It's taken me way too long to do an in-depth study of the current state of healthcare in the US considering building software solutions to provide quality care is now my full time job!
I think we all know something is wrong with the healthcare system in the US. The US spends more on health care than any other country in the world. 1/3rd of all the funds raised via GoFundMe are for medical expenses. Despite this, health outcomes are not any better than those in other developed countries. The US is actually worse in some common health metrics like life expectancy, infant mortality, and unmanaged diabetes.
I've been reading through Dave Chase's "The CEO's guide to restoring the American Dream": How to Deliver World Class Health Care to your Employees at Half the Cost and working my way through the Health Informatics in the Cloud course so I decided to summarize what I'm learning in a series of blog posts. The structure of the posts is probably going to follow that of the book, though the content is also sourced from other papers and articles (which I've referenced), and conclusions I've drawn from said content. I am most definitely relatively new to this space, so feel free to point out any flawed conclusions.
With this first post, I'm going to provide some background and talk about the status quo in the US healthcare system (as I understand it).
Disclaimer: All opinions are my own
- Medicare: Federal Health Insurance that covers people over 65 (80+% of beneficiaries), and younger people with certain disabilities and chronic conditions. Part A (Hospital Insurance) covers in-patient treatments and Part B (Medical Insurance) covers outpatient care, medical supplies and preventative care
- Acute Conditions: These are time-sensitive conditions that generally respond to treatment and which can reach a resolution. Conditions that require urgent, emergency or critical care fall into this category. This covers conditions ranging from a broken ankle to heart attacks.
- Chronic Conditions: By definition a Chronic condition is not curable. The goal while treating a chronic condition is disease management to improve the patient's quality of life. With improvements in medicine, many previously "Terminal" conditions are now Chronic. Examples include Diabetes, Hypertension and Cancer.
Some crazy numbers
- The Health Care Industry spent $1.2 Billion lobbying to influence the Affordable Care Act in 2009. That seems like a lot, but annual healthcare spending in the US was $3.8 Trillion in 2019. The lobbying money was a drop in the bucket.
- There are 0 laws that hold healthcare organizations responsible for misdiagnosis. Meanwhile 1/3rd of all deaths in the US are caused by medical errors, 5% of all diagnoses are incorrect, and >20% of incorrect diagnoses cause life-altering or life-changing consequences
- FDA approvals don't mean as much as you'd expect. 57% of cancer medication approved by the FDA between 2008-2012 has unknown effects on overall survival or failed to show gains in survival rates
- Almost 50% of the Adult Population has at least 1 chronic condition in the US, and 27% has 2 or more.
- More than 80% of adults over the age of 65 have at least 1 chronic disease
- This number is >60% for 2 or more and >20% for 5 or more!
- Patients with 5 or more chronic conditions account for 67% of Medicare expenditure
Surprisingly, the employer-provided health insurance model that is prevalent today can be traced back to a WW2 policy to prevent hyper-inflation!
Up until the late 1930s, individuals paid most health-care costs out of pocket and relied on individual health insurance plans to offset any unforeseen large expenses. During WW2, the US government introduced price and wage controls in an attempt to prevent hyper-inflation. However, in a concession to placate labor groups, employer-sponsored health benefits were excluded from this wage cap. This resulted in employers offering increasingly elaborate health benefits as a means to attract employees. The IRS subsequently made all such health benefits tax exempt for both employers and employees.
This resulted in the current status quo, with employer-provided health insurance being the norm for the following reasons:
- Employers were now against any kind of reform that resulted in health benefits being taxed, since this meant that payroll taxes would go up
- Since health benefits now covered more than just unforeseen large expenses, employees were more likely to visit doctors and hospitals. In theory, this seems ideal, but in practice this incentivizes hospital systems to increase prices since the employee often doesn't see the actual cost. Thus, Hospitals were now also incentivized to oppose any such reform.
- Insurance Providers had a much larger pool of covered individuals, and had customers (employers) who were willing to pay higher premiums over time
- Buying individual health insurance became more expensive than opting for an employer-provided plan
Over time, this move towards employer-sponsored heath care led to what is arguably an extremely broken health care system we see today.
Annual Healthcare Premium Increases
Over time, annual increases in healthcare premiums became the norm. Most businesses expect a 11-14% annual increase in costs, and insurance brokers take advantage of this knowledge to bump up per-employee premiums annually. In contrast, median middle class wages increased by ~1% annually from 2010-2016. The majority of an employer's per-employee payroll cost increase never reaches the employee! This doesn't even account for the fact that annual out of pocket healthcare expenses continue to increase for the employee anyway.
More Specialty Care, Less Primary Care
Employee demands for benefits increased, resulting in offerings like High Deductible Health Plans(HDHPs). HDHPs are intended to incentivize consumer-driven healthcare, giving access to a huge number of providers and specialists. However, this results in patients choosing Specialists over Primary Care Physicians. Specialists dealing with Acute Conditions tend to prescribe a lot more expensive tests than a PCP, leading to increased costs.
