Flush with our money. The US Healthcare System has never cared less.
The politician’s stump speech on how to control private healthcare costs began with the tired bromide that Americans spend 30% more per individual for private healthcare than the rest of the world and had worse outcomes. Fixing the problem required the use of "market forces". Transparency was the ticket. Insurance companies should make public the negotiated rates they pay. Hospitals and providers should do the same on what they charge for services. All Americans needed to do was to "shop for the best deal". The politician opined this would force competition and hospitals/providers would lower their prices.
Pharmaceutical costs had to be controlled and reining in the middleman pharmacy benefit managers was a must.
Finally came promises of tort reform.
The attentive medical insurance company CEO smiled because the politician had proposed nothing different from the usual Washington DC think tank failed ideas.
It remained a mystery why politicians and think tanks could not accept the reason why the cost of American private healthcare has never responded to textbook economic theory. Simply put, Americans want to pay their healthcare premiums and use it when they need it. And they expect the insurance companies to earn their money and take care of the rest.
Price transparency sounds like a good idea but all it means is the hospitals and providers will discover the highest rates the insurance companies are willing to pay. Armed with this information the hospitals/providers will then demand top reimbursement rates. In short price transparency will likely raise costs. The insurance companies will raise premiums to cover the higher costs.
Pharmaceutical pricing and distribution are such difficult issues insurance companies subcontract the service {for massive fees} to Pharmacy Benefit Managers {PBMs}. PBMs negotiate directly with pharmaceutical companies and pharmacies to establish the drug prices and distribution structure. The negotiating process is totally opaque and since no one outside the PBMs understands it, no politicians or think tanks can figure out how to reign it in. The CEO did not really care because his industry’s massive profits were not affected. They simply increased the premium prices, passing on PBM costs to the consumer.
Tort reform is always promised but never happens. Injury and benefit trial lawyers just get richer.
It was reassuring to the CEO that politicians continued to woo voters with nonviable ideas on lowering healthcare costs. Because the exorbitant cost of healthcare had nothing to do with medicine. It had everything to do with the unholy alliance between five massively influential hunks of money. They go by the medical-sounding names of Healthcare Insurance Companies, PBMs, hospitals/providers, pharmaceutical companies, and patient-protecting trial lawyers. American healthcare is just the product that allows the hunks of money to move funds between themselves and realize massive profits.
In 2022 American private sector healthcare expenditures were approximately 2 trillion dollars. The vast majority of the money enters the system as insurance company {1st hunk of money} healthcare premiums. After the insurance companies take their cut {up to 15%} the remaining funds are funneled out to the hospitals/ providers (2d hunk of money) and PBMs {3d hunk of money}. PBMs negotiate drug prices with Big Pharm {4th hunk of money} and facilitate any pharmacy transaction. Trial lawyers {5th hunk of money} can be viewed as healthcare parasites. The fear of lawsuits is conservatively responsible for adding a 5% premium to all healthcare costs.
Experts agree we spend 30% more per individual for private healthcare {600 billion yearly} than the rest of the world and have worse outcomes. Each of the big hunks of money understands to keep tapping into these excess dollars they need to be solid in their unholy alliance. As long as the money flow {premiums} can be increased the whole system works. The CEO noted the WSJ just reported 2024 Healthcare premiums are moving up 7% and the average family policy is $24,000. Fortunately for the unholy alliance, the world is focused on Ukraine and Israel. In 2024 the massive profit-gouging will go unchallenged.
The health insurance CEO did have one concern. The 5 big hunks of money needed to implement a contingency plan before the public/government figured out how to recoup the yearly excess of 600 billion dollars of healthcare spending. Their solidarity would end if the powers in Washington DC could force the big hunks of money to fight each other. The best way to do this would be to control the money flow into the system by limiting the insurance company’s premium increases to inflation minus 1%. And limit the percentage of premiums that could be used as overhead {salary and administration costs} to 10%. The unholy alliance would quickly fracture as the insurance companies forced hospitals and providers to accept lower increases in reimbursement. To remain solvent hospitals and providers would have to become more efficient and bring overhead costs down. Bloated salaries and redundant middle management would become part of the past. Pharmacy Benefit Managers actually are a type of drug insurance company and the 10% rule on overhead would also apply to them. The PBMs would factor into their drug negotiations the limited available dollars and the 10% overhead ceiling. The economic reality that the money available to purchase drugs was not unlimitedly expandable would force pharmaceutical companies to lower their prices. The trial lawyer parasites could be easily dislodged by instituting loser pays. If trial lawyers find themselves personally accountable for frivolous lawsuits {Canada and Europe} they will quickly disappear into the hole at the bottom of the wall.
The Healthcare System would come to equilibrium and future healthcare costs would be controlled.
The CEO knew this could not be allowed to happen. The unholy alliance needed to be preserved. Hospital systems, PBMs, and insurance companies needed to get bigger. Hospital systems needed to merge and PBMs could be either bought by insurance companies or vice versa. The pharmaceutical companies and the trial lawyers would continue their massive Washington DC lobbying efforts.
Just like the 2007 Wall Street banks the healthcare hunks of money would become too big to fail and have massive political influence. And in times of stress cowardly politicians would line up to throw billions at the unholy alliance.
And yet, the canny CEO knew the system was not sustainable and would eventually collapse leading to a government-run healthcare system. A system lauded and praised by the powerful elites because they knew they would never have to use it.
A new market for private hospitals and doctors was only billions of venture capital dollars away. Rich folks would pay the inflated premiums. Private hospitals and doctors would have no more money losers. Obamacare, blue-collar folks, no-pays, Medicare, and the Medicaid welfare crowd would all be herded into the government healthcare corrals. The 5 hunks of money would be back in business, flush with our money.
Since 2010 the US healthcare industry has consolidated into huge hospital networks. The insurance industry has done the same, merging with PBMs. Big pharm and the trial lawyers are two of the largest K-street lobbyists. Watch out America, because the chess pieces are in place and the end game is coming.
This publication is the first of a two-part series dealing with the ghost of private healthcare insurance’s past, the present, and its likely future. The 2d piece will drop next Sunday.
Do not miss it!!!
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