Buying Insurance

We Don’t Buy Insurance for Ourselves

Posted on by jabittan
Why do we buy insurance of any kind? Is it really for ourselves and our own benefit, or is there something else going on with insurance decisions? According to Venture Capitalist Chris Brookfield, as quoted in Dave Chase’s book The Opioid Crisis Wake-Up Call, there is something beyond our own self interest at play when we decide to buy insurance.

 

Brookfield is quoted as writing, “Persuading individuals to buy insurance is kind of backwards. I saw this in India all the time. Individuals do not value their own risks – their relatives and neighbors do.” 

 

Buying insurance is actually more about our loved ones and our responsibility to our community than it is about ourselves. It is about protecting the financial standing of our relatives and those who would help us if we were down as much as it is about protecting our own financial standing. The standard story tells us that insurance shifts risk from ourselves to a group of individuals, but as Brookfield continues in the book, it really shifts risks from our immediate known allies, into a broader group of people that we don’t necessarily know.

 

If I don’t have health insurance or auto insurance and die in a terrible car crash, I am not the one who will bear the costs of the accident. My loved ones and other people in the community involved with the crash (other drivers or the owners of any private property that was damaged) are the ones who will face the costs. On their own it would be hard to manage the costs, but pooled together, the costs and the risk could be shared. In a situation where my death occurs, it is other people who derive the value of the insurance.

 

I’m sure there are some insurance products that are pretty solidly just about the individual buying the isurance, but it doesn’t seem to always be that way. Buying insurance seems to be an act of signaling, as Robin Hanson discusses in his book The Elephant in the Brain. Buying insurance isn’t all about sharing risk, it is also about showing others how much you care about them and about showing the community how responsible you are.
Scaling Local Networks

Scaling Local Networks

Posted on by jabittan
Dave Chase presents an interesting idea about local networks in his book The Opioid Crisis Wake-Up Call. Local networks, Chase explains, grew from the small groups and tribes that humans evolved within. The systems and structures that allowed for cooperation in small groups, have evolved into complex structures of institutions like government, insurance risk pools, and social media. Chase focuses on the health insurance side of these local networks, and considers whether scaling local networks is really the best thing for today’s societies.

 

Chase writes, “When local networks are scaled up, you add hierarchy, says Brookfield [Venture Capitalist Chris Brookfield], and this creates opportunity for theft and redirection.”

 

The idea from Brookfield that Chase is getting at is the idea that many of our systems were formed in small groups and tight communities where social accountability and trust were easy. Everyone knew each other, the community had many close ties and interactions, and it was not hard to keep track of personal debts and obligations. As societies grew, and as our cities, nations, and global structures became more complex, we brought along the same structures of the systems that served our evolutionary tribal ancestors well.

 

However, as complexity grew within those structures, the pitfalls of scaling local networks became apparent. There are too many transactions, too many opportunities for theft and fraud, and too few people who have real oversight and understanding of how the systems work. This allows for abuse of the system and for people to get away with cheating.

 

In healthcare it might look like increasing premiums year-over-year, without a clear explanation as to why premiums are increasing. It might look like unnecessary healthcare expenditures, unnecessary healthcare procedures performed and billed by providers, and opaque systems of approving or denying medical claims. No one knows anyone anymore, no one is accountable, and no one has a clear accounting of debts and obligations. Some outright fraud occurs, a lot of abuse of the system occurs, and even more common, a lot of fudging things and pushing boundaries takes place. Our healthcare insurance system is built on a structure and idea that doesn’t fit the complex high scale realities of the world we live in today.
Scale versus replication

Replication Versus Scale

Posted on by jabittan
I used to work for a healthcare tech company based out of San Francisco, and the word scale was almost a mantra. Whenever we did anything, from a small policy to the introduction of a new product or service, the question was always, will this scale? It is an important and crucial question for a growing organization. Before anything was introduced, we always considered the future, whether the new process would work if we had more customers, more covered lives, more emails, and more work. If the amount of effort, oversight, and individual contribution was too high, then we new we were not looking at something that would scale. We needed processes where the amount of additional work would be negligible as we grew, that was the key to scale.

