Dan Munro

Writer

Single-Payer Healthcare Isn’t Necessary – But Single-Pricing Is

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[first published in Forbes July 4, 2017]

Once again, our healthcare reform is mired in muck. That means we’re also knee-deep and grinding away at our circular healthcare debate, but it’s really a big distraction because it’s the wrong debate.

We keep debating the math of coverage and cost as if they’re independent of system design — and they aren’t. As Senate Majority Leader Mitch McConnell is finding out, there’s no solution to the Rubik’s Cube he’s playing with, because it’s the same one we’ve been fiddling with for decades — tiered coverage to support tiered pricing. The only way to lower the cost is to end coverage (how and for who are just the dials).

The good news is that ‘single-payer’ healthcare isn’t necessary to solve our healthcare cost crisis. The bad news is that ‘single-pricing’ is, and that will require systemic change.

Lost in our debates (often intentionally) is a critical design component called universal health coverage. Here the landscape is littered with artifacts and variations of the term, but they’re often used in a way to disguise, confuse or obfuscate the core principle of universal coverage. There are many good definitions, but this one from the World Health Organization captures the general intent well:

“Universal health coverage is defined as ensuring that all people have access to needed promotive, preventive, curative and rehabilitative health services of sufficient quality to be effective, while also ensuring that people do not suffer financial hardship when paying for these services. Universal health coverage has therefore become a major goal for health reform in many countries and a priority of WHO.” 

Terms like ‘universal healthcare,’ ‘Medicare for All,’ and ‘single-payer’ are typically substituted for universal coverage as if they’re interchangeable and all mean the same thing. They don’t, and the enormous distinctions are critical for any debate. Payment and coverage are definitely connected, but that connection can and should be simple and transparent — not complex and opaque. Universal coverage is that simplicity AND transparency.

What the U.S. has is tiered coverage designed to support tiered pricing. It’s not just complex for everyone, it’s totally opaque. Medicare, Medicaid, VA, Indian Health Services, employer-sponsored insurance, Obamacare and the uninsured are all different tiers of coverage — with different pricing. That works well to maximize revenue and profits, but the sacrifice to this design is safety, quality, and equality. A big myth surrounding the debate is that our system is just broken. It’s not. It’s working exactly as designed, and we need a different design based on the core principle of universal coverage.

Obviously, how universal coverage is paid for (either single or multi-payer — delivered through government or privately owned industries) is a critical debate, but who qualifies for coverage (and under what terms) shouldn’t be. There are only three big arguments against universal coverage — clinical, fiscal and moral — and they all fail. The clinical evidence alone isn’t dazzling, but it is compelling. As MedPage Today noted last week:

“There are a lot more studies covered in Woolhandler and Himmelstein’s paper, but they all suggest the same thing — that insurance has a modest, but real effect on all-cause mortality. Something to the tune of 20% relative reduction in death compared to being uninsured.”

That’s just the clinical evidence, but healthcare is really expensive, so health coverage is inseparable from payment — which, of course, is the fiscal or economic argument. As a country, we’ve been arguing, fussing and fighting over the economics of healthcare for decades — and are likely to for years to come — but this one chart is the only proof we need that we’re not just on the wrong clinical trajectory, we’re on the wrong fiscal one as well.

Our system design is the death spiral — not Obamacare. Of course, policy wonks and politicians love to confuse the debate with a heavy focus on the y-axis of life expectancy. The general argument here is that the data around life expectancy is too variable around the world, so it’s all wrong. By extension, the argument goes, the whole chart must be wrong, but I’ve seen no dispute with the x-axis because the math is bone simple. Take our (estimated) National Health Expenditure for 2017 ($3.539 trillion, from CMS) and divide that by our current population (325,355,000, from the Census Bureau). The result is a whopping $10,877 per capita spending — just on healthcare — this year (the chart only goes to $9,000 in 2014). [NHE now over $5 trillion and $15,000 per capita in 2024]

The argument that universal coverage is just too expensive for Team USA also falls with this chart because all of those other countries have some variant of it. Our debate swirls endlessly around economic options of tiered group (and now individual) coverage — but it’s all the science of actuarial math. The largest single group is always an entire country, and that’s also where the actuarial math is fully leveraged. As we can see from the chart, our decades-long battle with actuarial math has been epic, but the cost battle using tiered coverage (or some variant) is unwinnable.

