Have you ever sat on a three-legged stool? If one of the legs is too long or too short, you slide off the stool and end up sitting on the floor.
Our health-care industry is like that. It is a three-party system that has to be properly balanced to function effectively.
The first party is the patient who receives services. The patient deserves high-quality services at a reasonable price.
The second party is the provider of services. Providers include physicians, hospitals, labs and the pharmaceutical industry.
The third party is the fiscal agent. Fiscal agents can be insurance companies, the government, or for those without insurance, it is the patient who often ends up sitting on the floor.
Most other countries try to keep the stool balanced by having all stakeholders participate in a single system, whether it is a single-payer system or a privatized system.
In America, we have a multitude of systems. Around 60 percent of Americans get their health care through employer-sponsored plans. We also have Medicare for those over 65, Medicaid for the poor, private insurance, insurance sold through the ACA exchanges, VA-administered health care and workers compensation.
I probably missed some of the systems, but you get the idea; we have a hodgepodge of systems which extend the legs of the stool for some while shortening them for others.
Each of these systems is administered separately, resulting in duplicative administrative costs. Some patients get moved from systems, falling through the cracks as a result of such movement.
Each system has its own political constituency – making it very difficult, if not impossible, to change systems. Let’s examine who wins and loses under our current system.
From the patient’s perspective, those who participate in employer-sponsored plans receive employer subsidies for a portion of their insurance costs and have the best provider networks. These folks generally sit on a balanced stool and lack incentives to change.
The chronically sick who are unable to earn a steady income are forced into Medicaid or an exchange plan that is more expensive. Their leg of the stool is too short.
From the provider’s perspective, the chronically ill lose their pricing power when they have to negotiate with insurance companies and government payers who use their economies of scale to negotiate favorable pricing. Thus, providers are consolidating.
Furthermore, providers charge exorbitant rates to those who are out of network. Pharmaceutical companies seem to be in the most advantageous position as they are able to extract higher prices because they are sufficiently large to take advantage of the fragmented payers’ market.
From what I have read, it appears that American providers are generally more profitable than their counterparts elsewhere. For the most part, providers have the most comfortable stool.
Finally, there is the fiscal agent. Employer-sponsored and other group plans tend to have healthier participants and are lucrative. However, remaining plans contain sicker segments of the population.
Furthermore, the ACA restricts the ability of insurance companies to sell their products nationally and form more comprehensive risk pools. Insurance companies are trying to keep their stool balanced, and the only way they can do so is to concentrate on employer- and group-sponsored plans.
The government has many programs, and the financial effectiveness of those programs varies. Each of the government-sponsored programs is subsidized to some extent by taxpayers.
The fragmented nature of government programs means that they lack the purchasing power needed to operate most cost-effectively. For example, the VA pays less for drugs than does Medicaid.
If we really want to balance the stool for everyone, we need to put everyone in a single-risk pool. That does not mean that we have to adopt a single-payer system, but we need to ensure that the risk pool is representative of our population as a whole.
That means that everyone can get insurance at a reasonable price without having exorbitant deductibles.
We also need to have a single administrative system in which all stakeholders can participate. That eliminates costs resulting from duplicative systems and it prevents people from falling through the cracks when they are shifted from one system to another.
A unified system means that the fiscal agent’s purchasing power can be directed to extract the best prices from providers — particularly from pharmaceutical companies.
Making this type of change has not been proposed and would require an extensive resistance to the special interests who want to keep their stools balanced while others sit on the floor.
My final columns in this series will deal with whether health savings accounts make sense and what government’s role should be in them.
Jim de Bree is a retired CPA who resides in Valencia. This is his fourth column on health care.