Death by Regulation: Startup health insurer shutting
richmondbizsense.com
richmondbizsense.com
Demand-side reforms don't work particularly well, because health care is the only market system where supply drives demand (people don't buy health care services like they buy cell phones; doctors prescribe it because the information asymmetry is too great for it to be a consumer-based decision). Just ask Singapore.
http://www.healthbeatblog.org/2008/07/health-care-in.html
So while nHealth's model might work amongst the young and healthy -- a very desirable demographic -- it doesn't scale very well, and they'd be powerless against the inexorable health care inflation (13%/yr last I checked), even as core CPI is at 1% or less. Right now, the only thing that even comes close to the health care inflation is education inflation.
A) This high deductible + HSA model can't affect the market unless it's widespread (probably very widespread), something we're not going to see in the USA (well, not any time soon), and:
B) The experience of Singapore's first 5 or so years of the model cannot be considered very useful (I'm assuming that between the writing and publishing time and the lag in available statistics the referenced paper at best covers the period 1984 to '89 or 90): the period is way too short to see a change in behavior and their per-capita GDP increased by 43% (!!!) for '84-90 inclusive (from the IMF, as suggested by Wikipedia: http://www.imf.org/external/pubs/ft/weo/2006/01/data/dbcselm...).
But your points about inelastic demand and information asymmetry are well taken; I in particular don't tend to think of the latter, having an RN for a mother, my pediatrician as my father's hunting primary partner when I started hunting, having seriously studied biology and chemistry, always reading the prescribing info of any drug before taking it, etc. etc. etc.
That said, how widespread is the information asymmetry problem in the US? I don't have any direct or family experience here, we've all stayed pretty much in the confines of GP type physicians with specialists consulted mostly to rule out things. These GP types have never encouraged "unnecessary" stuff ... but they wouldn't economically benefit from it. The specialists are where you'd expect problems, especially from surgeons who have a bias towards fixing problems by cutting anyway.
EDITED: corrected fencepost error.
ADDED: this high deductible + HSA model is intended to address one area of health care demand elasticity: avoiding your GP's office for minor ailments. There are simple sets of rules available for treatment of stuff like upper respiratory infections and gastro-intestinal illness including guidelines on when you should seek medical care.
Canada is often described as a place where everyone goes to the doctor for a sniffle because it's free. US style 3rd party payment is often close to this. If you have to pay the entire amount out of pocket out of your HSA the theory is you'll apply the above, perhaps through a nurse hotline, and only go in (and get exposed to other bugs) when you really need to.
Hmmm, that brings us to American exceptionalism: are we perhaps more likely than many other cultures to first take care of ourselves and family and only go to the doctor when it's really needed?
Yeah, the HSA + high-deductible combination definitely has an effect on low-hanging fruit like primary care stuff. I don't know if it's been measured, but it intuitively makes sense. In terms of health care inflation, however, this is small potatoes. When a heart attack runs ~$80K for a course of treatment... well, primary care is pretty small. A normal course of cancer treatment (chemo + radiation) can run $200K and up. In this respect, controlling costs at the PCP's office has very little effect on overall health spending trends.
Information asymmetry is significant, but it's most significant at the specialist level. How is a patient to know that long-run (5 yr) outcomes between surgery (we're doing something!) and physical therapy (hard, time-consuming, no sense of immediate satisfaction) are identical for something like herniated discs? And perhaps even better if you factor in potential surgical complications? So there's definitely that aspect to consider. Also, an orthopod is incentivized to do the surgery because we exist in a fee-for-service cottage industry. This doesn't mean they'll always recommend surgery, but there's always the financial incentives to consider. We reward more care in the US, not better care. But this isn't exactly news.
To go back to the primary care type information problem... this is solvable to some extent. The Internet has certainly brought a huge volume of distilled knowledge to the masses. WebMD and the Mayo Clinic site are excellent examples of this. Unfortunately, they aren't very good at providing physiological context when explaining mechanisms of action (whether we're talking disease processes or their treatments), and this results in poor consumer understanding of what's going on in the big picture. When I was in pharmacy school, this was a common problem when counseling patients. It was quite common for an engineer to understand how this one drug worked on this one problem, but they didn't know how it fit into the big picture that is their body and how it might affect their body's homeostatic balance, especially if they did X or Y while taking the med. It didn't even occur to them to find out. This is where these information sources aren't enough, and where expert knowledge from someone who thinks about this stuff all the time comes into play. People have a frighteningly cavalier approach to taking pills... even smart, educated people. I suspect it's a cultural thing.