All of which brings us to the final argument — the moral one. Germany was among the first to recognize the moral imperative of universal coverage with their Health Insurance Bill of 1883. We’ve argued this imperative as well — perhaps none so eloquently or succinctly as Dr. Martin Luther King, Jr. in 1966:

“Of all the forms of inequality, injustice in health is the most shocking and the most inhuman because it often results in physical death.”

He’s right and we know it.

The clinical, fiscal and moral arguments against universal coverage all fail, so what’s left? All we really need now is the logic behind our obvious and longstanding political intransigence against it. Why don’t we just implement universal coverage? Here’s the simplest and best answer I’ve seen from the legal mind of Harvard Law Professor Lawrence Lessig:

“You know, when Bernie was talking about single-payer healthcare people rolled their eyes. Not because it was a bad idea, but because there’s no chance to get single-payer healthcare in a world where money dominates the influence of how politicians think about these issues.”

He’s right and we know it.

Much of our ‘healthcare debate’ isn’t really a debate at all. It’s a huge distraction from our fatally flawed system — the status quo. We’re just grinding away at the math hoping for an undiscovered calculation to solve our Rubik’s Cube. Politicians and heavily entrenched incumbents love to debate the variants of tiered coverage (and opaque pricing) because it continues to support the enormous revenue and profits for the healthcare industry. At almost $11,000 per capita per year [over $15,000 now in 2024], our healthcare system is a gigantic monument to the priorities of ‘shareholder value,’ inequality and injustice — at scale.

No one group is to blame for our healthcare cost crisis because each segment of the industry is complicit, and they each have a fiduciary obligation to their shareholders. Payers, providers, pharma, suppliers, educators, software vendors and medical device manufacturers are all harvesting enormous profits from our $3.4 trillion ‘medical industrial complex’ [now over $5 trillion in 2024]. Naturally, they also lobby heavily for legislation to support those profits, and they have the war chests to do that effectively.

Again, a payment mechanism for universal coverage is the only real debate because there are many options and enormous ancillary benefits as well. Two of the biggest are single pricing (versus the opaque, tiered pricing of our current system) and the elimination of annual enrollment. I’ve never seen a clinical or economic argument supporting annual enrollment in health insurance because there aren’t any. That’s just not how healthcare works. It’s just another artifact (like employer-sponsored insurance) in a system that’s been optimized for billable episodes of care — not health — marching to the drumbeat of a tax calendar.

Single-payer is certainly one payment option, but it’s not the only one–and it’s easy to argue that it’s not a good cultural fit for Team USA. That’s OK because we don’t need single payer to get to single pricing. As one of the wealthiest countries on the planet, we can easily afford any healthcare system we choose — except one. The one we have.

10 Reasons Why Employer Sponsored Health Insurance Won’t ‘Disrupt’ Healthcare

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Earlier this year, industry titans Amazon, Berkshire Hathaway and JP Morgan Chase (ABC) announced a partnership that would incubate a separate, non-profit entity aimed squarely at healthcare. Given the seed stage of the collaboration, the announcement was necessarily vague but it did reference an intent to “address healthcare for their employees, improve employee satisfaction, and reduce costs.” Earlier this week, the partnership announced the selection of noted surgeon, best-selling author, and public health researcher Dr. Atul Gawande as the CEO of the unnamed entity. It’s a bold marketing step to be sure – and I have nothing but respect and admiration for Dr. Gawande – but the harsh reality is that it doesn’t change the underlying and systemic flaw of employer sponsored health insurance – and by extension, it won’t solve the enormous (and growing) fiscal burden of healthcare.

The trajectory of the ABC entity is still unknown, of course, but like other high-profile announcements before it, I think it’s really targeting a fairly traditional group purchasing business model. At least that was the implication that CEO James Dimon gave to nervous healthcare banking clients at JPMorgan shortly after the press release hit this last January.

In fact, there are a number of these group purchasing entities already in existence – and some have been around for decades. With about 12 million members, Kaiser Permanente is arguably the largest, and many of these operate as a non-profit because the fiscal benefits should logically accrue to member companies and not the entity itself. As with other group-focused healthcare initiatives, all of this will likely have a positive effect on ABC’s one-million plus employees, but it won’t make systemic changes to our tiered – and expensive – healthcare system as a whole. Here are the top 10 reasons why this latest venture – or really any group of employers – can’t fundamentally change or ‘disrupt’ U.S. healthcare.

