🔢 Key Takeaways
- The US healthcare system is plagued by unnecessary medical care, excessive procedures, and high prices, all of which contribute to inflated costs and lower patient outcomes.
- Despite high rates of preventable illnesses and low spending on prevention, small changes can still make a big difference in improving health outcomes. A comprehensive approach to safety and reliability is necessary for a fragmented healthcare system.
- Despite a long-standing tradition of public service, the current healthcare system often prioritizes profit over patient care, leaving many Americans burdened with medical debt. Non-profit hospitals operate like businesses with loose regulations.
- Healthcare coverage being tied to employment in the US is a result of historical events and tax codes. This system has consequences like limited insurance coverage and wage garnishments for patients who cannot afford their bills.
- Many employers are moving towards self-insurance to lower healthcare costs and provide better care for employees. This method eliminates financial middlemen and allows businesses to take control of their healthcare practices, resulting in potentially lower costs and better coverage.
- Prepaid medical care in the US is heavily reliant on insurance, often leading to price gouging and surprise billing. Transparent pricing is needed to reduce costs and rebuild public trust.
- President Trump's executive order requires hospitals and insurers to disclose prices for services, leading to reductions in healthcare spending. Transparency benefits consumers despite possible resistance from providers.
- Price transparency may not immediately reduce healthcare spending as patients rely on their referring physicians and are unfamiliar with finding healthcare prices. However, proxy shoppers may benefit from pricing information to keep costs in check for all. Trump's executive order on price transparency has garnered attention from the industry, but it may take time for patients to get acclimated to using the option due to behavioral elements like habits and trust in certain individuals.
- The healthcare industry is concerned about confidentiality of their contracts and coordination of prices, but patients need transparency to make informed decisions about their healthcare costs. The Trump Administration prioritized patient-centric healthcare reform to lower costs and improve quality.
- US doctors are emphasizing prevention of illness through alternative treatments like healthy foods, meditation and yoga. However, the healthcare system still prioritizes treating illnesses over prevention. Price transparency rules have been implemented, but their effectiveness is unclear.
- Despite regulations, hospitals avoid displaying prices due to low fines. Smaller changes in healthcare policies can save billions of dollars, demonstrating the need for cost reduction in healthcare acknowledged by both parties.
- The project proposes small but effective changes to reduce healthcare spending in the U.S. by half or a percent, which can save hundreds of billions of dollars. Price regulation can introduce competition and reduce costs.
- Price regulation and default options for insurance plans could help address the high cost of healthcare in the US. However, it is important to recognize that underlying healthcare costs are also a major factor, and simply putting profit caps in place may not be the most effective solution.
- The U.S. healthcare system has a lot of unnecessary spending, and making significant changes requires policymakers to identify and address the beneficiaries of this waste, such as long-term care hospitals that receive overpayments.
- Making small, incremental changes to the healthcare system can be effective in achieving reform despite the influence of special interest groups. The recent success in tackling surprise billing is evidence of this approach.
📝 Podcast Notes
The Dysfunction of the American Healthcare System
The American healthcare system is in a state of dysfunction, with pricing failures and inappropriate care driving up costs. A national survey found that 21 percent of medical care is unnecessary, indicating where the waste is and where we need to focus. The incentives in our healthcare system encourage procedures over prevention, and the number of prescriptions issued has nearly doubled, despite no increase in disease. The industry has become massive, employing over 18 million workers, making record profits, and pricing hospital services above inflation. Insurance companies and healthcare providers are making a ton of money, but patients aren't benefiting from the system. Despite spending the biggest share of our GDP on healthcare, the US is not absurdly healthy.
The Need for Big Changes in U.S. Healthcare
Despite high rates of infant and maternal mortality, obesity, and cardiovascular diseases in the U.S., the country spends very little on prevention, with the Centers for Disease Control and Prevention only allocating $1.2 billion annually for all chronic disease prevention activities, equating to less than $4 per person. The U.S. healthcare system is fragmented, with incentives often misaligned, and calls for small steps towards better health outcomes, rather than big, bold reforms. Surgeon Marty Makary compares the fragmented system to an elevator incident that occurred at a hospital he worked at, emphasizing the need for a comprehensive approach to safety and reliability in healthcare. Good people are working in a bad system, and small changes can make a big difference.