Anyway, this lack of context problem is particularly exacerbated in psychiatry, neurology, and any other specialty where what is unknown is greater than what is known, especially when you start taking into account non-physiologic factors like cultural context.
WRT guidelines: they're always changing as new information becomes available. The definition of obesity is broader today than it was 20 years ago. (And accounts for some of the increase in incidence.) Even guidelines for "simple" stuff like ear infections (otitis media) change with some regularity, if you follow organizations like the AAFP.
The fundamental difference with health care in the US is that we ration based on ability to pay, rather than need. I know more about health care from both the ground-floor clinical side and big picture economic side than I know about probably anything else. If I were an investor, I wouldn't invest in health insurance startups or pharmaceutical startups. There's simply too much risk relative to the potential upside. I think this is to be expected in an industry where the low-hanging fruit has largely been plucked, though. What's left are niche diseases which aren't huge profit centers, as a rule.
I'd actually love to know if there's any meaningful data on health care startups vs pure technology startups WRT return on investment, broken down by type of health industry.
Don't most people who get a heart attack die from their first one, with I assume little cost to the system? Of course the general improvements with so many problems means that more people are living long enough to get cancer....
The cost of cancer treatment is high enough that it probably swamps primary care, but one should still run the numbers. Large populations can have results that are non-intuitive to most, e.g. the increased costs of much preventive medicine due to the large numbers that need to be constantly screened to find a few true positives. If I didn't have a family history of aggressive prostate cancer (great-grandfather, 1 out of 6 uncles) I'd listen to my doctor's discouragement on getting yearly PSA testing (now that I'm 49, and yes, I know the test is rather iffy, how iffy I'll learn about after a baseline is established and/or before someone wants to do a biopsy (ouch)). Then again, I'll be paying the full cost of most of those tests.
WRT specialists and outcomes, raw full population outcomes aren't as useful for the individual considering options. In theory/in general the specialist will be able to go beyond the raw numbers and have a better idea of which option is the best bet.
I myself just can't understand the compliance problem ... although I do see the lack of appreciation of complex/the full system issues; even though I ended up going in the directions of chemistry and computers, my early medicine and biology learning was really beneficial.
I myself find the online guides to be useful (well, the Merck Manual is lots cheaper on-line for free :-), for me the biggest limitation in using them is not knowing what's normal. E.g. that tongue coating under these circumstances is no problem, maybe stop taking your antibiotic a couple of days early sort of thing. I know most people aren't in a position to get enough useful out of them to seriously "bend the cost curve", to draw this back to the main topic.
I'd never consider otitis media to be simple, it just obviously isn't, too much hidden, too much guesswork, especially since outcomes are so often ... not optimal (e.g. I lost some hearing in one ear due to one infection in the '70s, a girlfriend as well in the '80s).
Anyway, thanks for the intelligent discussion.
I don't disagree on running the numbers on primary care, but any savings is likely to be trivial next to other areas of improvement. "Fixing" medmal is likely to be bigger than changing primary care, and the latest numbers on that (Amitabh Chandra, 2008, IIRC) are $50bn/yr. Medmal rates don't keep pace with the rest of health care inflation, so this is basically a one-time discount, and in terms of overall health spending, $50bn is only like 2%. In addition, even in states which have instituted some kind of tort reform, it hasn't changed how medicine is practiced, which is the ultimate cost driver. (Refs available, I'm just not at my primary computer.)
It was very depressing to watch "health care reform" become "health insurance reform" sometime between late 2008 and summer 2009. The two aren't the same, and insurance reform won't due anything in the long run because demand for health care services is relatively inelastic, as you had mentioned, and I had alluded to before. Very depressing.
I'll also note that the high deductible insurance plan model has up to now been one of the best ones available for startups, although it doesn't address the not so healthy who need a bigger pool of one sort or another (private or public) to spread out the risk and/or costs.