 

For many organizations, however, scale isn’t necessarily the most important goal. Instead, the focus is on replication, to grow and expand in new spaces, new markets, and new products. Replication is something different than scale. While scale sought to reproduce the same outcome, the same process, and the same expectations in all settings, replication takes a slightly different approach to the same end goal. We still want the same successful outcome, but the goal doesn’t include having mirrored consistency in approach with diminishing marginal effort for each new customer. Replication is adaptable to changing local conditions.

 

Dave Chase describes it like this in his book The Opioid Crisis Wake-Up Call, “Replication varies from application to application; scalability seeks to apply the same things everywhere. This distinction is a subtle but absolutely critical success factor.”

 

In retail, social media, and chain restaurants, scale is crucial. You want every coffee you order at Starbucks to be the same, regardless of whether you are at the first Starbucks in Pike Place, or a brand new Starbucks in a Las Vegas suburb. You want your eggplant Parmesan at Olive Garden to be the same today and next month, and social media companies want everyone to have the same account set-up and access settings so that it is easier to manage all the companies, individuals, and organizations that create accounts. Scale makes things consistent, reduces administrative burden, and keeps costs down.

 

Replication is more adaptable from region to region, setting to setting, and industry to industry. The goal might be very similar, say to reduce healthcare costs, but the organizations and spaces might vary dramatically, say from nursing homes to companies offering remote medical second opinions. What Chase argues is that many healthcare organizations shouldn’t get too caught up on scale, and should focus more on replication. Hospitals can learn from nursing homes and replicate the approaches they take to improve patient adherence to medication regimens, knowing that there is some overlap and some divergence in their patient populations. Health plans can replicate patient education models that hospitals find successful, even though the patient education from the health plan will take place in a different form and space.

 

Scale dictates what should be done to create exact copies of a process with diminishing marginal costs, but replication is necessary when dealing with multiple confounding variables in dynamic and ever changing spaces. Scale might be needed for economic success at national and multinational levels, but replication provides the flexibility and creativity needed for success when a cookie-cutter model can’t be followed.
Innovation Openness

Innovation Openness

Posted on by jabittan
When you learn something new, when you have a new insight into the world, when you figure out how to do something that you couldn’t do before, do you share that insight or do you try to keep it to yourself? If you are a big business, you probably try to keep that to yourself. If you are a young entrepreneur, you probably share aspects of your break through, while hiding the special secrete sauce that makes it work. And in any other aspect of life, you probably blast your insight out to the world on social media for all to see and hear. Innovation openness is something that we are becoming pretty comfortable with in our personal lives, and it is starting to creep into parts of our business lives as well.

 

Being open with information helps spur innovation because it gives more people insight and access to what is really taking place. Your perspective is always going to be limited. You can only know and experience so much, but by being open and sharing what you have learned, others will be able to take your ideas further and help develop truly new and innovative approaches by building on what you have already done. If they too share their new insights, then entire fields and industries can take massive leaps forward. As Dave Chase writes in his book The Opioid Crisis Wake-Up Call, “Openness is proving itself in an array of settings. The beer market is mature and has been dominated in the U.S. by a couple behemoths, yet craft brewers recently have grabbed over 20 percent of been spending. How? Craft brewers are radically open with each other regarding how to succeed, recognizing that their real competition is the mega brewers, not each other.”

 

How you think about your competition will probably influence how open you are with your data and insights. If you really don’t want your sibling to know how you put those cool wood panels on the wall, you might not be as open about the process as you would be if you really wanted to brag to your friends about how you were able to get them up. Similarly, if you are in a business where your insight gives you a valuable competitive edge, you won’t want to share what you have learned. However, sometimes this secrecy becomes part of the status quo, and more and more data and information is locked down, with processes, contracts, and everything else being hidden from as many people as possible. This is what is happened in healthcare, and Chase considers the ramifications of this attitude.