  1. Employer Sponsored Insurance (ESI) was never the product of intelligent system design. In fact, there’s no clinical, fiscal or moral argument to support this unique financing model at all. It is quite literally an accident of WWII history and America is the only industrialized country that uses employment as the governing entity for health benefits. We could have changed this accidental system design decades ago, but we never did.
  2. Whatever the business of private industry (either privately held or publicly traded), unless they are literally in the business of healthcare, the vast majority have no specific healthcare domain expertise – nor should they seek to acquire it because it will never be a true focus or core competency. ABC may purchase (or build) component elements of that domain expertise for their employees, but any of those fiscal benefits won’t auto-magically accrue to other companies – and let’s not forget – at least some of those other companies are direct competitors to Amazon, Berkshire and/or Chase.
  3. Unlike Medicare or Medicaid, ESI (and commercial insurance more broadly) supports inelastic healthcare pricing because it is literally whatever the market will bear based on group purchasing dynamics. This is also why Obamacare health plans are entirely dependent on a laundry list of subsidies. As individuals, few Americans can afford unsubsidized Obamacare plans outright. This also makes it entirely pointless to go through a lengthy legislative repeal process because it’s relatively easy to cripple Obamacare outright. Just remove the fiscal subsidies – which is exactly what’s happened (or planned).
  4. The larger the employer (or group), the larger the fiscal benefit to the individual employer because of the group dynamic. That’s a compelling argument in favor of merger mania (leading to mega groups of millions of employees), but any of those effects don’t just ‘trickle-down’ to small employers. In fact, new business models (some with enviable ‘unicorn’ status in the ‘sharing economy’) are designed to ignore health insurance or health benefits outright. They may funnel employees to group-purchasing options – but that’s a marketing slight-of-hand to avoid the messy complexities and fiscal burden of managing ESI outright.
  5. Like most other employment functions, ESI — and the employment process known as open-enrollment — is arbitrarily tied to our annual tax calendar, but that has no correlation or applicability to the biology of healthcare. We should all contribute (through taxation) to our healthcare system, of course, but a period of ‘open enrollment’ (with a very specific number of days) serves no clinical or moral purpose (other than to continually update pricing or monitor for pre-existing conditions and possible coverage denial).
  6. While big commercial titans capture all the headlines for many industry innovations (including high-profile healthcare initiatives like the ABC one), about 96% of privately-held companies have less than 50 employees. Each of these employers is effectively its own ‘tier’ of coverage and benefits. That works to support tiered (highly variable pricing) but the only purpose of that is to maximize revenue and profits for participants in the healthcare industry.
  7. Big employers are notorious for binge (and purge) cycles of headcount that results in a constant churning of employees. Today, the average employment tenure at any one company is just over 4 years. Among the top tech titans — companies like Google, Oracle, Apple, Microsoft and yes, Amazon – average employment tenure is less than 2 years. This constant churning of benefit plans and provider networks is totally counter-productive because it supports fragmented, episodic healthcare – not coordinated, long-term or preventative healthcare. Insurance companies tried to tackle this – only to be penalized when those efforts (which led to healthier members) were delivered straight to their competitors at the next employer.
  8. ESI represents a 4th party — the employer – in the management of a complex benefit over a long period of time. That function is administratively difficult for even 3-party systems (payer, provider and patient) in other parts of the world. So why do we need a 4th party to add to the layered complexity? We don’t.
  9. ESI is heavily subsidized through local, state and federal tax exclusions. While this hasn’t been studied at great depth, it’s not a trivial amount. By some estimates, the local, state and federal tax exclusions combined amount to about $600 billion per year. This makes the tax exclusions tied to ESI the 2ndlargest entitlement behind Medicare. It’s effectively corporate welfare specifically designed to support expensive healthcare pricing.
  10. The employer contribution to ESI is significant – typically over 55% of the cost for PPO coverage (family of 4) – but this also helps employers keep wages artificially depressed. In fact, in recent years, the galloping cost of healthcare has tilted unequally to employees – and shifted away from employers. The days of ‘sharing’ those annual cost increases equally are clearly over.

The combined effect of ESI – again, uniquely American – is the most expensive healthcare system on planet earth and one of the biggest systemic flaws behind this ever-growing expense is ESI. As a distinctly separate flaw (I call it Healthcare’s Pricing Cabal), actual pricing originates elsewhere, of course, but employers really have no ceiling on what they will pay – especially for smaller (under 500) employer groups. This year – 2018 – America will spend more than $11,000 per capita – just on healthcare, and the average cost of PPO coverage through an employer for an American family of four is now over $28,000 per year.

