Healthcare - A True Cost Approach

Healthcare is in the news more than any other issue but the recession it seems, and just like the recession few people have any clue as to the real problems and the talking heads & politicians only have bad answers designed to get increase votes - not lifespan.

As is my way, I'd like to distill the problem into its essence and decompose the critical factors, here's my approach. What is the problem in healthcare? Fundamentally, the issue (like most things) comes down to money. If great healthcare was $10 a month, a crisis there would not be. So the objective is to raise the nations' life expectancy and quality of life (let's call them life-factors) with the maximum return on investment vis-a-vis greenbacks.

Up until now, everyone has been talking about lower "costs", but what they really mean is "price" - as in what we pay for service - not how much it really costs. Let's look at each true cost components to see where the money in going. All the prices for these are vastly inflated over their actual costs, and its because of the same reason: monopoly. Let's look further and then see how we can solve each of these problems.

Medicine costs + Equipment / Technology:

- R&D - nearly all new drugs that increase life-factors are subsidized by government money (NSF & NIH)
- FDA approval - very costly, and this is most of what drug companies are for - taking research down the last mile to the marketplace.
- Sales / distribution - these cost BigPharma ~2.5x their R&D budget.

Solution
-Increase NSF / NIH funding (it's only like $18B a year) to produce more drugs and technology that actually improve life-factors - as opposed to vanity drugs like Latisse.
-Decrease / eliminate patents to allow generic drugs and equipment. Most people don't know that drugs cost less than 1% of their purchase price to manufacture and can be easily reverse engineered in about 6 months. Equipment is the same game.
- Subsidize and streamline FDA the approval process so that high life-factor increasing drugs are approved quickly and at low cost.
-Sales & distribution is a generic problem that FedEx has solved very well. The only need is a system that the doctor or the patient themselves can use to get updates on the latest medicine, etc. Expert systems can already do this.

Labor Costs:

- Price to pay doctors, nurses, etc.

Solution
-Subject the AMA, ADA, etc. to the Sherman Anti-trust act. Break them up to increase standards competition. Did you know the hospitals, medical programs, and doctors must be approved by the same agency: the AMA. There's a shortage of medical staff for a reason. The AMA rose to power when healthcare was provided by fraternal organizations like the Elks. They'd make them bid against each other for retainer costs.
- Allow increased automation - many people don't realize that doctors are often less accurate than expert computer systems, but the AMA, et al. argues against widespread use of these cost-saving (doctor replacing) technologies.
-Medical tourism - allow healthcare plans to use overseas doctors that are up to a sixth of the cost with similar / better recovery rates.

Risk Premium:
- This is related to the risk insurance companies charge to mitigate.

Solution
- Allow genetic / blood testing based health premiums (with non-disclosure). This would mean that you could filter for all the healthy people, incentivize them to engage in good lifestyles, as well as help prevent diseases early.

- Lawsuit restrictions - we need the Edgar Snyders of the world to stop increasing our pricing. Of course you should be allowed to sue - but I can see caps for "pain and suffering" at $1M. Of course, they have to pay medical costs, lost wages, etc.

- Transparency - I'd like to every insurance product to be modeled in an open file format that allows ease of pricing and higher liquidity. This would allow insurance assets to be bought and sold more easily - creating a secondary market that would low rates and lower barriers to entry/exit.

Conclusion:

Each of these factors is disruptive to the industry's ability to make profit. Conservatives: no this isn't business hostile - think of them as carriage makers when Ford came around. Liberals: Stop supporting plans that give money to big business and tax us all. If you want REAL change, let's not let the establishment set the dialog.

I'd love some feedback on this!

Comments

[twitter.com/JustinKownacki]

I think you're on the right track, though I'll admit I'm not well-versed enough in the legality or the politics of the business to know if the above suggestions would be sufficient changes that would ultimately provide affordable coverage to everyone who wants it. My concern is that the high-risk individuals, or those with existing conditions -- AKA the people who most need insurance -- will always be left uncovered unless someone mandates that they be protected, and at a realistic rate.

Also, wouls drug companies continue to produce drugs if they COULDN'T make a killing on the sale price? Altruism is beautiful, but I'm cynical enough to suspect most drug execs would immediately convert their operations into genetic food factories (or something else more exceedingly profitable) instead.

One perso interviewed at the impromptu New Orleans health clinic MSNBC organized was a nurse who said he can't get enough hours at either of his two jobs to make him eligible for health insurance. I dig irony, so I'm sure you'll agree that a nurse who works to keep insured Americans safe but can't get insurance himself is ultra-ironic. But that kind of irony shouldn't even be possible.

[twitter.com/JustinKownacki]

Apologies on my typos above. I was typing with one finger. Long story. (And no, it's not injury-related, nor would it have been avoided if I were insured.)

[twitter.com/NickPinkston]

Hey Justin, thanks for the comment.

The above plan is a MASSIVE change as compared to the current plans - not less by any means. That's why no one wants it - it's very dangerous to their interests.

High risk people are far better off under this system. They would be outed (by means of not getting tested) as higher risk, but remember the risk premium is based on how much the treatment cost is. The real sayings they experience is on the tech and labor side. If meds/tech are 5% (conservative) of their current cost, it doesn't matter if you have 10 times the risk - it's still only 50% of the previous cost. Labor is similar as well - with no monopoly, medical tourism, and expert systems, we can reduce the costs of labor drastically.

Incentive for drug companies is pretty much a non-issue. R&D would continue from the universities - as it does today. FDA approval is subsidized, so they have far less commercialization costs. Not all products have to have massive margins to succeed. Look at all commodities: corn, oil, etc. have very little profit for anyone - it's close to perfect competition. The same would happen to pill makers - they'd specialize in eliminating cost to gain market advantage - like most manufacturers do today.

I think you're mistaking the free market for altruism. We already give NSF/NIH funding to solve common good issues like finding cures for diseases. All drug companies do is solve the issue by monopoly - I want to solve it via competition. With less restriction, we'd have a lot of novel health companies. This issue is that everyone can't see past the present to see how a different system would work. In their risk averse state - they don't solve anything.