Thanks. I'm not sure where I came from either...I'm a nearly 40-year veteran of writing about the healthcare industry, writing, consulting, and speaking inside the industry and to employers and other such groups that are dependent on it and trying to understand it. I speak and hold discussions all over the world (Brazil is coming up in November, and maybe Turkey) for everyone from local clinics for farm workers to national governments, the U.S. Defense Department, and the World Health Organization. I keep busy. But now I have decided to go on a TH-cam campaign to explain all this to people who don't read the industry press or go to their conferences. More coming up!
This is a great overview of part of the problem. I would argue that the perceived lack of incentive for customers to shop for the best deal or the inability to do so are the biggest problems with the US healthcare industry. There are so many levels of cost abstraction in the whole process which ends up having consumers pay too much for the services they get. And what I mean by that is the consumer perceives less financial responsibility because insurance pays for the bulk of the services, insurance is in turn (many times) paid at least in part by the persons employer and the employee. How many times have you been at the doctor and he/she has said "We might as well run this test while we are at it, insurance covers it"? In that situation, not only are you unaware of the actual cost you really don't care what the actual cost is because insurance pays for it. People generally don't think of that as being a part of their premium. And there is reason for this because health insurers pool people together to share the cost of services. This is a perfect example of tragedy of the commons.
Hey, Matisse, great question. I am a Kaiser member, have been for something like 45 years, and have spoken at their conferences many times. Kaiser and other true HMOs eliminate one of these intermediaries by becoming one, that is, they combine the huge medical combine with the payer, the insurer. This balances their incentives and aligns them with me, the customer, a lot better. They have to endeavor to provide me with high quality medicine and convenience at low cost - not the lowest possible cost, but at least around the median for the market. They have to do this to maintain market share, because their model doesn't work that well where they don't own their own facilities. This eliminates many of the problems Mr. and Mrs. Chalk have. If Kaiser provides a service, Kaiser covers it. They are not going to find themselves suddenly exposed to full medical bills for something they thought was in the plan. They are not going to find that the doctor they were told was covered was actually not in the plan. Depending on their plan, they may have a deductible and co-pays, but they are clear and transparent, and they don't change suddenly. Why aren't they cheaper than everyone else? On the one hand they don't have to be to keep and expand market share. On the other hand, their costs are like anyone else's. They may do fewer bogus knee and back surgeries, for instance, but to hire an orthopedic surgeon they still have to play the million-plus that surgeon could get elsewhere.
I still don't understand why Kaiser HMO doesn't cost less than a pseudo-HMO like Blue Shield or Sutter Health Plus. I see that Kaiser has to pay the same cost to hire an orthopedic surgeon. Kaiser has to pay the same to build a hospital and to buy a CT scan machine. But Kaiser doesn't have to charge $600 for a bottle water. Take your example of Mr. Hann, why can't Kaiser cost less by charging $50 for an EKG? You would think that charging $100 for two EKGs rather than $3823 would add up to significant cost savings over the long haul. Where does that money go at Kaiser? It doesn't show up in lower premiums (which are about the same as Blue Shield and Sutter Health Plus).
Hey Richard! As they say in the Facebook profiles, it's complicated. In thinking about this, we don't want to mix up internal costs and external charges. The $600 external charge for a bottle of saline solution (sterile water with about a teaspoon per liter of salt added) has an internal cost of usually literally zero - cases of the stuff are thrown into huge package deals with medical suppliers because it helps make the hospital's supply officer's spreadsheet look a little sweeter. In a fee for service environment, they can charge ridiculously high prices for it. Kaiser is mostly not a fee for service environment, so they don't. I suspect that as new entrants to the market actually begin to drive down healthcare costs Kaiser will be in a better position than most to lower their premiums or at least not raise them, because they have better control on their internal costs. By the way, Kaiser is not a pure not-for-profit. It has three parts: the insurance arm and the operational arm (the buildings, equipment, staffing, all that) are not-for-profits. Kaiser physicians constitute a mutual benefit organization, that is, it's for profit but only for its working members. You and I can't buy stock in it. That means it's a private for profit that does not have to tell us what they do with their money. At the end of the year, the for-profit and not-for-profit sides split any margin (profit). So if they have a greater control of their costs, why don't they just go ahead and lower their prices/premiums? Here's a secret not well understood outside the industry (and a key to why Obamacare has not been more effective in driving down costs): Nobody wants the bottom of the market. Obamacare was based on the premise that if you opened up insurance markets and got health insurers to really compete on price, you would get lower premiums, and the insurers would be able to push the healthcare providers to compete on price and quality and so lower their costs. But no one who is established at all in a market really wants to be the low-cost leader. Because the people who reflexively buy the cheapest health insurance have zero brand loyalty. If you under price your premium and end up attracting the sicker and poorer (in the industry privately they call them the "bottom feeders), you will likely not make any margin at all. You will likely spend all of the premiums and more paying for their medical services. Next year when you have to raise your premiums or go out of business, all those customers will be gone. So the sweet spot in the market is at or slightly below the median for that market. That's what Kaiser does. Then they aim to hold or expand their market share by being more reliable. But all that is grist for another video. So thanks for asking!