Employers love to complain openly and often about the high-cost of healthcare, but they also benefit from both the corporate welfare of tax exclusions and depressed wages. The evidence of their real reluctance to systemic change is their strong opposition to the Cadillac Tax because it was the one tax proposal (through the Affordable Care Act) that was specifically targeted to cap the tax exclusion on very rich (Cadillac) ESI. The Kaiser Family Foundation has a compelling graphic on the long term and corrosive effect of ESI.

Don’t get me wrong, employers could band together and lobby to change the tax code to end all the fiscal perversions of ESI – but they won’t. They love to complain about high costs, but collectively, they are as culpable as large providers who work to propel prices ever higher – with no end in sight.

Which brings us full-circle back to the announcement of Dr. Gawande as the CEO of the new ABC healthcare venture. As a writer, health policy expert and surgeon, Dr. Gawande’s credentials are impeccable and I’ve faithfully read much of what he’s written for The New Yorker. One of my all-time favorite articles – among many – is the Commencement Address he gave at Harvard Medical School just over 7 years ago. It’s a true classic — and worth reading — often. It was translated for publication in The New Yorker (where he frequently writes) and remains online here: Cowboys and Pit Crews

I’ve often quoted a passage from Dr. Gawande’s address because it encapsulates the very real dilemma faced by practicing physicians and healthcare professionals the world over – from that day to this.

The core structure of medicine—how health care is organized and practiced—emerged in an era when doctors could hold all the key information patients needed in their heads and manage everything required themselves. One needed only an ethic of hard work, a prescription pad, a secretary, and a hospital willing to serve as one’s workshop, loaning a bed and nurses for a patient’s convalescence, maybe an operating room with a few basic tools. We were craftsmen. We could set the fracture, spin the blood, plate the cultures, administer the antiserum. The nature of the knowledge lent itself to prizing autonomy, independence, and self-sufficiency among our highest values, and to designing medicine accordingly. But you can’t hold all the information in your head any longer, and you can’t master all the skills. No one person can work up a patient’s back pain, run the immunoassay, do the physical therapy, protocol the MRI, and direct the treatment of the unexpected cancer found growing in the spine. I don’t even know what it means to “protocol” the MRI. Dr. Atul Gawande – Harvard Medical School Commencement – May, 2011

It would be safe to say — without reservation — that I am a real Gawande fan, but the fundamental question remains. How much can a single private venture – however well-funded or staffed – change a fundamentally flawed system design for an entire nation? In effect – to change our whole system of ‘cowboys’ to ‘pit crews?’

Unless and until Dr. Gawande can change the tax code, any fiscal benefits of the new ABC venture will be nominal – around the edges of healthcare – and not at the core. Whatever fiscal benefits there are will absolutely accrue to the member companies, but Dr. Gawande is no miracle worker and he has no magic wand against the trifecta of accidental system design that keeps pricing spiraling ever upward. That trifecta is actuarial math, ESI, and the transient nature of health benefits delivered at scale through literally thousands of employers. Commercial (or private) ventures of every stripe and size can certainly lobby for legislation to change the moral morass of tiered pricing through employers, but they can’t end it.

The bad things [in] the U.S. health care system are that our financing of health care is really a moral morass in the sense that it signals to the doctors that human beings have different values depending on their income status. For example, in New Jersey, the Medicaid program pays a pediatrician $30 to see a poor child on Medicaid. But the same legislators, through their commercial insurance, pay the same pediatrician $100 to $120 to see their child. How do physicians react to it? If you phone around practices in Princeton, Plainsboro, Hamilton – none of them would see Medicaid kids. Uwe Reinhardt (1937 – 2017) – Economics Professor at the Woodrow Wilson School of Public and International Affairs at Princeton

[Updated since first appearance on Forbes June 21, 2018]

Why Uber Won’t Be Coming To Healthcare

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Headlines abound for the idea that Uber will appear shortly to massively disrupt the healthcare industry in the same way it’s disrupted the taxi industry. Some boldly proclaim it’s not only here, but it’s here to stay.

The technical challenges are daunting, of course, not the least of which is the idea that there’s an enormous and untapped pool of resources (drivers in the case of Uber ‒ doctors in the case of healthcare) eagerly looking (and available) to turn big blocks of idle hours into cold hard cash.

But there’s another reason and it’s tied very directly to the risk-reward model of early stage venture investing. The challenges from that perspective were described recently by one of Uber’s earliest investors ‒ Bill Gurley.

Bill was in Austin last week and appeared on stage with Malcolm Gladwell at the annual tech festival (and rite of spring) known simply as South by Southwest (SXSW). Malcolm’s credentials as a science/healthcare journalist (and now author) are, of course, just as impressive as Bill’s are to venture investing.