 

“One of the failings of the wildly under-performing status quo health care system is how poorly insights and breakthroughs get disseminated. Research shows that it takes 17 years for effective breakthroughs to become mainstream.”

 

Healthcare is costly and few people are fans of their insurance plans or hospitals. To change the continual cost growth in healthcare, innovators will have to find new ways to approach challenges and problems that have existed in the industry for years. The more open companies can be about successful approaches, the better it will be for all of society. Keeping insights hidden and failing to discuss insights will perpetuate the stagnation we currently see in so much of the healthcare system.
Self-Insured Health Plans

Self-Insured Health Plans

Posted on by jabittan
“A self-insured health plan,” writes Dave Chase in The Opioid Crisis Wake-Up Call, “is established when an employer sets aside some of its funds to pay for employees’ medical expenses. Employees then contribute to the plan rather than pay traditional premiums.”

 

In the United States, it is not uncommon for large employers to chose to be self-insured rather than to offer health insurance provided directly through an insurance carrier such as Cigna or Anthem. Chase explains that self-insured plans shift risk from the insurance carrier to the employer, with the benefit of reduced administrative costs and changed financial incentives. Large carriers are often still contracted with in a self-insured system for some administration and bill paying functions. In a traditional relationship, as Chase explains, employees pay premiums and “if the premiums exceed the medical expenses, the carrier wins.” Self-insuring eliminates this aspect of health insurance, reducing the total amount that employees should need to contribute by eliminating a profit motive for the carrier.

 

Chase highlights another benefit of choosing to self-insure, lower taxes and fewer regulations to abide by. In the United States, each state has an insurance commission that sets its own standards and requirements for insurance (auto, home, medical, etc…). The benefit according to Chase is that, “the Employee Retirement Income Security Act of 1974 [ERISA] states that a private, self-insured health plan is administered in accordance with its [ERISA’s] terms and federal rules. So, these plans aren’t subject to conflicting state health insurance regulations or benefit mandates.”

 

This is an important point that I have been thinking about in Nevada. My state requires that health insurance cover ABA treatment for children with Autism until they turn 21. However, not all of the plans that Nevadan’s have through their employers actually cover ABA treatment and some only cover ABA treatment until a child is 7 years old. While selling insurance across state lines (as in buying an insurance plan sold in California and according to California statutes and regulations) is not legal, offering a plan from a self-insured employer based in another state is legal. Some employers in Nevada are very large, are self-insured, and have headquarters based outside the state. These plans are not subject to the changing health insurance demands of every state since they are regulated by ERISA. So many Nevadans, despite state law, do not have coverage for their child’s ABA therapy.

 

It is important to note that self-insuring can reduce costs for employers, give them more control over the plan they design for employees, and can offer tax advantages along with easier implementation by reducing regulations and applicable laws. Employers should move in this direction to create better health plans that give them better access to their own data and needs. At the same time, we should recognize that these types of plans can be hard to regulate and present challenges to patients, employees, and lawmakers who want to see specific changes or policies. Employers should strongly consider self-insuring to get away from the profit motive of health insurance carriers, but should recognize that avoiding individual state health insurance requirements by self-insuring could lead to a backlash against self-insured health plans.
Misdiagnosis

Misdiagnosis

Posted on by jabittan
Healthcare spending has been increasing, but it is easy to see that we have a finite set of healthcare resources available to everyone. We only have so many hospitals, there are only so many doctors available, and our healthcare plans are all tied together so if one person uses a high amount of healthcare, everyone paying into the health plan will see their costs rise. This is one of the reasons why it is so important to make sure we are getting the best care possible with our healthcare dollars, why it is so important that we ensure that everyone gets the right treatment at the right time.

 

As Dave Chase writes in The Opioid Crisis Wake-Up Call, “A senior executive at a Fortune 10 company wisely told me that misdiagnosis is the biggest healthcare error; everything that follows both harms the patient and costs you.” 

 

If we don’t get the diagnosis piece right for patients, then they get the wrong care. They take medications that don’t help them, undergo procedures that don’t address the correct issue, and eventually return for more evaluation and diagnostic testing. The patient can be harmed by drug side-effects, by surgeries that were never needed, and by exposure to radiation from diagnostic imaging.

