We all already know the main problems; Health care costs are high, and patient satisfaction is low. But do we all know the root of the problems? 

 

Understanding the Root of the Problem

Health care in the United States is provided by thousands of independently owned and operated health care providers throughout the nation based loosely on free market principles. Specifically, health care providers offer a service and Americans can purchase the services they need.  But unlike ordinary products and services in the free market, Americans often seek health care when they are at their most vulnerable, and when seeking services is unavoidable. Most of the time, seeking health care is not really an “elective choice.” And health care services are also unique in that they provide a service, not a product, and these services cannot be exchanged or undone–in most cases–once they have been provided. 

When an American buys a faulty product, they have the ability to exchange goods, or to seek a refund for services. But no health care treatment is 100% guaranteed. When a treatment does not meet its intended goal in the health care industry, the patient must purchase additional treatment, see a different professional or undergo additional testing. This means Americans must not only be able to pay for the initial service, but for subsequent and follow up services if the first treatment fails to meet its intended outcomes. While Americans can budget for elective purchases, the need for health care is often unplanned. It is difficult for Americans to plan for a broken leg or cancer diagnosis, and even more challenging to budget for potential follow up services, such as testing, x-rays and additional appointments.

 

The Insurance Model 

To address this unique dynamic in the free market system, the United States has adopted an insurance-based model. But the cost to individual Americans, states and the federal government to support the insurance-based model are staggering. Americans must pay for health insurance through monthly premiums, payroll taxes, and even through other insurance programs like car and homeowner’s insurance. In addition, nearly all insurance policies also require “out-of-pocket” expenses. 

In fact, Americans have never been able to afford this system. The United States has upwards of 6,000 hospitals operating independently (note: these figures do not necessarily include additional services such as assisted living facilities, dental offices, mental health care providers and others). This means separate administrative overhead expenses, accountability measures, and department financial management protocols for thousands of providers. The system is not a system at all, but rather a collection of independent agencies that are competing with one another for patients, supplies, services, and funds. The result has always been a higher premium for Americans. In 2008, nearly 1 in 6 Americans were reported to have barriers to accessing health care. And even after the passage of the Affordable Care Act, the needs of 30 million Americans were left unaddressed while cost burdens for working Americans continued to rise. Unfortunately, while intended to address the challenges in the health care industry, the Affordable Care Act only further institutionalized a model that is fundamentally flawed.  

The insurance-based model does not work for one main reason. Insurance is designed for things that could but are unlikely to occur. For example, homeowner’s insurance makes sense because a fire is unlikely to occur. Participants in the insurance pool can afford to make lower premiums, and few claims are necessary relative to the pool’s size. However, at this time in human history, human beings are very likely to get sick at some point in their lives. Even those who take the most care of themselves have the potential to experience an accident causing critical injury, or develop a chronic illness, such as cancer. Insurance is not a practical or rational model for things that are very likely to occur. 

 

Fee Per Unit Pricing

The additional challenge with the insurance model is that it establishes a fee-per-unit framework for costs and expenditures in the health care industry. This approach makes sense in a traditional, profit-based business model. However, when applied to health care services, this approach is akin to requiring drivers in the United States to pay not only for each mile of road they travel upon individually, but also for each dotted line, reflector and mile marker they pass on their trip.  There is no need to account for health costs in this fashion, however. This is because health care delivery costs are actually formulaic. This means there are fixed costs associated with serving a fixed number of people. For example, to serve 25,000 or 50,000 residents, a single system needs to maintain X number of staff, X number of supplies, X pieces of equipment, and provide X number of treatments. The fact is health care services can and should be delivered using a fixed expense budget to meet the needs of a specific region’s patients based on population size. 

 

Insurance Is a Faulty Product

The final challenge with the insurance model is that it is ultimately a high expense, high risk product. Americans are asked to pay monthly premiums, payroll taxes, high deductibles and copays, and are still subject to treatment and service denial from their providers or insurance carriers. While many Americans do purchase health insurance because there are few, if any, alternatives at this time, the product itself is not logical or practical. It makes sense for insurance providers, but not for patients. 

In fact, it is not only personal premiums for health care that are required to subsidize the private health care industry. Americans are required to purchase “hidden” costs as well. Consider for moment the costs associated with automobile insurance, homeowner’s insurance and liability insurance. A significant portion of these insurance products are related directly to subsidizing the private health care industry.  

 

COVID-19 Makes the Case On Its Own

Despite the incredible amount of financial support Americans currently provide to subsidize the private health care industry, the industry is unable to meet the needs of Americans on a regular basis. Millions of Americans forego basic preventative and even life-saving treatment each year, leading to unnecessary deaths and/or costly chronic disease. In fact, despite the incredible expenses Americans pay towards the private health care industry, COVID-19 required the entire nation to issue “stay-at-home” orders to protect an unprepared private sector. And just as importantly, a nation of thousands of independent providers is not coordinated in a way to adequately respond to national crises such as COVID-19. The current model resulted in federal, state and local governments, as well as private providers, competing for resources to serve the people of the United States during an emergency. Many providers are still not given appropriate Personal Protective Equipment (PPE). 

And today, insurance providers are already asking to raise premiums.