In addition, patients with Chronic health conditions see multiple specialists within the span of a year, with very little communication between them. A patient with 5 or more chronic conditions will, on average, see 14 providers and fill 50 prescriptions every year, for the rest of their lives. The lack of communication can lead to multiple adverse consequences, including, but not limited to, bad medication interactions and unchecked compounding effects leading to serious, acute-care episodes.
This kind of single-condition, specialist-based model, along with a lack of emphasis on preventative care, is why you will often read that the US healthcare system rewards acute care over other forms of care. If the emphasis was on Primary Care, we would have a lot more preventative care, leading to fewer instances of chronic conditions caused by lifestyle factors and lower overall medical care costs.
The current system has created a cycle of bad incentives. Hospitals charge higher prices on paper for procedures. The insurance providers "negotiate" down the prices, supposedly on behalf of the customer paying the insurance premium. They use the price drop as a way to prove their value to customers. However, the following is happening behind the hood:
- Hospitals know they are never going to see the entire on-paper price of a service from insurance, so they continue to hike the prices
- Insurance Providers don't care about the price quoted. They only care about the actual charge, which is significantly lower after they "negotiate" the price down
- The larger the drop in prices, the more the insurance provider has "saved" their customers
- No matter what the final charge ends up being, the insurance provider gets a cut of that charge
- As a result, the insurance provider is making money with higher premiums And via the cut from the payment to the hospital
This is why if patients don't share their insurance information and instead ask for cash-only prices, they often see ridiculous drops in prices. The book talks about an extreme example where an MRI cost $3500 via insurance, and $475 with cash.
Impact on Small Business & Lower-Income Employees
Offering healthcare benefits is now relatively expensive for smaller businesses, and not mandatory by law. As a result only about 30% of businesses with <50 employees offer health benefits. This means employees with the lowest average income also end up having to pay out of pocket for health insurance.
Even when low-income employees (making <$25k annually) end up getting company provided insurance, their premiums are comparable to those paid by high income employees OR they get fewer benefits. They are also the least likely to see any kind of tax benefits from healthcare benefits exemptions.
Regulations (or lack thereof)
From my (basically outsider) perspective, there is a shockingly little regulation on some of the core contributors to the current state of health care. I'm sure the health care industry's massive lobbying power has nothing to do with it.
Quality of Care
Health Care providers are not accountable for the quality of care provided to their patients. Indeed, with the focus on short, acute-care episodes there was no real standard way to measure the quality. Some states, such as Ohio, have recently started down the path of assessing quality based on pre-defined episode-based care.
Studies have shown that in patient visits preceding hospitalizations, 20% of diagnoses were incorrect. Overall, 5% of all diagnoses are incorrect. This leads to money spent on treatments and medication that has no benefit (and could have harm), over-treatment and, in some cases, death. A Johns Hopkins study showed that medical errors are the 3rd leading cause of death in the US. Yet, there are no regulations that hold providers accountable for misdiagnosis.
It is important to note here that the providers themselves are under a huge amount of stress to see more patients in a shorter amount of time, and have a huge administrative burden due to hospital policies. A study showed that for every hour that a provider sees patients, they spend another 2 on administrative tasks. The System is broken.
Lack of Transparency
Insurance carriers have no legal obligation to share claims data with the employer paying the premiums. In many cases carriers refuse to share claims data, and when they do access is often provided to only a small subset of all claims. This lack of transparency prevents employers (the actual customers of this service) from performing any kind of basic discrepancy analysis. This also allows hospitals and care providers with lower quality care outcomes to charge disproportionately higher costs without any oversight.
Blatant Conflicts of Interests
The same insurance carrier can administer the health plan for an employer, as well as the hospital through which care is being provided. Hospitals are often Huge employers, which means a massive, guaranteed annual income stream for the insurance carrier. Along with the lack of transparency mentioned above, this means carriers will often not try to negotiate the price of services with these hospitals (to keep them on as clients), leading to higher premiums for other employers serviced by that carrier. This is a clear conflict of interest, since insurance carriers should technically be aiming to work in the interests of all their clients individually. In addition, there is no regulation preventing a hospital from owning a insurance carrier!
Insurance brokers are supposed to work on behalf of their clients to try and find the most attractive plan and insurance carrier for them. However, insurance carriers give brokers a year-end bonus based on their client retention rate. Brokers are not obligated to disclose this to their clients. Another case of a clear conflict of interest - the Broker is incentivized to get their clients to renew their plan, regardless of actual value.
Similarly, Benefits Managers can hire benefits "Consultants" paid for by insurance companies and brokers. The consultant's salary is being paid for by one of the manager's prospective health insurance options. Why would the consultant ever suggest an alternative?
Somehow, none of these things are required disclosures for hospitals, insurance providers or brokers.
This post is already way longer than I'd expected, so I'm going to stop here. There are a Lot of avenues for improvement, and there are multiple case studies proving that there are approaches to health care (even with the employer-paid model) that result in better overall health while significantly reducing health care costs. Technology can definitely play an important role in cutting costs and improving efficiency, but meaningful change requires both employers and patient to make deliberate choices informed by data and case studies. The next couple of posts will aim to summarize some of the proposed alternatives to the current state.