Elementary School, Insurance, and the Free Market

As part an “Insight Council” survey I was recently asked:

“If you had a magic wand and could change *only one thing* about health payment reform what would it be?”

Now let’s be clear – picking just one thing to fix about how America pays for healthcare is like trying to find and fix only the worst-looking shingle on this roof:


We have government payers that reimburse less than cost yet have ongoing unfunded mandates that measure in the trillions of dollars.  We incentivize “doing more” rather than “staying healthy” and thus both cover and reimburse total knee replacements far better than chronic disease management.  Our uninsured rate is at historic lows and yet hundreds of thousands of Americans will still declare medically-related bankruptcy this year and every year into the foreseeable future.

The choices are plentiful.

But being forced to choose just one I went with this:

Decouple preventative/routine, catastrophic/emergent, and elective care into separate payment models.

Think about it.  In what other part of our lives do we try to fund routine maintenance, optional upgrades, and urgent repairs out of one general program?  It’s like trying to bundle regular gas station fill-ups, oil changes, towing packages, leather seats, emergency roadside assistance, and collision repair into one global car insurance program.  No one would ever agree on what to include in it!  While everyone has to regularly fill-up with gas and everyone needs routine oil changes (whether they actually get them or not) not everyone wants to tow a boat.

Yet this is exactly what we do in healthcare.  No matter your insurance carrier (with the exception of Medicare’s semi-artificially divided “Parts”) I can say with nearly 100% certainty that you pay one premium for a mishmash of coverage that includes relatively cheap primary care visits, relatively expensive emergency room visits, some checkerboard of drug coverage, and heaven only knows what if you actually got sick and needed long-term intensive treatment for a serious disease.  Plus, if you have a high-deductible health plan its likely that none of that coverage kicks in until you’ve spent several thousand dollars out-of-pocket first.

This is why it’s nearly impossible to come to consensus in America on how to “fix” the crisis in healthcare – we’re largely arguing about the wrong thing.  Instead of asking whether America needs one government insurance program or lots of private insurance programs we should instead acknowledge that health insurance isn’t now and never has really been “insurance.”  Once we do so we can finally get to the real crux of the matter and instead address who should be paying for what and how should we be paying for it.

Let’s start with preventative/routine care.  If a nation with nearly $19 trillion in GDP is going to cover the cost of anything for anyone related to healthcare, it first and foremost needs to be preventative/routine care.  Staying healthy is both better and exponentially cheaper than treating disease, and yet today we pay Medicare (through payroll taxes) to dole out billions of dollars treating chronic diseases and late-stage cancers once Americans reach the magic age of 65.  Doing so costs the United States $646 billion each year, while younger Americans skip the vaccines, screenings, and early-stage treatments that could have prevented disease in the first place.

From a purely long-term financial perspective, we should never want Americans – no matter their age – to skip vaccines, breast cancer screening, or autism screening because they cannot afford them.  Doing so only ultimately increases the nation’s healthcare expenditures because in the long-term Medicare winds up paying to manage disease instead of preventing it.

If we’re ever going to really bend the cost-curve in this country, its time we stopped treating routine/preventative care like “insurance” and start treating it like elementary school education.  Everyone needs it, we strongly incentivize everyone to get it (though how they get it can vary), and we strongly dis-incentivize trying to avoid it.

Second, cancer should never bankrupt a family.  Nor should MS, or a massive heart attack, or a horrible accident.  Emergency and catastrophic care in this country really should be covered through actual insurance, because while everyone needs coverage not everyone will wind up using it.

In 48 states drivers are required by law to purchase the equivalent of such coverage in the car insurance market, providing some minimum amount to cover personal and property damage resulting from a collision.  With a population as large as America’s, where the “community rating” reaches the hundreds of millions, we can and should create real insurance to cover emergency and catastrophic care.  Doing so will ensure no American is bankrupted by paying for their child’s chemotherapy ever again.

Now things get a little more interesting – what about care that’s neither preventative/routine nor truly catastrophic/emergent?  This is exactly where the free market works best!  While our model treats preventative/routine care like elementary school education and emergency/catastrophic care like real insurance, it’s this in elective space where a robust free-market can create value through differentiation.  Let insurers compete for consumers with whatever kinds of chrome, bronze, silver, gold, platinum, and super-platinum plans they’d like, providing combinations of real insurance and bundled/discounted coverage for services that don’t fall into the preventative/routine program.  There’s an enormous space here for competition on price, access, quality, and experience to let the market work its magic, and that’s exactly what we want it to do.

So would it really work?

The short answer is I think it would be incredibly hard to get from here to there, especially with a Washington that’s great at cutting deals to divide the pie but not so great at fundamentally restructuring nearly 20% of our economy.

That said, I’m told the Elder Wand is pretty powerful, so perhaps it depends on what kind of magic wand the “Insight Council” had in mind…

Dr. Chris DeRienzo is a physician leader from North Carolina and author of the book Tiny Medicine – One Doctor’s Biggest Lessons from His Smallest Patients.  All views expressed here are his alone and are not attributable to any entity with which he may be affiliated.  Follow him on Twitter at @ChrisDeRienzoMD and on LinkedIn.


1 Comment

  1. A great post! You explained a complicated subject in a way even *I* can understand 🙂


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