Five Economic Crimes of American Healthcare

I’m thrilled to share some of my revelations from episode 2 of my new 6-part series of The McFuture Podcast - The Capitalist Solution to Universal Healthcare.

The first thing you find beneath America’s employer-based healthcare system is termites. Like the Great Recession, we barely notice the erosion…until Dr. House has no house. When this foundation buckles, no one gets to act surprised. The numbers don’t lie – not a single player in this economic monstrosity is well-served. Not individuals, small businesses, corporations, or the US itself. Not even healthcare providers. The strangest thing I discovered is those who think they’re safe – the insured – are also the most vulnerable. 

So, sit back, put down that expired Valium, and let’s get mad together.

Crime #1: The multi-trillion dollar boo-boo

• Victims: taxpayers
• Perpetrator: US Government
• Damages: $260B a year

Boy will my fellow capitalists hate this one...

You know the idea of letting the free market solve healthcare? Corporations, insurers and providers innovating and competing to find a scalpel for every appendix? Such an adorable idea!! It’s also a massive lie.

Our entire “private”, employer-based healthcare system was created by government and still PROPPED UP by taxpayers.

They say government doesn’t create jobs. I beg to differ. Every regulation spawns a cottage industry of useless paper pushers and mutant entrepreneurs “innovating” around atrocious policies. Healthcare is no exception.

In 1942(!!!), President Roosevelt froze wages to keep companies from driving up inflation during the World War II labor shortage. (All the men were at war.) Instead, companies - always craftier than government - began competing on benefits, especially healthcare. A government-spawned industry was born.

Then the government doubled down.

“in 1943, the Internal Revenue Service decided that employer-based health insurance should be exempt from taxation. This made it cheaper to get health insurance through a job than by other means.”

And it kept doubling down long after the need for this failed policy was gone.

Now, we’re drowning inside a government f***-up! The consequences of this World War II relic is a government-spawned industry that depends on a perverse, open-ended $260B annual tax break.

That’s right, the higher your tax bracket and more expensive your insurance at say, Apple or Google, the bigger the tax break. WE subsidize meditation, acupuncture and whatever “corporate wellness” is - for brogrammers earning five times what the average American does. Joke’s on us.

A fix to tax these “Cadillac plans” has been postponed indefinitely. But change is not out of reach. The recent tax bill capped a similarly regressive mortgage deduction that favored wealthier property owners.

Crime #2: Killing small business & competition

• Victims: small businesses
• Perpetrator: US government, employers
• Damages: new business starts at 40 year low

This World War II “boo-boo” trickles down to small businesses.

Do you think Shecky's Shoe Shack can compete with the kinds of benefits Amazon can afford? No small business can. No small business can ever hire the best workers – as long as big companies can use health as a recruiting tool. Our employment-based system puts small businesses at a permanent competitive disadvantage, distorting who we choose to work for.

NYU Medical School recently made tuition free to eliminate a similar distortion. Graduates were choosing more lucrative, less useful fields, like cosmetic surgery, just to pay off hundreds of thousands in loans. By eliminating debt, graduates can make purer choices.

From years of working in corporate innovation, I’ve known countless people who fester in jobs long after they should have left or retired – just for the benefits. Many don’t start that dream business or take that liberating freelancing gig because of fear.

Studies show that good social welfare programs make people more entrepreneurial. People with insured spouses start more businesses than those without. Harvard showed SCHIP (child health program) alone increased self-employment among parents by 15% - and the number of incorporated businesses by 36%.

Crime #3: Sneaky discrimination and lost wages

• Victims: insured employees
• Perpetrator: corporations
• Damages: $472B - $787B (30-50% cost savings on 157.4M employer insured Americans)

Speaking of talent, employer-based coverage depresses wages and job creation.

Insurance costs employers $10,000 per worker and increases 6 to 20 percent a year. By comparison, Canadian healthcare costs less than $5,000 per person. Even if we could get our cost down to $7,000, workers could pocket over $3,000 in extra earnings. Or, companies could hire one more person for every 20 existing employees, at $60,000.

Crime #4: The Malignant Middleman

• Victims: patients, providers
• Perpetrator: insurers, Government
• Damages: $5,700 in admin costs per family, per year

Insurers profit by not paying doctors or dodging reimbursements. So, doctors and hospitals hire people to do paperwork and collections. Employers hire admins to manage and negotiate plans. This administrative arms race eats away at the one relationship that matters - between patient and provider.

I dare you to look at this chart and not punch your monitor.

Having a for-profit middleman adds administrator price hikes to those of providers, drugs and corporate overhead. That’s why healthcare costs have grown at almost three times normal inflation. (5.9% vs 2.2%). It’s a costly misalignment of interests.

Crime #5: Laundering

• Victims: patients, companies
• Perpetrator: insurers, Government
• Damages: $765 billion overspent annually

It turns out, the very act of laundering medical payments through insurers - instead of paying for services directly, like we used to, guarantees overutilization and higher costs.

If Manhattan residents had to pay for water by the gallon instead of getting it "free" - in their monthly rent, do you think they'd use more or less? If you said less, would you also guess they'd stay about as clean in both cases? Or, would they let themselves degenerate into an un-dateable hobo funk? Unlikely.

If 90% of your restaurant bill was covered by a fixed monthly payment, wouldn't you get that extra slice of Tiramisu? Or screw it, another leg of lamb!

This is what always happens when someone else pays.

According to the Institute of Medicine, $765 billion was overspent on healthcare in 2009 from overutilization. That's 30% of total health spending!

Look at how we’ve taken all interest in price away from consumers of insurance. No one cares.

"Why should a patient, fully covered by health insurance, worry about whether that expensive hip implant is really any better than the alternative costing half as much?  And for that matter, physicians rarely if ever know the cost of what they prescribe—and are often shocked when they do find out." - MIT

Plus, many expensive new technologies only help vendors, not patients. "Just 0.5 percent of studies on new medical technologies evaluated those that work just as well as existing ones but cost less," according to MIT.

That also applies to drugs. Not only are they over-prescribed, but many expensive name-brand drugs are just combos of two or more generics. It's like charging $5 for a Starbucks latte, when the ingredients - water, beans and milk – cost four cents. Wait a minute…

It doesn’t have to work this way.

"Indians on average bear 60% to 70% of health care costs out of pocket." And guess what - adjusted for cost of living, their healthcare costs 1/5 of what we pay in the US.

Even in the US, it's easy to prove how insurance raises prices. Not only is cosmetic surgery how I got my thick, luscious hair, but everything is paid out of pocket and unregulated. And guess what - since 1998, cosmetic surgery prices have only gone up by 1.8% a year, less than inflation (at 2.2%) and way less than healthcare (at 5.9%). At the same time, cosmetic technology keeps improving – celebrity shelf-life is off the charts! Even reality stars can afford to upgrade from Photoshop to nips and tucks.  

There’s so much more. Check out the full episode, The 13 Economic Crimes of American Healthcare, on The McFuture podcast. Don’t forget to subscribe. Part 3: Would You Trust a Schizophrenic? comes out Thursday!

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Bio:

Steve Faktor is CEO of IdeaFaktory growth & innovation advisory and founder of GrowthFaktory, the no-BS guide for entrepreneurs. Steve’s the provocative host of The McFuture Podcast, popular keynote speaker, andLinkedIn Influencer. He’s regularly featured in Forbes, Harvard Business Review, NPR, Wall Street Journal, among others. Steve is the former head the American Express Chairman’s Innovation Fund, senior executive at Citi and MasterCard, and Andersen consultant. You can follow him via email newsletter,LinkedIn, Facebook & Twitter.