Our Transition to Patient-Centered Health Insurance

The propagandists for big pharma and health insurance interests have been proclaiming an immediate need to “repeal & replace” the ACA to achieve “patient-centered” healthcare. They have spouted off about this crisis for seven years without formulating a better plan. They are also running around in circles because the sky is falling and the ACA is imploding. They have the right diagnosis but they have applied it to the wrong set of problems.  

This drama we are watching fits a pattern I have seen many times in my years as a management consultant. The marketing department proclaims amazing features, benefits, improvements and choices that neither the production or customer service functions can deliver. The investors fall for the marketing blitz even though the customers and product reviewers catch on to the false advertising quickly. The organization cannot deliver the goods and services as promised because of its arrogant outlook on customers, authoritarian internal governance and flawed competitive strategy to surpass its rivals. The enterprise freezes like a deer in the headlights of an oncoming vehicle. The frozen enterprise gets blindsided by a market entrant that was overlooked by its over-confident outlook. The approaching start-up can deliver the real deal and steal marketshare by delivering what makes the customers genuinely satisfied. The buyers then become:

• eager to tell their friends and compare experiences once they join in
• loyal to the new brand and customer-sourced reputation
• helpful with feedback to improve products, services and support
• curious to explore more offerings from this trusted supplier 

The Big Money Republicans in Congress added the private health insurance exchanges to the formulation of the ACA. They were certain these exchanges would maintain the competition to lower premiums and deductibles. They opposed an added public insurance option for fear it would weaken the market dynamics they relied upon to drive prices down from monopoly/captive market excesses to equilibrium prices. The market would then reward the efficient producers and incentivize innovations to better serve the customers. That has worked about as well as bloodletting did for a wide variety of illnesses during the century when Adam Smith concocted the sacred text for this approach to lowering prices and improving offerings.  

It appears the Republican Party is imploding, not the ACA. They are governing with “the consent of the governed”, but they are governed by special interests that became empowered by the Citizens United decision from the Supreme Court. The Republican Party is opposed by the Freedom Caucus on the right, the Democrats on the left and the Democratic Socialists on the far left. The sky is falling as they feared. Their giving lip-service to patient-centered healthcare is falling on deaf ears. These Republicans are about to get repealed and replaced by legislators who serve their constituencies who voted them into office. 

This bodes well for genuine patient-centered health insurance. However, health insurance is not a business. It fails when it is set up to be profitable. It punishes its customers for buying its products if the private insurer is beholden to quarterly earnings reports and stock prices. It rewards top management to excess while depriving everyone else fair pay and benefits or fair prices and services. It makes a pretense of offering quality products while delivering junk. It lobbies Congress to subsidize its flawed strategy, broken business model and corrupt internal governance. It gets away with this ruse until the real deal comes along and upstages their charade. 

Health insurance is an aggregator of health risks, setbacks and calamities. The customers are best served by the largest aggregator. Size is the prize winner among health insurance providers. An aggregator of health risk for every single citizen would be the best of all. That aggregator could be the most generous with benefits and coverages because it functions as a massive shock absorber. It would be the most motivated to fund long term medical research programs to lower the cost of treatments and prevention in the future. It could be the best to verify claims about new pharmaceuticals and treatment modalities. It would also have the largest purchasing power to impact the final cost of drugs, medical supplies and contracts with healthcare providers. It would function as the most patient-centered approach to out-of-pocket costs and protection from junk products, fraudulent claims and deficient providers. 

There is another side to the health insurance business that has nothing to do with aggregating health risks. The biggest health insurance companies have already migrated to this business model when big employers aggregate their own risk. This administrative role for claims processing and benefit plan selection is a viable business model. A private, for-profit enterprise could provide superior individual attention to each customer, streamline paperwork, accelerate response times and earn high ratings from those getting serviced. The administrative service providers could get reimbursed based on a formula that combined their number of enrollees and the customer satisfaction ratings. This reimbursement schedule creates competition among market rivals over a more comprehensive value proposition than mere pricing. 

