If you want your healthcare initiative to work, you must concentrate on these 5 things:
- Price transparency
- Customers having “skin in the game”
- Prevention, which happens long before the doctor’s office
- Ending price discrimination
- Universal living wills for those receiving entitlement benefits
Thank you for putting your and your companies’ considerable economic weight and prestige into solving a problem politicians only succeed in making worse. The gravitational pull of a partnership between Berkshire Hathaway, Amazon, and JPMorgan Chase to bring down healthcare costs is gargantuan. I am certain the unnamed, yet to be defined company, whose current known objectives are to bring down costs, give your employees better options, and be free of profit making incentives and constraints, will have a major impact on the entire healthcare economy, intentional or not.
My background was in a family owned chain of retail stores in the upper Midwest. One of my areas of responsibility was running our self-funded health plan for 6,000 people. A plan with only 6,000 people is extremely small compared to the massive scale you are working with to solve this problem for your own employees, or maybe even systemically. In my tenure running our health plan we did a lot of innovative things that worked, but because we were small and lacked the political and economic clout there was only so far we could take it, for so long. That is why your under taking is so exciting… the sheer magnitude.
For your initiative to be successful long term, it is vital to avoid the temptations of quick and easy largely ‘zero sum game’ initiatives such as negotiating directly with pharmaceutical manufactures for lower prices. As you know merely compressing suppliers margins will only cause prices to raise elsewhere, or possibly cause less dollars being directed toward the research and development of life saving and enhancing drugs. In our current health care marketplace, or lack thereof, without holistic change, simply bringing economies of scale to bare would be a sugar high.
My hope is your new venture resists the temptation for the quick ‘sugar high’ of strong arming suppliers, and instead focuses on these five things:
- Price Transparency: When was the last time anyone was told the price of anything upfront at the pharmacy, doctors office, clinic, or hospital? I have only seen it once when a friend, who had a very high deductible plan, behaved appropriately as a consumer in a hospital that wasn’t prepared for consumerism. Most states regulate merchants. If the prices are not on the shelves, in the appropriate areas, or are otherwise confusing or misleading, fines may be issued. This is not the case in the healthcare business. Healthcare is filled with private discounts that are different from one insurer to the next based on their relationship to that provider network. The prices for services are not disclosed to the consumer and the discounts to insurers are not disclosed to the public. This needs to end. Prices for goods and services should be clearly published and discounts to health insurers need to be fully disclosed. There is no way that Americans can be smart consumers and make appropriate health care choices without knowing the price of what they are consuming. It has been American consumerism that is responsible for our dynamic, efficient, and innovative economy. If the hope is to “come up with something better”, that hope can be fulfilled by appropriately exposing the healthcare sector to the market dynamics that makes other business come up with something better on a daily basis, or become irrelevant. Centrally controlled economies have demonstrated that innovation can’t be planned from the top down. The healthcare sector has been shielded and detached from consumerism by a system where patients only have to present an insurance card and cross their fingers that they don’t have a deductible or copay. In the areas in the medical economy where there is direct pay, such as cosmetic surgery and LASIK we have seen a lower increase in cost over time as compared to the rest of the medical economy, consumerism works.
- Solely having access to the price of medical deliverables isn’t enough to bring the awesome power of consumerism to bear. For medical consumerism to work, plan participants need “skin in the game”, they need to be the ones paying. I am a big proponent of HRAs (Health Reimbursement Accounts) and HSAs (Health Savings Accounts). Health Savings Accounts allow employers to contribute, the employee to contribute, would be portable for one job to the next, would be tax free, would earn interest, could be shared amongst family members, allowed to be built up over time, and at a certain level transferred to a college savings account or retirement account. The driving mechanism of Health Savings Accounts is that it gives the individual control, allows them to make the decision of how and where to spend their health care dollar. No one likes to leave money on the table or spend it on something unnecessary. Yes, believe it: the majority of folks are sophisticated enough to understand that if they quit smoking, get off the couch and take a walk, or put down the sugary soda and drink water, that eventual will result in more money left in their Health Savings Accounts earning interest, compounding tax free. I will go into greater detail in point 3 below, but the opportunity not to spend money a great aid in prevention. It is important to note that Health Savings Accounts are not a panacea from an employer’s perspective, as there will always be major medical situations such as infants born with congenital heart defects and people who will have motor vehicle accidents, but that is what traditional health insurance or stop loss coverage is for. These urgent medical situations requiring immediate emergency attention would be covered differently, largely bypassing the Health Savings Accounts. What we are doing now is recognizing that health care coverage today has circumvented the traditional insurance model and is largely an open-ended health care payment system that is treated as a blank check. What this system would do is reestablish a traditional insurance system for major medical and emergency issues, and deliver the awesome power of consumerism, and the personal control it provides, into the hands of the individual. As in the rest of the economy, it matters who actually pays.
