George Halverson, Kaiser Permanente’s CEO gave a keynote earlier today at the World Health Care Congress in Washington DC. The statistics he gave were compelling. The opportunities, also, really interesting. From a consumer perspective, the prescription he wrote was not– heavy on centralized best practice reminiscent of the socialistic command & control approach rather than incentives for innovative practice.

The issues today are pretty clear– we are focusing our resources heavily on the sickest individuals.

• 1% of the sickest consume 35% of the health spend
• 10% of the population consumes 80% of the health spend

Even more compelling are the stories of conflicting interests, where an institution such as Virginia Mason is able to significantly reform health costs through better treatment up front (in this case imaging)– only to find a 30% revenue cut putting the institution at a disadvantage in being able to meet payroll and overhead expense.

But these innovations, although they lowered costs and seemingly were good for patients, hurt Virginia Mason’s bottom line. For example, “the big employers saved $100,000 in the first year. But Virginia Mason fell into the red on the average migraine case, instead of breaking even as before.”

The diagnosis was clear– hospitals and hospital systems make such a large sum off of “excess” care, that they can’t afford to get off the gravy train by doing the right thing.

In my mind, this is where the solution laid out was exceedingly non-consumer friendly.

Halverson suggested that universal mandates are required to make health affordable– taking spend for the sickest 1% from $12K/month down to a more manageable $300/month. This makes sense if one looks at the purpose of insurance as a mechanism for wealth redistribution/ wealth transfer. Thus, universal healthcare has an individual mandate– the healthiest are subsidizing the sick at a level that they can’t reasonably expect to recoup.

From the viewpoint of the healthy consumer, spending $300/month for no benefit is a poor economic choice. The business model for insurance in fact rests on a different trade-off, the payment of an underwritten premium that matches actuarial risk against level of insured protection (e.g., amount of potential claim payment one could attain if the risk in fact occurs). The healthy consumer then faces one of two choices– pay premiums to insure against future risk or opt out of insurance altogether. As insurance costs go up, and are focused on highly technical solutions with marginal benefit, we would expect to see the largely healthy opt out, as we are starting to see in the employer health insurance market, via CDHP plans or dropping the benefit completely, as the job. Employers are increasingly showing that they believe health insurance’s cost is not a good value for the job(s) it was hired to perform.

The solution is unlikely to come from the hospital system that is disincented to cut its own throat by reducing the cost/ delivery of high tech care. Instead, how can we create incentives that increase reimbursement/ wealth for those that reduce the shift of the “healthy” 80% into the “sick” 20%? How can we also create better value for those currently seeing minimal value for their contributions, and limit the spigot being poured, without accountability, into the sickest 1%?

Note: this post is cross-posted on Consumer focused care