Given this exact pairing, it came as no surprise when the topic of healthcare appeared so quickly in their 60-minute chat.

Malcolm: Last time I saw you we talked a lot about healthcare and I thought it would be really fun to start with the question of whether your world ‒ technology world ‒ can help us fix our healthcare problem.

Fun is a relative term for the carnival atmosphere of SXSW, but Bill was gracious and dove right in.

Bill: Yup, I’ve been involved in a number of companies that have used the resources that silicon valley [is] helping create ‒ the smartphone infrastructure, the internet, the cloud ‒ to try and make industries more efficient. Things like OpenTable OPEN +% and Uber that have been successful ‒ and you look at the technology and what’s possible and your immediate reaction is ‒ but of course, there must be hundreds and hundreds of opportunities for us to solve the healthcare problem. And so about a year‒and‒half ago I tweeted, you know, I’d love to roll up my sleeves and see if I can find one of these opportunities and help an entrepreneur in this field and I met with ‒ I don’t know ‒ a hundred companies ‒ and I became more and more skeptical as I went through the process.

This tweet was one of several that signaled Bill’s original interest in healthcare more broadly.


The timeline to that interest ‒ at about 14 months ‒ was short-lived.

Bill: And the real problem is ‒ and I don’t think entrepreneurs realize this ‒ but there’s an assumption of market forces when you do a startup. Like you expect customers to pay for value and to not pay for bad things ‒ and to want to be more efficient ‒ and the physics are just completely mucked up in the healthcare system. Like those drawing’s where you can’t tell which way is up ‒ and everywhere you turn it’s like that.

He then went on to describe the HITECH Act (enacted under Title XIII of ARRA in 2009) which was designed to pay doctors to implement electronic health record (EHR) software. To date, the government has paid out about $29 billion to all types of healthcare providers under the Act  and more “incentive” payments are in the Government pipeline.

Bill: Putting [the software] in was Meaningful Use 1 ‒ that’s $44,000 ‒ [but] because they’re not sure you’ll use it ‒ Meaningful Use 2 is proving that you’re using the software you put in place in Meaningful Use 1 and that’s another $17,000 for the doctor.  And it’s insane. It’s asinine.

He’s definitely not alone in that assessment. One of the Top Ten Healthcare Quotes I selected for 2014 was this one from Google GOOGL +0.50% Co‒Founder Sergey Brin:

Generally, health is just so heavily regulated. It’s just a painful business to be in. It’s just not necessarily how I want to spend my time. Sergey Brin during Fireside chat with Vinod Khosla 

Veteran VC blogger Fred Wilson wrote this on his popular blog ‒ AVC.

When we look at healthcare, what’s wrong with it, and what needs to happen to fix it, we can’t see as clearly how the web, technology, and large networks of engaged users can impact healthcare in a positive way. But that is starting to change. We know that consumers need to take more control of their healthcare choices, their healthcare costs, and their health. And we know the web and large networks of engaged users can help all of that happen. It is likely that we’ll be doing more looking and studying and less investing in healthcare for a while (as we did in education). Fred Wilson ‒ Healthcare ‒ November, 2011

All of which maps directly to the seminal piece written by Silicon Valley legend Steve Blank in 2012. The headline was simply (and aptly) Why Facebook is Killing Silicon Valley.

If investors have a choice of investing in a blockbuster cancer drug that will pay them nothing for fifteen years or a social media application that can go big in a few years, which do you think they’re going to pick? If you’re a VC firm, you’re phasing out your life science division. As investors funding clean tech watch the Chinese dump cheap solar cells in the U.S. and put U.S. startups out of business, do you think they’re going to continue to fund solar?  And as Clean Tech VC’s have painfully learned, trying to scale Clean Tech past demonstration plants to industrial scale takes capital and time past the resources of venture capital.  A new car company? It takes at least a decade and needs at least a billion dollars. Compared to IOS/Android apps, all that other stuff is hard and the returns take forever. Why Facebook is Killing Silicon Valley ‒ May, 2012

The reality of early stage venture investing in healthcare is mirrored across multiple vectors. Big, successful venture capitalists just aren’t interested in healthcare until it can demonstrate the unicorn-sized returns they’re now accustomed to. This new scale (and rapid timeline) is integral to their “investment thesis.” Healthcare doesn’t have the same unicorn-like trajectory as other industries so the signaling is crystal clear. The one venture bet that everyone is comfortable making is that an Uber-like disruption won’t be happening in healthcare.

This article first appeared in Forbes (March 2015)

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