The Medical Profession's Philanthropic Legacy vs. Modern Healthcare's Financial Toxicity
The medical profession has a rich heritage of public service and philanthropy. However, the modern healthcare system is plagued by financial toxicity, with an estimated 20% of Americans pursued by collection agencies for medical debt. Non-profit hospitals, which make up the majority of community hospitals in the US, often operate like for-profit businesses, with top executives earning millions of dollars in salaries. This is due to the replacement of the charitable care standard with the community benefit standard, which provides looser regulations. Patients are left with a significant financial burden, while hospitals prioritize their bottom line over their original mission of caring for the sick and injured.
Why Healthcare Coverage is Tied to Employment in the US
The tying of healthcare coverage to employment is a result of employers adding healthcare benefits as a fringe benefit during the post-World War II era. The federal tax code revision, which exempted employer-sponsored health benefits from taxes, was the driving force behind this system. This perverts the definition of insurance and influences the level of insurance coverage available. Garnishing wages of patients who cannot afford their hospital bills is a consequence of this system. While providing basic healthcare services to citizens is an appropriate responsibility of a civilized society, an honest conversation about limited resources needs to occur in America.
The Rise of Self-Insurance in Healthcare
As healthcare costs continue to rise, more employers are shifting towards self-insurance to better care for their employees and reduce costs. Prior to Medicare and Medicaid, third parties started to pay for healthcare costs, resulting in a lack of transparency and increased hospital charges. However, the government stepped in and set a price list, causing hospitals to adjust their practices by pushing higher costs to uninsured patients and hiring consultants to treat the business like a business. With 38% of Americans covered by Medicare or Medicaid, and more than 50% through their employer, self-insurance is becoming more popular as employers take control and aim to eliminate financial middlemen. Businesses like HEB, a Texas supermarket chain, have successfully managed their employees' healthcare by self-insuring and offering a comprehensive plan that covers all healthcare needs.
The Predatory Nature of Prepaid Healthcare in the US
The U.S. healthcare system is heavily reliant on insurance, which has resulted in a world of prepaid medical care that often leads to price gouging and predatory billing. Even individuals with healthcare insurance are not protected from exorbitant billing, as surprise billing can financially break people. The lack of transparent pricing in healthcare makes it difficult to reduce costs and erodes public trust in the medical profession. Seemingly, there should be a better way to offer better care and prevent bankruptcy from healthcare bills.
Improving Healthcare Price Transparency Through Executive Order
Despite the fact that many healthcare prices are negotiated in secret and patients often have no idea what they'll be liable for, the situation may be improving due to an executive order issued by President Trump in June 2019. The order requires hospitals to disclose standard charges for all services and provide prices for around 300 'shoppable' services in a consumer-friendly format. The order also requires insurers to disclose cost-sharing estimates for all covered services. While hospitals and insurers may be against the order due to increased price sensitivity for customers, evidence suggests that price transparency can lead to reductions in healthcare spending. For example, price transparency has led to a 27 percent reduction in lab-test spending and a 13 percent reduction in imaging.
The Role of Price Transparency in Healthcare Spending
Price transparency in healthcare may not necessarily reduce healthcare spending, as patients often trust their referring physicians and are not used to finding healthcare prices. However, proxy shoppers may benefit from pricing information and keep prices in check for all. Trump's executive order on price transparency has garnered attention from the healthcare industry, despite providers and payer organizations being apprehensive about it. Behavioral elements, such as habits and trust in certain individuals, play a role in healthcare spending decisions. It may take time for patients to learn about price transparency and get acclimated to using the option.
