Financing (fə-năns’) v.
- To provide or raise the funds or capital for: financed a new car.
- To supply funds to: financing a daughter through law school.
- To furnish credit to.
The crisis that is American health care continues to get bad news. However, in a lame duck year, everyone realizes that not much is going to change. But, very shortly thereafter, there will be incredible pressure for change with a new president, a new congressional session, and a renewed public interest in health care policy.
This election year has been all about CHANGE, and “change is a comin” one way or another.
My own interest in health care reform has naturally led me to health care financing. I personally don’t believe anything is going to change until we radically alter how we pay for health care. Our perverse financing system rewards and incents exactly what we are getting today: discoordinated care, spotty quality, escalating costs, poor outcomes, and everyone recognizing the inefficiency, ineffectiveness, and inequality of it all. Truely, we are getting what we pay for.
But, it doesn’t need to be this way. I believe if we can use the appropriate mix of market forces, regulatory oversight, and government standards we could get there. I am an optimist that the collectively intelligence of the few, the many, and ultimately the people will get us there. I have chosen to break my back against fixing the insurance side of things.
Insurance is designed to pool risk that is typically too large for any one individual to bear. We all pay some (premium payments), so that the few that need it are covered from catastrophe. We are willing to enter into this social and financial arrangement because we are willing to accept a known cost (premium payments) in exchange for being protected against unknown risk exposure ($300,000 cancer therapy). This third party financing of individual risk works well for catastrophic situations, as demonstrated in the life, auto, property, and related insurances. However, it does not work very well for every day transactions, chronic situations requiring ongoing payments, and as a third party system of financing.
Third party financing removes the natural equilibrium that the constraints of cost, quality, and consumer utility-choice theory have in other market places. Perhaps that’s why recent innovations like Carol.com are so novel and so potentially impactful, they are attempts to create a true market with buyers, sellers, products, pricing, and information available in a real-time, transparent place of exchange. Obviously, Carol’s opportunity exists because health care is currently not even consumed in this way – there really is no where to comparison shop on price (information not readily available), evaluate product to product (very few things are bundled into consumable products), or assess shop to shop delivery in terms of outcomes, performance, and quality. This things just don’t exist.
So back to the financing thing, I personally think the whole insurance thing has been a major contributor to not having a true market within health care. Third party payment systems not only remove the natural incentives of a market, but by burying the effects of market incentives, wreak all kinds of havoc in the supply and demand theories that we are so familiar with. This leads to incredible variations in care as well . . . where there are alot of MRI machines, alot of MRI tests get ordered (more than would be expected). Same holds true for surgeons (lots of back surgeons, lots of back surgery), hospital beds (lots more time in the hospital), and nearly every other form of care. The theory and explanation behind this “supply-driven demand” are expertly laid out in the book Overtreated by Shannon Brownlee.
So people can go off all they want regarding health care insurers being the bad guys – and many if not most times they have absolutely been the bad guys (we could go on endlessly about their incredible poorly thought out policies, denying coverages, retroactively cancelling policies, bad admin, etc) – but insurance is a purely a financial instrument that should be used to protect against catastrophic situations. If you choose to make poor health decisions, you fail to save money, and don’t plan for future costs, then you need to assume some personal responsibility for these choices. Clearly, this can go too far, and there is genetics, unpreventable disease, and an entire social safety network that we must and need to preserve (and most everyone I know would be willing to pay into), and it is a nearly impossible political balance to maintain. However, I believe we need to focus on realistic expectations for the insurance industry, how we use and think about insurance differently, and how we can be more accountable for our own choices while still being protected.
A fundamental value of American society is freedom. But “with great freedom, comes great responsibility“, including the responsibility to financially accountable for our health care choices. And as a society, we can and should be accountable to each other by creating appropriate safety net coverage for the poor and for those in situations beyond their control. I believe this can certainly be a part of the social contract within a capitalistic, market-driven health care sector.
For me, this translates into a much clearer need to have “first party” financing be a first priority in health care.
3 comments on “First Party Financing – Lets Get Real About Health Care”
I was trying to sign up to your RSS feed, but I could not find it. Great blog! Keep up the good work.
From Uncle Buck:
It is good to see people talking about changes to health care, not only the payment for health care but also the delivery of services.
It is interesting to see that most of the discussion centers around how to steal money from one or more groups to pay for someone else’s health care.
Next thing you know there will be groups wanting others to pay their mortgages. Oh you say that is already being considered. Well where have I been?
By the way, I am looking for someone to pay my car payment, and while they are at it I really would like to have a better car or at least a more expensive one, I also would like to visit Starbuck’s twice a day rather than once a week or so that I can afford, and certainly not the last thing I would like someone else to pay for is a week in some different, exotic vacation spot every month. Who wants to volunteer?
If you want to fix the health care system then you really have to look into history and see what groups have had negative impacts on health care and how the financing is accomplished. Then start to work on changes.
Check this out, as you should everything that impacts your life, but I think the medical insurance industry got major impetus during the “New Deal” and World War II, when wage and price controls were in effect, however, employers could add certain programs to their workers income that were not considered cash income. These programs did not put cash directly in the employee’s pockets that they could use to buy consumer goods and services. This would have driven prices up due to the scarcity of autos and a host of other products. I believe this led to the over use of the insurance, because if there is something you can have and you don’t have to pay for it then you think it is your right to have as much as possible.
This is now coming full circle; major and not so major companies are looking for someone to pay for the health care for retirees that they had promised to pay for life. Now of course when they originally made those promises health care was much less expensive.
This isn’t the only area that needs some changes. Thinking back over the 14 years or so that I have had Type 2 diabetes I cannot remember a cure for this situation. When I visit my personal physician everyone rejoices, but me. He says, “We have to get the glucose reading down, there’s a new pill for that, your blood pressure is a little above the recommended pressure that has just been reduced by someone, there’s a new pill for that, and your cholesterol is too high there’s two new pills for that, so after adding three or four new prescriptions to my over medicated life, I go to the pharmacist who is very happy to see me.
Even the insurance company is happy to see these transactions. They no doubt own interests in the drug companies and if my costs are two high they raise the premiums next time around. So everyone is happy? Even the side effects are happy.
Then I tell my M.D. who is in the “practice” of medicine that some day he may get enough practice so that he can really be a healer, not just be a pill pusher. Of course, my attorney, my accountant, my dentist, my foot doctor, and others are all just practicing.
Then there are the governments at all levels whose interest in health and medical care has nothing really to do with health or medical care. It has more to do with getting votes.