Health Care: a System or Industry?

As a nation, we are now deeply embroiled in a debate about the future of our health care industry.  My next few posts are going to be delving into the grimy details of this debate with two goals:

1. to define what we currently have
2. to understand what is being proposed and where it might lead us

I want to get it #1 nailed down, first, before we get into #2.  Perhaps the single most frustrating thing is to discuss a topic when not everyone in the room is coming from a similar basic understanding of the actual state of affairs…

So here we go…

The hallmark of our American culture is free-enterprise.  Free-enterprise has taken our country from a fledgling colony to the world’s last super-power.   This point is not up for debate.  It’s who we are, where we’ve been, and what we do.

However, as we’ve grown and matured as a country, our citizens have gradually changed the expectation of citizenship in this country.  Consider the difference between the “wild west”, when you were lucky if there was one ‘Wyatt Earp’ in any given city.  Now, law enforcement, fire departments, traffic controlling, and emergency management of all kinds are just a given.  Rather than focusing on individual preparedness, we have systematized all our life’s unknowns to our government.  If there’s a fire, crime, disaster, family dispute, orphan, poverty, retirement, or even if you want to build something on your own land – we, as a society, have provided for that.  I suppose it’s the price we’ve paid for ‘culture’ and the cost of living with each other – we’ve introduced this huge arbitrator between us, called the government.

In the last 100 years we’ve moved to systematize sectors of our economy from “industries” to “systems”.  This is an important word.  A system is typically characterized as being stable, predictable, and uninterruptable.  Systems tend to have deep pockets, steep overhead and large bureaucracy.  Government tends to run “systems.”

Industries are different.  Industries are typically made up of many companies and individual entrepreneurs and innovators.  Industries are volitile, nible, and fragile.  They ebb and flow with the times.  They rise and fall with demand, capital, and the market.  They can produce large profits, but also run the risk of taking huge losses and ultimately failing.

The question is: Is our Health Care a “system” or an “industry”?

The answer is: Yes.

The industry is made up of two major components: Health care providers & Health care payers

Providers are largely still an industry.  Doctors set up practice in locations where they will have enough patients to make a decent living.  Hospitals, clinics, and private practices tend to ‘follow the money’, making a really good living based on their local reputation and skill at their profession.  Drug and medical equipment companies live or die by their successful products and innovations.

Payers are largely a system.  The three categories of payers are now: for-profit insurance companies, not-for-profit health care cooperatives, state government programs, and federal government programs.  These companies have various goals, though:

• For-profit insurers want to keep as many customers as possible, offering premiums and programs that cover their customer base without draining their cash supplies they can claim as “profit”.
• Non-profit are similar to for-profit except that rather than returing profits to shareholders, the profits are used to grow the company, and grow the number of people who can be served through the coop.  The profits are just banked against future loss and growth.  (Similar to bank vs credit union)
• Government services’ primary goal is to control cost, keep from bankrupting itself, and fulfill its government mandate.

So what’s the problem with health care?

Cost!  Cost!  Cost!  It all goes back to the almighty dollar!

It’s been the problem for the last 100 years.  Cost is the reason why we need a middle-man/payer in the first place.  When we get sick, we all want the best care available.  To be able to pay for this, we have to have advanced medical centers and well-trained physicians everywhere.  There is demand everywhere for the best drugs, the best medical equipment, and the latest advancements.  This is not cheap.  It is very expensive!  We have to pay for it somehow, and so the cost of treatment has gone up and up.

It’s so expensive to get treatment, we have to insure ourselves against the possibility that we’ll get sick.  Medical insurance is now the fixture in the industry, and all the money is funneled through their hands.  Because of this, they have become the tail that wags the dog, and the target of intense scrutiny.  They are the final word to the patient and to the doctor.  They dictate what they will pay for, when they will pay for it, and how they will pay.  Doctors, in turn, spend more and more time and resources understanding and maximizing what they can get out of each insurance company.

Then there’s the government.  We decided we needed to help those who could not afford insurance (the poor and the retired), and the Medicare system was born.  Medicare’s role in today’s system is to set the ‘baseline’ for all other insurance companies.  Medicare decides what it will pay for any given procedure, and other insurers have to pay at least that.  Medicare dictates to the doctors the minimum they will get paid for any particular thing.

Lest we criminalize the insurers too badly, remember it is on the backs of these insurers we have built the largest, most advanced health care system in the world.  All the great health innovations continue to come from the United States, due to the great educational system, infrastructure, and momentum.  People get paid (and get paid well) to innovate and invent new medical procedures and medications, and insurance companies (as evil as they can be to both doctors and patients) continually finance it and make it all possible.

So that’s how our medical system works today.  The next posts will focus on some of the proposed reforms and transformations of our health care “systems” and “industries”.