Winning the silver cup

CHB_TrophiesAdWinning the silver cup in the Exchange horse race

By Francis M. Miller

The launching of the exchange in October is taking on the appearance of a Kentucky Derby horse race at a track. The insurance companies are in the gates and the uninsured, if you believe “Connect for Colorado  adds, are drinking mint juleps and wearing big hats. I view all of this with a jaundiced eye.

There is no doubt that health care has been on a slippery slope for years and the rocks at the bottom spell market failure. We have no other choice than to attribute the source of this failure to the “players” in the market. We place blame on ill-conceived public policy, greed of financial intermediaries, mismanagement amongst health providers or passivity and the irresponsibility of consumers. It is a multi-factorial equation and there is plenty of blame to spread around. Perpetrators shape-shift and morph into victims as providers decry fee schedule decreases, consumers and small businesses drop insurance as premiums arise and insurers lament government regulation and interference.

My take on all this has become philosophical. When markets descend into failure, regardless of who caused it all, the voters will wrestle the  market away from corporate control and turn to their elected representatives to serve as their loyal agents. In some cases it works and in other cases, the grand experiment fails. The Soviet Union was filled to the gills with collectivist cooperatives and they failed.  Now the Russian economy  is controlled by elitist oligarchs and the shelves are bare of bread. Margaret Thatcher became the devil incarnate when she tried to rebalance socialism in Great Britain and return certain industries to the free market. But, whether you favor capitalism or socialism, the plain and simple fact is that when it comes to health care, the hybrid system in the United States is an abject failure when we look at costs and outcomes.

Contrast all of this with free and competitive markets such as phones, communications and computers. Beginning in the 1970s with antitrust legislation against IBM and then in 1996 with the deregulation of telecom, government actions did stimulate competition to the benefit of the consumer. There is little doubt that the disciplining forces of competition were the prescription to bring us cheap cell phones with unlimited service and cheap personal computers. It has been a virtuous, continuously improving  cycle.  Along the way it also dealt severe blows to MaBell, AT&T and IBM. Neither are the companies they were before all this took place.

So, we have proven that it can be done. But, we also know that it is very difficult to effect global changes once a market passes from the freedoms of capitalism over to the politicians and the bureaucrats within the governmental sector. In the final analysis, Obamacare is a power battle royal  between the private sector and the public sector for control of the hearts and minds of the consumer and the monies that flow through the system. With health care reaching 18% of our GDP it is the greatest of epic battles.

Warfare always results in the introduction and advancement of new combat devices. Airplanes, tanks, big bombs and drones all came out of our conflicts with other nations. So it is with Obamacare: Exchanges, Cooperatives, and Accountable Care Organizations are being introduced as weapons of war. Let’s take the Exchanges as an example.

Not all states have embraced Exchanges which are inextricably tied to expansion of Medicaid and mandates and penalties for the uninsured. What is the specific market problem this new organization is supposed to solve? If you listen to their ads it is getting insurance companies to compete for your business? And, how will they do that? Currently, insurance company profits average less than 2% of premiums, comparable to big box retailing, obviously a competitive arena. The companies who are offering products on the Exchange are, by and large, the largest carriers who currently dominate 80% of the market. They are the oligarchs.  They compete using many marketing channels such as call centers, the internet, advertising and brokers. These are all capabilities that small, upstarts (think Microsoft and Apple back in 1976) lack. In reality the appearance of competition between oligarchs is illusion and like gasoline at the corner station, will increase in stair-step fashion over time. The oligarchs will carve up the market and government be co-opted along the way.

If we want to flatten the cost curve in health care, maybe we should shift our focus to hospitals and doctors. All of us know that their prices are outrageous and ever rising. But, when you inspect financial statements and cost reports of health providers you reach the same conclusion you reached when you looked at insurance company profitability. First, there is virtually no history of competitive shakeout amongst inefficient providers. Quality amongst providers is assumed without proof of such. Profits of hospitals are what you would expect of a non-profit and in the 3% to 5% range. That level is barely sufficient to replace plant and equipment over time. Sure, you could single out anesthesiologists or other specialists but even cutting their outrageous salaries 50% would have virtually no impact on health system costs. Ditto for high cost patients. The million dollar premie baby or liver transplant makes for good press but it is not a really a driver of total system costs.

 Horserace_1

Studies have consistently shown that the prime driver of health care costs in American health care is the excessive intensity of services. If you are in Japan you can lounge around the hospital for a month and its like hanging out at the Super 8. Some countries actually provide more tests and even house calls without it raising the total cost of the system.

The American health care system is besieged with high administrative costs, high salaries, and a host of costs that could be wrung out under ideal circumstances. Economists call this “dead-weight-loss”. It comes from consumers being willing to exploit the system because their insurance pays the bill and their employer pays the premiums.

If you get inside the mind of every hospital or insurance worker in this country you will discover a deeply ingrained belief system. They believe they are doing the Lord’s work. They believe they work hard and have invested mightily in their education and experience. They believe that if there was a better way they would be doing it. And, they believe they are essential to keeping people healthy.

And, if you get inside the head of every patient or consumer you will discover a mirror-image belief system. They believe health care is a right and that health benefits are a pass-through on their wages. They believe they are being victimized by an excessively costly health system and that they are barred from purchasing health insurance because of its costs. They know there are things they could do to be healthier, but they also know few of us will die of natural causes in our sleep and if we don’t die from a brain tumor it will be COPD or some other malady. Like Secretary of State Hillary Clinton said, “What does it really matter?”

Health care is a system in crisis. It is a bubble-building. We all know it is an unsustainable system that is destined to change, whether policy makers take an enlightened approach or not. The Exchange(Connect for Colorado) is like the military launching a new aircraft carrier at a point when what we need are more Navy Seals.  As a whole, the Exchanges will spend billions but only affect the system at the margins. They will largely be focused on increasing enrollment into Medicaid and policing the uninsured. They will defend their existence by proclaiming health care costs would be even higher if the Exchanges had not been put in place.

I no longer believe the solution to the problems that beset health care will come from either corporations or government. They are rearranging the deck chairs on the Titanic. No, real change must come from the grass roots, the true source of all causative action in the first instance. Somehow, someway, you and I will find a way to abandon the old health care system. Like an abandoned and useless office building we will eventually go back and have a demolition squad place charges and implode it. Once we realize we are now in the 21st century we will seek a different path–a different way. Nonviolent revolutions actually play out over decades. Corporate executives and elected officials have life cycles of just a few years. So, there is a discontinuity in all this. We must be patient and allow time to work.

Leave a Reply

Your email address will not be published. Required fields are marked *