get bad news. However, in a lame duck year, everyone realizes that not much is going to change. But, very shortly thereafter, there will be incredible pressure for change with a new president, a new congressional session, and a renewed public interest in health care policy.
This election year has been all about CHANGE, and “change is a comin” one way or another.
My own interest in health care reform has naturally led me to health care financing. I personally don’t believe anything is going to change until we radically alter how we pay for health care. Our perverse financing system rewards and incents exactly what we are getting today: discoordinated care, spotty quality, escalating costs, poor outcomes, and everyone recognizing the inefficiency, ineffectiveness, and inequality of it all. Truely, we are getting what we pay for.
But, it doesn’t need to be this way. I believe if we can use the appropriate mix of market forces, regulatory oversight, and government standards we could get there. I am an optimist that the collectively intelligence of the few, the many, and ultimately the people will get us there. I have chosen to break my back against fixing the insurance side of things.
Insurance is designed to pool risk that is typically too large for any one individual to bear. We all pay some (premium payments), so that the few that need it are covered from catastrophe. We are willing to enter into this social and financial arrangement because we are willing to accept a known cost (premium payments) in exchange for being protected against unknown risk exposure ($300,000 cancer therapy). This third party financing of individual risk works well for catastrophic situations, as demonstrated in the life, auto, property, and related insurances. However, it does not work very well for every day transactions, chronic situations requiring ongoing payments, and as a third party system of financing.
Third party financing removes the natural equilibrium that the constraints of cost, quality, and consumer utility-choice theory have in other market places. Perhaps that’s why recent innovations like Carol.com are so novel and so potentially impactful, they are attempts to create a true market with buyers, sellers, products, pricing, and information available in a real-time, transparent place of exchange. Obviously, Carol’s opportunity exists because health care is currently not even consumed in this way – there really is no where to comparison shop on price (information not readily available), evaluate product to product (very few things are bundled into consumable products), or assess shop to shop delivery in terms of outcomes, performance, and quality. This things just don’t exist.
So back to the financing thing, I personally think the whole insurance thing has been a major contributor to not having a true market within health care. Third party payment systems not only remove the natural incentives of a market, but by burying the effects of market incentives, wreak all kinds of havoc in the supply and demand theories that we are so familiar with. This leads to incredible variations in care as well . . . where there are alot of MRI machines, alot of MRI tests get ordered (more than would be expected). Same holds true for surgeons (lots of back surgeons, lots of back surgery), hospital beds (lots more time in the hospital), and nearly every other form of care. The theory and explanation behind this “supply-driven demand” are expertly laid out in the book Overtreated by Shannon Brownlee.
So people can go off all they want regarding health care insurers being the bad guys – and many if not most times they have absolutely been the bad guys (we could go on endlessly about their incredible poorly thought out policies, denying coverages, retroactively cancelling policies, bad admin, etc) – but insurance is a purely a financial instrument that should be used to protect against catastrophic situations. If you choose to make poor health decisions, you fail to save money, and don’t plan for future costs, then you need to assume some personal responsibility for these choices. Clearly, this can go too far, and there is genetics, unpreventable disease, and an entire social safety network that we must and need to preserve (and most everyone I know would be willing to pay into), and it is a nearly impossible political balance to maintain. However, I believe we need to focus on realistic expectations for the insurance industry, how we use and think about insurance differently, and how we can be more accountable for our own choices while still being protected.
A fundamental value of American society is freedom. But “with great freedom, comes great responsibility“, including the responsibility to financially accountable for our health care choices. And as a society, we can and should be accountable to each other by creating appropriate safety net coverage for the poor and for those in situations beyond their control. I believe this can certainly be a part of the social contract within a capitalistic, market-driven health care sector.
For me, this translates into a much clearer need to have “first party” financing be a first priority in health care.