The Right Healthcare Reform?

Posted by Richard Jacobson

The Right Healthcare Reform?Early last year, as the presidential primary election campaigns heated up, we began to hear the details of the various healthcare proposals put forth by the different candidates. While they varied in approach, structure and cost, they all were focused around a few principle objectives:

  1. Slow Down Cost Growth

  2. Expand Coverage
  3. Improve Outcomes

These objectives have not changed. I would like to take a minute to delve into each of these objectives, so we understand the issues that each attempts to ameliorate.

1. Slow Down Cost Growth

According to the Congressional Budget Office, the average annual increase in the total cost of healthcare from 1965-2005 was 4.9% compared to average GDP growth over that same period of 2.1%. While this is clearly alarming and must be dealt with, it should also be looked at in the correct context. During that same period, the median age in this country increased from 28.1 years to 36.2 years. While current projections show that median age will continue to increase in the future, the rate of this increase is actually slowing dramatically – the census bureau expects the median age to level out around 39.0 years by 2030. This deceleration in population aging should act as cost growth inhibitor over the intermediate and long term. While this one factor will not in itself solve our current cost challenges, it is something worth keeping in mind because the problems may not be quite as daunting as they seem.

2. Expand Coverage

There are two related issues that need to be solved. The first is hampered access to preventative and wellness care by the uninsured population. The second is financial ruin that uninsured and underinsured families face when an unexpected healthcare emergency arises.

3. Improve Outcomes

The shortcomings of our system have been well-documented. I am not going to rehash them all here but clearly, when it comes to the metrics that all of us would agree are important, our system has room for improvement.

Root Cause

So what are the causes of these issues that we face? We have heard many ideas from many players and most of these ideas have merit. I argue, however, that many of these ‘causes’ are not causes, but rather symptoms of the problem. For instance, the ARRA included $19B for investments in health information technology, aimed exclusively at healthcare providers. The idea behind this subsidy was that the provider industry needed a kick-start to invest in technology – and that investment would lead to efficiency gains. Why is it that this huge industry needs government money to invest in technology where every other industry does so via reinvestment of revenue? I postulate that healthcare providers are rational economic players and, generally, will make decisions that are economically correct for their own interests. The reason that information technology dominates every other industry is economic Darwinism – only the strongest (most efficient) organizations survive and information technology is a key to efficiency. Quite simply, there is no economic competition for the consumer among healthcare providers and this structure provides a lack of economic incentives. The symptoms of this problem are seen everywhere in our healthcare system: in the 60-minute waiting room delays for a ‘scheduled’ appointment, in the uncoordinated approach to care among providers focused on the same patient, in the ridiculously high ‘retail price’ of hospital stays, and mostly in the runaway cost of care.

If we solve the problem of missing consumerism, we make a huge impact on the cost of care and, if done right, we also make great strides towards improved care. Expanded coverage will follow. I am not suggesting that consumerism alone will bring us all the way to the ideal. There are no doubt other issues that need to be solved, including the tort system and the impacts it has on defensive medicine. However, consumerism is the best tool we have to get most of the way there.

The Wrong Focus

Somehow the health insurance industry has become the focus of upcoming changes. This is ironic given the fact that our industry has been one of the very few inhibitors of cost growth over the past twenty years. Attempting to solve the healthcare issues by reforming insurers is akin to creating Wal-Mart reform because the cost of food has gone up. It is counterproductive.


The only way to solve our healthcare challenges is to attack the problem by injecting consumerism into the process. Interestingly, with the help of the government, our industry has made great strides over the past several years. The latest generation of Consumer Directed Health Plans, greatly strengthened by the 2004 creation of Health Savings Accounts, is just now getting consumers comfortable with taking some control of the economic decisions involved in healthcare. Moreover, these plans are economically encouraging Americans to make better lifestyle decisions that will have a dramatic positive effect on our healthcare system.

What is missing from the current solution set is significant. There is a massive knowledge gap between providers and consumers that makes consumerism extremely difficult. This is where government can step in and add value to the process. By defining standards for outcomes, measures of efficiency and even customer satisfaction, and by then measuring providers against those standards, the government could provide the keystone to a consumer-driven healthcare system.