Foreseeing this business opportunity in reimbursed administrative services could ease the transition. The health insurance providers could bow out gracefully from risk aggregation entirely, like their counterparts in Europe. Saving face with their investors becomes more likely when Republicans stop insisting that those big insurers aggregate health risks and try to profit from the flawed business model. 

Some New Pieces of the Healthcare Puzzle

The failure of the House to bring Ryancare/AHCA to vote last week has succeeded at inspiring a barrage of insightful essays about this very complex issue. My synthesis of these insights is forthcoming. Here are some of the new pieces of the healthcare puzzle for now.

The existing ACA has two big components: the expansion of Medicaid and the private insurance exchanges. Only the latter is broadly exposed to “hastening an implosion” by Secretary Tom Price or Trump’s Executive orders. The Federal government currently props up the Health Insurance providers when a state market is not lucrative enough to offer insurance. Those subsidies could be discontinued, forcing insurers to raise premiums, increase deductibles or pullout of the exchange entirely. 

The health insurance offered to “hard working Americans” is mostly a bunch of junk policies. The premiums and deductibles are repellant. The policies include the cancellation if the policyholder starts filling big claims for illnesses that were not preexisting. The voters’ pushback against the “health insurance mandate” in the ACA could be more about those junk policies than against contributing to the common good by being insured like everyone else.  They want freedom of choice, not freedom from health insurance. 

Health insurance companies have been more profitable than ever since the ACA was enacted. They are getting out of the business of aggregating the health costs risk and simply providing administrative services for big employers who have become self-insured. The biggest consumer of conventional health insurance policies are those citizens on Medicaid who use Federal money to buy policies. 

A majority of voters now want single payer, Medicare for all, insurance. They are benefiting from the ACA and do not want it taken away. They want it improved, simplified or expanded. The government can no longer be trusted to formulate and pass a complex piece of legislation. The 17% approval rating of AHCA provided how clueless Congress is about considering diverse constituencies. They appear far better suited to make enemies of the State Governors, seniors, disadvantaged citizens, physicians, private healthcare providers and more. The Republicans are expected to take a hit in the midterm elections next year, whether they were in favor of or opposed to the AHCA. 

Lots of the voters for Trump could have just as easily voted for Bernie Sanders. These voters are not located on the political spectrum where political issues spawn loyalties. These voters want change from the do-nothing government that answers to special interests and hostile campaign funding sources. They want a return to “consent by the governed” as if we are living in a democracy, not an aristocracy or oligarchy. 

The adversarial tactics of the Freedom Caucus appear to be more focused on Republican lawmakers than on the AHCA itself. They suspected the late night “closed door sessions” to formulate the AHCA was only Paul Ryan meeting with health insurance company lobbyists. The loyalists to Speaker Ryan need to be exposed, humiliated and discredited. The Freedom Caucus’s blocking the passage of the “undemocratic” bill worked superbly toward their objective.

Trump’s approach to negotiating the passage of the AHCA indicates that he doesn’t really care what is in the healthcare legislation. All he wants is a win. He leaves it up to the legislators to resolve their differences, just like he left the architectural and engineering plans up to those professionals in his real estate deals. He expected that the Republicans had been preparing blueprints over the seven years they were raised a stink about “repeal and replace Obamacare”. He discovered he was working with a bunch of loudmouth amateurs in Congress. #sad! He has not discovered who else is a loudmouth amateur in power just yet.

Trump’s only “skin in the game” is for a personal win. This could be making him increasingly amenable to working with Democrats on upgrading the AHA. He also has clearly demonstrated that he is pragmatic, not ideological. He’s inclined to do what works to gain popularity with some interest group, though not the same one all the time. Pragmatism does not make for consistency, but it does make him susceptible to bait that promises approval and adulation. Democrats have been dealt a hand to be played strategically, not politically. 