- In my experience running a small health plan, “prevention” was my greatest success. Prevention happens long before you get to the doctor’s office and it is entirely up to the individual. Some people already live healthy lifestyles and they should be rewarded for it, there are people that don’t, and they should not be rewarded for it. I understood the truism of “whatever you tax you get less of, whatever you subsidize you get more of,” and I used that model as one of the cornerstones of the health plan we created. Whether you see it as the carrot or the stick, it worked. We allowed our employees to greatly reduce their premiums by having an appropriate body mass index, not smoking, having appropriate cholesterol levels, registering a healthy blood pressure, taking an online health survey, and doing some exercise. It was completely voluntary, if they didn’t want to participate they didn’t have to, they could just pay what they were paying before. They weren’t out anything. The result: no one wanted to leave money on the table, and our employees got healthy. We gave them the tools, but it started with them and they were the ones who did what only they could do, and that was make their lives better. To be candid, at first I thought I made a major mistake as we had a significant spike in the cost of blood pressure and cholesterol medications, but after six months we saw our costs return to where they started at the beginning of the plan year, and in the final six months we saw a reduction that resulted in an overall savings for the plan year. The second year, as a self-funded ERISA plan, the savings was so dramatic we returned some of the contributions to our employees as we charged more than what our actual expense were; the rest of the years going forward were good, Unfortunately, in 2010 we faced regulatory and structural changes in the health care market place. Regardless of where you are politically, we have a business-friendly administration that would love to bring healthcare costs down, and would have no issues allowing plans that required a degree of individual responsibility. I know the “carrot and stick” analogy may seem callous, but people are very incentive driven, and no one can make them healthier other than themselves. I have witnessed a series of very emotional testimonials about folks being healthy for the first time in their adult lives and how it has improved the quality of their family and personal lives. Those amazing, positive, personal success stories would not have taken place without a financial motive, whether they saw it as a positive one where they were saving money, or they saw it as a negative where they would be paying more than healthy people, it worked. Furthermore, it saved them and the company a lot of money!
- There is probably no easier and yet more difficult way to save money in the medical economy other than ending price discrimination. Price discrimination, where Americans pay a higher price for drugs and medical devices than those outside our boarders, is just wrong on so many levels. While I am against price controls and government engineering in our economy, we currently regulate goods that cross our boarders, going in either direction. We need to use that power to make sure the American consumer is not paying more for medications than let’s say the country of Canada, or any other first world nation. It is high time American individuals and businesses stopped subsidizing foreign countries. The development of medical innovations is costly, but those costs should be share equally by the rest of the industrial, and post-industrial, world. If the pharmaceutical and medical device manufactures refuse to abide by that basic fairness, a commensurate export tariff should apply.
- In May of last year, Charlie Munger told CNBC’s “Squawk Box” that “The amount of waste from overtreatment of the dying is just disgusting.” Munger is right. According to the Kaiser Family Foundation, “Spending on Medicare beneficiaries in their last year of life accounts for about 25% of total Medicare spending on beneficiaries age 65 or older.” And that is just Medicare. The solution in not “death panels”, euthanasia programs, or the denial of end of life care. The solution is the opposite, to proactively put the power and control in the hand of patients. When applying for Social Security or Medicare benefits, there are documents that must be submitted and forms that need to be filled out to become an eligible beneficiary. One of the forms that should be included is a living will that would spell out what that individuals desires are should they become incapable of making those decision. It would be entirely up to the individual whether they wanted every “heroic effort” available to sustain life for as long as possible, a DNR (Do Not Resuscitate), or somewhere in between. It is my sincere belief that the overwhelming number of people would take that process very seriously, involving spouses and children to inform them of their wishes. I have had this conversation with many people of all ages, no one wants to spend their final days, weeks, or months on this planet undergoing needless painful treatments, being cut on, or having tubes sticking out of them. I am yet to find a person who at the end of their lives would want to be in a persistent vegetative state while health care aides performed diaper changes. I have the belief that most people would choose death with dignity; some might leave it up to their spouse or children, and for those that chose to be kept alive for the sake of being kept alive, that would be their choice. This gives the individual control, not the doctors, not the hospital, not the provider of payment coverage. The ultimate control would reside with the individual to whom that life belongs.
Interestingly, it is consumerism and the free market that has both directly and indirectly led to your and your companies’ combined amazing successes. It works, you are proof of it. If consumerism didn’t work, you wouldn’t be the titans of industry you all are. Please keep in mind that much of what is outlined above would require many changes at a political level, regulatory level, economic level, and market level. That is why I started off with a thank you, there are no three people who can better form a core group of other giants of American industry to bring these changes to bear, both for your employees and their families, but also for our country. Even if my ideas are discarded and you are successful in developing a model to bring down costs and increase access, thank you!