The Problem of what drives healthcare costs: The three main drivers of healthcare costs are: 1. End of life care, 2. Care of those with Chronic Conditions, 3. Discreet health events (think a heart attack, accident, or stoke that people survive and do not require ongoing care). These costs can be analyzed in different ways for instance; legitimate analysis also shows technology and pharmaceuticals to be top cost drivers. Both ways of looking at the top drivers of healthcare costs are correct as end of life care and care of those with chronic conditions both are driven by technology and pharmaceuticals.
The problem of fragmentation: The individual market in the US is divided into so many different risk pools that costs cannot be distributed widely enough to drive insurance costs down. Insurance is regulated at the state level, so you automatically have 50 risk pools. On top of that there are multiple carriers which split the risk pools even more. Even in the large group market there is still a great deal of fragmentation in the risk pools. That fragmentation leads to higher premiums. When risk pools are deeper and more robust risk is spread out further and costs come down.
The insurance card you carry from the large company you work for has an insurance company name on it. What many don’t know is that many large companies self-insure and the insurance company provides only administration and probably a stop loss for huge claims. All those companies that self-insure are not in any insurance companies risk pool (except for the catastrophic event). All this fragmentation of risk pools increases costs.
The problem of competition: There is also no competition in the healthcare market outside of Medicare. Outside of Medicare we have the big 5 companies (Humana, Cigna, United Healthcare, Anthem, and Aetna). In addition, many states (about 37) also have not-for-profit Blue Cross organizations. So, in most states there are six major competitors. However, that doesn’t paint the whole picture as in most states two of those six organizations have well over 50% marketshare. That is not competition. You can’t make a sweet sixteen out of six competitors. In those places where two companies share most of the market you can’t even make a final four.
When it comes to those issues that drive the most cost in healthcare we need them dealt with in the most efficient way possible when it comes to paying claims. The system that takes care of most of those costs now is Medicare and it is one of the most efficient health insurance systems in the world. Medicare has a Medical Loss Ratio (MLR) of 97%. That means for every $1 that goes into Medicare, 97 cents is used to pay claims or make people healthier. No other health insurance payment system we have in the USA comes close to that.
Despite handling most of the costs associated with end of life care, premiums in the Medicare system are very low compared to what is available outside the Medicare world. When it comes to the cost of those with chronic conditions it costs much more to care for a 72-year-old with diabetes than it did 20 years before when they were diagnosed. Discreet health events (think a heart attack, accident, or stoke that people survive and do not require ongoing care) happen in and out of the Medicare system. The point is that Medicare already handles the lion’s share of the major factors that drive healthcare costs and it does so very efficiently.
The proof, as they say, is in the pudding. Outside the world of Medicare if a 64-year old wanting a high deductible health insurance plan with a $5500 deductible and a $6700 out of pocket maximum could expect to pay around $600 a month in premium (Here in East Tennessee). A high deductible plan is going to mean substantial out of pocket costs in addition to that premium. Just one year later when the same person turns 65 and goes into the Medicare system they can get the Cadillac plan for half of that. That would be Traditional Medicare, a Part D plan, and a F supplement for around $300. In that case their out of pocket costs will virtually be limited to their prescription co-pays.
Medicare is the largest risk pool in America. If we add tens of millions of people to that risk pool who are not facing end of life care, who do not have chronic conditions, who only occasionally have discreet health events then Medicare Premiums should go nowhere but down.
Medicare provides a base of coverage, but there are deductibles and co-insurance to be paid. There are Part D plans that help cover pharmaceuticals. There are also Medicare Supplements (also known as Medi-gap). For the healthcare of anyone patient there could be up to four payers (Medicare, a Part D plan, a supplement, and the patient may have co-insurance to pay). So be clear, what I am suggesting is not single payer or socialism. What Medicare does is put most of the risk in one single pool and multiple ancillary risks into competitive risk pools.
Again, the proof is in the pudding. There are probably 40 or more companies just in TN selling Medicare supplements. There is a deeper level of competition both for Part D plans as well as Advantage plans. So, for those that want market driven healthcare where competition drives prices down…look no further than Medicare.
There is some talk about selling across state lines. Unless, the coverage is vastly different then a policy in Iowa is probably not going to have substantially different premiums than a policy in Kansas. Some politicians carry on about how each state needs the flexibility to determine its own coverage rules. The way I see it the human body needs pretty much the same care in Tennessee as it does in California. Some men get prostate cancer, some people have broken their foot in a snow sledding accident, some people have torn (dissected is the medical term) arteries, others get pregnant, others have gall bladder issues. All these things require healthcare. All these things happen in each and every state. All these things should be covered.
What I do not support is re-inventing Medicare into a single payer system. Medicare is not now, nor should it ever be single payer. It does not fit our economic culture. Given that Bernie Sanders is out there talking about creating a single payer Medicare for all system this may be news to some. Medicare is also not socialized medicine. Socialized Medicine is where the government owns the hospitals, owns the labs, owns the MRI and CT machines, and all the doctors and support staff are on the government payroll. That’s not what Medicare is, it is not what Medicare should be.
If you want to see market driven healthcare, if you want to see everyone have coverage, if you want to see deeper risk pools, if you want to see cost effective health insurance…Medicare has to be part of the answer. It works and it fits the economic culture we have in this country. After than we can actually start to tackle the cost of healthcare and not just health insurance.
As an addendum I would also suggest that Medicare could be split off from the government for those who are afraid of government healthcare. It could be set up as a simple non-profit mutual insurance company or a non-governmental organization like the Tennessee Valley Authority (TVA). There is no “magic” in any organization being inside or outside government. We always have to be vigilant to spot corruption and abuse no matter the organizational structure. So regardless of if Medicare stays with the government, becomes a stand alone not-for-profit mutual insurance company, or adopts a TVA like organizational structure having one major unified risk pool will drive down the cost of insurance.