All this is shaping up into a wonderful opportunity for universal health coverage in the near future. I will explore how that could unfold in my next post. 

The Casino and the Resort

Each US health insurance provider is in business for many more reasons than to only make money. Those different aspects of their business model are much easier to understand with an analogy I’ve been playing around with this morning. Imagine a typical casino with a hotel/restaurant included. The multiple restaurants include a cocktail lounge and live entertainment. The hotel includes swimming pools, tennis courts, golf courses and spa facilities. There is a large staff serving the individual patrons and aiming to deliver exceptional customer service. There is a lot happening besides the gambling operation. 

On the surface, it appears the patrons are gambling their own money at tables and slot machines. A deeper look reveals the casino is gambling on the number of patrons who lose money compared to those who win, as well as how big those wins and losses will be. They maintain tight security to insure that no one is gaming the system and changing the odds. For the casino to make money, the odds have to favor the House. 

Health insurance companies resemble these casino/resort operations. Here’s some of the facets which match the food service, lodging and resort operations:

• processing payments for premiums due periodically from enrollees
• processing claims from patients who have received medical services
• reimbursing the medical service providers for their services rendered
• assisting new applicants in choosing among different plans, levels of protection, etc.
• processing applications and payment setups for new enrollees
• terminating enrollees for reaching policy maximums, violating policy terms or falling behind on payments

Each of these services thrive in the private sector with market competition to lower costs, improve services and inspire innovations. There is no hidden harm, delayed damage or unintended consequences from these business operations conducted in a free and fair market. A government bureaucracy would have fewer or no incentives to improve. 

Health insurance companies also resemble casino operations:

• luring more healthy people (losers) to enroll in order to offset the cost of sick people (winners)
• lobbying Congress and State Insurance Commissions to not require more coverage (winning) or lower premiums, copays, deductibles (winning) without improving the profitability (losing)
• reducing the schedule of benefits to insure more profitability and management rewards (losing) at the expense of enrollee protections, guarantees (winning)
• colluding with other insurers to fix prices and actuarial odds so none of the rivals gain an “unfair” competitive advantage in luring the healthy people (losers) to change insurers
• increasing the size of the entire insurance operation to better aggregate risk (diluting winners with more losers), to realize “economies of scale” and to lessen the impacts of catastrophic illnesses (big wins) 

The 27 countries that have “single payer” programs in place have shut down these casino operations in health insurance. Their private insurance companies continue to run the resort operations and compete on customer service measures to attract more patrons. It is now illegal to profit from citizens’ wellness and compromise care for financial gain. The public sector is the only casino in the entire country. The government aggregates all the healthcare risk for the entire nation. It can breakeven by balancing benefits and enrollee costs. Eliminating the expense of six or seven figure salaries and huge bonuses among insurance executives contributes to lower costs for premiums, copays and deductibles.

Germany has kept private insurance for 15% of their wealthiest citizens. Everyone that does not qualify for the private insurance is enrolled in the public, single payer system. This works well because all customers are not the same. There are little differences between insurance buyers like those who want maternity benefits or nursing home benefits. There is also a big difference between customers who believe:

• “you get what you pay for and the more you pay - the more you get”
• “you don’t get more tangible benefit by paying more and paying more amounts to paying too much” 

Private insurance works well for those who want to pay more to get more. They are not looking for bargains, guarantees or protection from ripoffs. They also appreciate HSA’s (health savings accounts) to aggregate their personal risk and level-out their spending. Public insurance works well for everyone else. It’s a win/win arrangement that realizes the best of both in a hybrid solution. 

The big problem with the ACA (Obamacare) is the perpetuation of private casino operations for everyone not on Medicare, Medicaid or VA benefits. The market incentives to gamble with citizens health are getting thoroughly exposed by the recent debates on the “Repeat & Replace” agenda. It’s clearly time to make health insurance “casino operations” illegal for everyone or for all but the wealthiest citizens.