There are 2 types of competitions. The competition to be the best health provider And The competition to make the most money. Its too lucrative to be anything else. But this argument has been going for a long time, it has a long way to go yet. Only when the people get angry will it change.
In your initial analysis, you forgot the main point about HC services. Demand is inelastic. You can choose not to buy the car or the burrito. But when you get sick, that happens involuntarily and you have no choice but to get healthcare, else you die. Demand for HC services is fixed and constant. This is why everyone should be for Medicare for all. No mandatory private insurance, no intermediaries, no deductibles, no co-pays, no surprise bills, no out of pocket expenses. You pay your taxes, and are automatically covered with Medicare. Medicare never denies care, covers everything, and never demands pre-approval for anything. The current status of the healthcare system in the USA is about making insurance and healthcare providers richer while americans die, 45000 per year to be more precise. Meanwhile, all of the GOP and most of the Democrats take bribes from these companies not to do anything about it, and shameless buffoons like Buttigieg and Biden going around saying americans have it soo o much better with private insurance.
Bravo! A clear explanation!
Ty Joe not sure where you came from but you do wonderful work here and make a lot of sense. Breath of fresh air.
Thanks. I'm not sure where I came from either...I'm a nearly 40-year veteran of writing about the healthcare industry, writing, consulting, and speaking inside the industry and to employers and other such groups that are dependent on it and trying to understand it. I speak and hold discussions all over the world (Brazil is coming up in November, and maybe Turkey) for everyone from local clinics for farm workers to national governments, the U.S. Defense Department, and the World Health Organization.
I keep busy. But now I have decided to go on a TH-cam campaign to explain all this to people who don't read the industry press or go to their conferences. More coming up!
Nice work Joe. Sharing the new channel with my students. Thanks!
This is a great overview of part of the problem. I would argue that the perceived lack of incentive for customers to shop for the best deal or the inability to do so are the biggest problems with the US healthcare industry. There are so many levels of cost abstraction in the whole process which ends up having consumers pay too much for the services they get. And what I mean by that is the consumer perceives less financial responsibility because insurance pays for the bulk of the services, insurance is in turn (many times) paid at least in part by the persons employer and the employee. How many times have you been at the doctor and he/she has said "We might as well run this test while we are at it, insurance covers it"? In that situation, not only are you unaware of the actual cost you really don't care what the actual cost is because insurance pays for it. People generally don't think of that as being a part of their premium. And there is reason for this because health insurers pool people together to share the cost of services. This is a perfect example of tragedy of the commons.
Hi Joe, can you explain to us how something like Kaiser and HMO's fit into this picture?
Hey, Matisse, great question. I am a Kaiser member, have been for something like 45 years, and have spoken at their conferences many times.
Kaiser and other true HMOs eliminate one of these intermediaries by becoming one, that is, they combine the huge medical combine with the payer, the insurer. This balances their incentives and aligns them with me, the customer, a lot better. They have to endeavor to provide me with high quality medicine and convenience at low cost - not the lowest possible cost, but at least around the median for the market. They have to do this to maintain market share, because their model doesn't work that well where they don't own their own facilities.
This eliminates many of the problems Mr. and Mrs. Chalk have. If Kaiser provides a service, Kaiser covers it. They are not going to find themselves suddenly exposed to full medical bills for something they thought was in the plan. They are not going to find that the doctor they were told was covered was actually not in the plan. Depending on their plan, they may have a deductible and co-pays, but they are clear and transparent, and they don't change suddenly.
