Health Care and US Job Lock Risks

One of the questions I get asked by foreign colleagues is how we deal with our "crazy" US health care system.  Our primary-private care mix certainly has unique challenges.

On the plus side, you can get some of the best care and cutting-edge treatments in the world.  I've had relatives survive serious diseases and live many additional years because of that feature.  But you can also end up with  substandard care at extremely high cost, as other relatives who did not have good medical insurance coverage have experienced.  And it is possible to get out-and-out bad care, though our litigation and malpractice insurance systems tend to weed out the worst.

Sometimes the system gives you freebies -- COVID-19 testing and vaccine has been declared free-to-consume by the US Government and compensation is being paid behind the scenes. Sometimes, though, it is far from free.  Medical expense is the #1 cause of personal bankruptcy in the US, with estimates of as high as 60% of all bankruptcies.  Our tax system does not subsidize the system much, as you need expenses above 7% of income just to qualify for any tax relief.

The real challenge though is the random nature of costs.  Costs can range from $1K to $10K and up for the exact same procedures, provided by the exact same doctors and facilities.  The very largest private health plans can negotiate lower rates, and do.  Our US-sponsored Medicare (elderly) and Medicaid (poor) government-provided coverage plans can negotiate (demand) even lower rates.  With this kind of risk pooling, though, hospitals and doctors can, and do, make up their shortfalls by charging extremely high rates to customers outside of those systems.

Add in the on-demand nature of health issues, and a lack of certainty on what procedures or treatments you might need when visiting a doctor or hospital, and the results are somewhat chaotic.  The system feels random.  Those least able to evaluate get the highest bills.  Those least able to plan ahead get the worst rates.

Another problem: job lock.  The US system imposes very high risks on those who switch jobs amid healthcare concerns.  If you lose your job, the US legal framework allows continuation of health insurance coverage for a limited time, then no coverage.  The costs to reestablish health coverage after losing it are quite high - $1000s a year.  Smaller businesses trying to provide health coverage to employees can be impacted by taking on a high-risk individual in a small business health policy.  Buying solo coverage tends to be even more expensive.  This all creates more issues and externalities, and the practical impact is, you're stuck.

America's somewhat "raw capitalism" culture tends to presume that a free market with parties competing for the best business model will optimize results.  The invisible hand will cure all ills.  American politicians on the right tend to talk about healthcare as a free market, but it is not truly free -- you can't decline to participate, or shop around for the best service or value, when you are ill.

Provider costs do show some mixed correlation to quality.  Skeptics tend to note America being #1 in spending but #26 in life expectancy, but those numbers distort the picture.  The American lifestyle does not lend itself to long healthy life.  Our obesity rate is 42%, many of us drive everywhere, and our restaurants and diet tend to kill everyone they touch.  Plus, while our pharmaceuticals industry contributes to our bills, they also indirectly subsidize much of the rest of the world's health treatment.

We probably need to consider a more risk-based approach to regulatory guardrails.  We could specify a base set of coverage and let the market compete on a standard package.  We could provide that package to all fairly, using our tax system to ensure that the poor were covered and the rich pay full freight.   We could build in the ability for private insurers to provide more coverage as an upside to incentivize insurer competition -- our Medicare Advantage program does some of that with Medicare and reports high satisfaction rates.

Funny, I think Christian would tell me I just described the German healthcare system?

One problem for the US adopting such a system is that we can't share these risks and costs across borders.  Should drug rates be uniform across nations?  The US view might be heading that way.  May spur innovation, may set off firestorm.  Health risk is fundamental, should be shared by all, but nations that can't agree on the Kyoto protocol are unlikely to agree on sharing health care costs.  But sharing the costs equitably across nations will be needed, as the US system will eventually top out otherwise.  Either other nations will need to fill the health treatment innovation role, or the US will need to recoup its costs.