Our Lopsided Healthcare Debate

The United States is the only Western Democracy with “winner takes all” elections. Other democracies have proportional representation that accommodate numerous political parties. I’ve been wondering if the deep divisions among both the Dem’s and GOP is a forewarning of our need to upgrade our structuring of legislative bodies at the Federal, State and Local levels.

One price we pay for “winner takes all” election outcomes is lop-sided debates that over-emphasize political agendas and neglect comprehensive policy concerns. It appears we cannot have both so political victories become the top priority. Solutions where we can have both sides of contentions work much better. These winning combinations realize the best of both stances. They are self-regulating and self-equilibrating. The deliberations are balanced and inclusive. The diverse constituencies appreciate the legislative outcomes. Policy issues that have been overlooked or excluded get factored into more complex formulations of policy.

Looking through a system lens at this, hybrid systems function much better than opposing systems. They “raise the water level and float all the boats” instead of favoring one side over the others. The lop-sided healthcare debate would be upgraded by hybrid systems for each of the following:

• Private sector and Public sector involvement, contribution and protections
• Top-down/centralized and Bottom-up/distributed power, control and discretion
• Federal and State levels of decision-making, prioritizing and spending
• Short term fixes, heroics, crisis management and Long term investment and cost-savings
• Politically-driven and Policy-driven concerns, interests and agendas
• Urban and Rural constituencies, issues, and policy impacts
• Advantaged-contributions and Disadvantaged-dependent participations
• Medical outcome priorities and Economic sustainability priorities
• Innovation, creativity, experimentation and Safety, security, continuity issues

Germany has a hybrid healthcare system where 85% of the population subscribes to the government single payer system and 15% have a choice of private insurers. The public system is equal to or better than the private system on many outcome measures. It does not fit the pictures of GOP lawmakers who imagine endless lines, long waiting lists and inadequate care if bureaucratic care overtakes private providers. The experience of Germany highlights some of the issues absent from our current healthcare debate.

The GOP believes the only way to control healthcare costs is to ensure marketplace competition. They are afraid of a “lack of choice” due to a single monopoly provider or no provider at all. The “implosion” and “complete disaster” labels applied to ACA reflect this lop-sided faith in marketplace competition. They cannot consider or realize they are missing:

• A single payer system aggregates demand and purchasing power which enables negotiating for lower prices from drug and medical service providers.The less gigantic private insurers lack this purchasing power. (Medicare and Veterans Administration do this now)
• A single payer system eliminates transaction costs that private insurers escalate. Doctors become experts in which insurer offers which benefits. Patients struggle to compare insurers with dozens of plans, deductibles, copays and premium schedules. (Kaiser Permanente attracts numerous physicians from private providers with their freedom to focus on caring without insurance hassles)
• Limiting coverage is essential for private insurers to make a profit. A single payer system takes coverage issues off the table. Every citizen is covered, not merely given access or choices they dislike or cannot afford. The aggregation of risk makes this financially feasible. Rather than establish health insurance as money-making enterprises, public insurance delivers guaranteed coverage of medical costs at the cost to the non-profit provider. 
• A single payer system only manages the aggregation of risk, reimbursement to providers and collection of premiums. The medical services remain private enterprises in competition and rewarded for providing more and better services, preventative care and coordination between specialties.  Rather than becoming more profitable at the expense of patients, they earn high ratings from patients for improved responsiveness, communication and access.

A “single payer” system is a misnomer. Insisting “healthcare is a right” is a weak argument. Single payer is really a hybrid system which rewards every component for its participation, cooperation and contributions. It realizes the best of both public and private approaches to policy, enterprise and governance. If our healthcare debate was not so persistently lop-sided, the reasoning behind 27 other countries deployment of a singe-payer system would enter the deliberations and policy formation.