Why aren't they cheaper than everyone else? On the one hand they don't have to be to keep and expand market share. On the other hand, their costs are like anyone else's. They may do fewer bogus knee and back surgeries, for instance, but to hire an orthopedic surgeon they still have to play the million-plus that surgeon could get elsewhere.
In short, Kaiser Permanente is a full-service hospital that is run by an insurance company. Caveat emptor...
I still don't understand why Kaiser HMO doesn't cost less than a pseudo-HMO like Blue Shield or Sutter Health Plus.
I see that Kaiser has to pay the same cost to hire an orthopedic surgeon. Kaiser has to pay the same to build a hospital and to buy a CT scan machine. But Kaiser doesn't have to charge $600 for a bottle water. Take your example of Mr. Hann, why can't Kaiser cost less by charging $50 for an EKG? You would think that charging $100 for two EKGs rather than $3823 would add up to significant cost savings over the long haul. Where does that money go at Kaiser? It doesn't show up in lower premiums (which are about the same as Blue Shield and Sutter Health Plus).
Hey Richard! As they say in the Facebook profiles, it's complicated. In thinking about this, we don't want to mix up internal costs and external charges. The $600 external charge for a bottle of saline solution (sterile water with about a teaspoon per liter of salt added) has an internal cost of usually literally zero - cases of the stuff are thrown into huge package deals with medical suppliers because it helps make the hospital's supply officer's spreadsheet look a little sweeter. In a fee for service environment, they can charge ridiculously high prices for it. Kaiser is mostly not a fee for service environment, so they don't.
I suspect that as new entrants to the market actually begin to drive down healthcare costs Kaiser will be in a better position than most to lower their premiums or at least not raise them, because they have better control on their internal costs.
By the way, Kaiser is not a pure not-for-profit. It has three parts: the insurance arm and the operational arm (the buildings, equipment, staffing, all that) are not-for-profits. Kaiser physicians constitute a mutual benefit organization, that is, it's for profit but only for its working members. You and I can't buy stock in it. That means it's a private for profit that does not have to tell us what they do with their money. At the end of the year, the for-profit and not-for-profit sides split any margin (profit).
So if they have a greater control of their costs, why don't they just go ahead and lower their prices/premiums? Here's a secret not well understood outside the industry (and a key to why Obamacare has not been more effective in driving down costs): Nobody wants the bottom of the market. Obamacare was based on the premise that if you opened up insurance markets and got health insurers to really compete on price, you would get lower premiums, and the insurers would be able to push the healthcare providers to compete on price and quality and so lower their costs. But no one who is established at all in a market really wants to be the low-cost leader. Because the people who reflexively buy the cheapest health insurance have zero brand loyalty. If you under price your premium and end up attracting the sicker and poorer (in the industry privately they call them the "bottom feeders), you will likely not make any margin at all. You will likely spend all of the premiums and more paying for their medical services. Next year when you have to raise your premiums or go out of business, all those customers will be gone.
So the sweet spot in the market is at or slightly below the median for that market. That's what Kaiser does. Then they aim to hold or expand their market share by being more reliable.
But all that is grist for another video. So thanks for asking!
As always Joe, this is fascinating and enlightening. Thanks.
There are 2 types of competitions.
The competition to be the best health provider
And
The competition to make the most money. Its too lucrative to be anything else. But this argument has been going for a long time, it has a long way to go yet. Only when the people get angry will it change.
Damn i thought it was Tommy Chong
In your initial analysis, you forgot the main point about HC services. Demand is inelastic. You can choose not to buy the car or the burrito. But when you get sick, that happens involuntarily and you have no choice but to get healthcare, else you die. Demand for HC services is fixed and constant.
This is why everyone should be for Medicare for all.
No mandatory private insurance, no intermediaries, no deductibles, no co-pays, no surprise bills, no out of pocket expenses.
You pay your taxes, and are automatically covered with Medicare. Medicare never denies care, covers everything, and never demands pre-approval for anything.
The current status of the healthcare system in the USA is about making insurance and healthcare providers richer while americans die, 45000 per year to be more precise.
Meanwhile, all of the GOP and most of the Democrats take bribes from these companies not to do anything about it, and shameless buffoons like Buttigieg and Biden going around saying americans have it soo o much better with private insurance.