Healthcare Industry's Opposition to Executive Order on Price Transparency
The healthcare industry's opposition to the executive order on price transparency stems from concerns regarding the confidentiality of their business-to-business contracts and the possibility of tacit collusion leading to increased prices. However, these arguments are flawed as patients have no visibility into the prices negotiated by payers and providers. Additionally, markets are much broader and highly visible, making coordinated pricing unlikely. The Trump Administration prioritized healthcare reform legislation to place the patient at the center, empowering them to have a greater role in the system and improve quality while lowering costs.
The Shift Towards Preventive Healthcare in the US
The U.S. healthcare industry is realizing the need to focus on preventing illnesses rather than just treating them, with doctors exploring alternative treatments such as healthy foods, meditation and yoga to address root causes and lifestyle reasons for bad health. However, the healthcare setup still favors treating illness over prevention, and the industry's size may hinder major reforms. Recently implemented hospital and insurance price transparency rules are a step toward reform, but the effectiveness of these measures remains uncertain as the incentives for compliance may not be large enough.
Healthcare Reform and Cost Reduction Efforts in Hospitals
Hospitals are finding ways to avoid displaying price lists despite regulations as the fines for non-compliance are too low to be effective. However, healthcare reformers are looking towards smaller changes rather than big swings in healthcare policies to reduce unnecessary medical costs which are estimated to be around a trillion dollars per year. Yale healthcare economist, Zack Cooper, found that if patients simply went to the closest medical facility, it could have saved an insurance company $1 billion, demonstrating the impact of these smaller changes. While the Biden administration's healthcare-reform initiatives are yet to be fully revealed, it is clear that both parties acknowledge the need for cost reduction in healthcare.
The One-Percent Steps for Healthcare Reform Project: A Plan to Reduce Healthcare Costs.
The One-Percent Steps for Healthcare Reform Project focuses on identifying discrete, tangible steps to reduce healthcare costs by half or a percent, thereby reducing healthcare spending in the U.S. by hundreds of billions of dollars. The project debunks the myth that only research that saves 15-20% is worth doing, instead proposes a series of small yet effective changes. Hospitals without competitors charge higher prices with worse quality, and these hospitals comprise about 20% of U.S. hospitals. To remedy this, cooper suggests price regulation, although he initially dislikes it, to introduce meaningful competition and ultimately reduce costs.
Potential Solutions to High Healthcare Costs in the US
Price regulation and constraining choices may be necessary in the healthcare system, which operates as a natural monopoly and often results in high costs for hard-working individuals. The One Percent Project suggests introducing price regulation while researchers Abaluk and Gruber propose a default option that places individuals in the best plan for their needs. Insurance companies are not solely to blame for high healthcare costs as they largely reflect the underlying costs of healthcare in the US. Profit caps have been put in place, but the way to increase profits is to grow the pie, leading to a system that raises costs rather than lowering them.
The Political Economy of Wasteful Healthcare Spending
The U.S. healthcare system has a significant amount of waste and rent-seeking, which raises spending by billions of dollars annually. Policymakers need to address the political economy of the system, where constituencies benefit from this waste, in order to make meaningful changes. One example of this waste is the overpayment of long-term care hospitals, which provide no better care than other providers but receive significantly more funds. The challenge is identifying and addressing the constituencies that lose out the most from these changes, as waste in the system translates into income for someone else.
The One-Percent Solution: How Small Changes are Making a Big Difference in Healthcare Reform
The U.S. healthcare system rewards politicians for steps that raise spending, making it difficult to achieve significant healthcare reform. However, the one-percent solution, which focuses on small changes, is starting to pay off. In 2020, President Trump signed a package that tackled surprise billing in healthcare, a research area of Zack Cooper. The package included a hold-harmless provision and a payment dispute settlement process, which were textbook examples of what can be done through small changes. Cooper's paper on the topic, published in the Journal of Political Economy, was a significant factor in the legislation. The one-percent solution is a viable approach to tackling entrenched interests and achieving meaningful healthcare reform.