 

Getting the diagnosis wrong also wastes a huge amount of our finite healthcare resources. Each new appointment to try to get the diagnosis right, to do more testing and screening, or to try a new procedure leads to increased costs for the individual and everyone else. Doctor’s offices have to fit in more appointments, patients have to fill more prescriptions to try new medications, and operating rooms are booked for the wrong procedures. Individuals and patients are delayed and have to pay more for their services.

 

It is important that we focus on making sure we get the correct diagnosis at the beginning. I’m not a physician, and I haven’t spent years connected to the healthcare system to tell you exactly where the breakdown is in finding the right diagnosis, but the costs of patient health and healthcare resources make it clear that we should invest in diagnostic capabilities. We don’t need to spot every little thing in the patient’s body, but we do need good enough diagnostics and enough knowledge and understanding to get the right diagnosis the first time, for the good of our bank accounts, and more importantly for the good of our collective health.
Outlier Wellness

Outlier Wellness

Posted on by jabittan
“Only a handful of outlier health problems are preventable in any real sense,” writes Dave Chase in his book The Opioid Crisis Wake-Up Call, “about seven percent, according to my colleague, Al Lewis.”

 

My last post was about the cost of outliers, how just a small percentage of patients account for a huge percentage of overall healthcare spending in the United States. We know that there are a few unlucky individuals whose healthcare is incredbily costly, yet they are not the first people we think of when we think about excessive healthcare spending in the United States. As a result, we fail to truly understand the weaknesses of our healthcare system and how our healthcare dollars are actually being spent. We introduce programs that don’t actually address the real problems in escalating healthcare costs.

 

This is where the ideas about and problems with wellness programs begin. Chase continues, “While the notion of workplace wellness and prevention was a noble idea, we now know that company after company is spending a huge amount of plan dollars and resources trying to do something that can’t be done.”

 

The idea of workplace wellness programs is to encourage healthy living habits and lifestyles of employees. Since our employers are usually paying a lot for our healthcare coverage and sometimes directly for our healthcare, anything employers can do that makes employees more healthy, outside of the healthcare space, will reduce the healthcare costs and needs of employees, generating a return on investment in the long run.

 

Unfortunately, the people who cost the most, who really drive incredibly high healthcare spending in the United States, don’t suffer from conditions that can be addressed through workplace wellness programs. Your plan to encourage workers to walk more, to buy foam rollers for the office, and to reward employees who count calories is not going to prevent an employee from being diagnosed with a congenital heart arrhythmia, won’t stop a rare blood disorder, and isn’t going to prevent any other unpredictable obscure disease from costing thousands or millions of dollars for your health plan.

 

What is worse, wellness programs usually just encourage those who are already living healthy lifestyles to flaunt how healthy their lifestyle already is. You likely won’t reach or encourage the employee who has a second job someplace else, the single mom with two kids who is just  trying to get dinner on the plate each night, or the employee who has been discouraged and dejected their whole life. An Apple Watch or an iPad isn’t going to solve the problem of a long commute, an unsafe neighborhood, or past trauma. We spend a lot of money on wellness plans that don’t address the real upstream social determinants of health for many employees, and can’t possibly address the health problems of the most expensive outliers in our healthcare system. The idea of workplace wellness programs has the right spirit, but the truth is these interventions need to happen at a much larger level than what the employer can really address.
The Cost of Outliers

The Cost of Outliers

Posted on by jabittan
Malcolm Gladwell is well known for his book Outliers, about people who become extremely successful thanks to intense practice, good luck, and supportive situations that enable their early practice and skill development. If you have read his book, you probably have at least a little exposure to the idea that some people are unique and can have a surprising influence on the world. But one area you probably haven’t considered with the impact of outliers, unless you study healthcare economics, is in medical spending.

 

In his book The Opioid Crisis Wake-Up Call, Dave Chase explains the issues with outliers in our system. “Six to eight percent of plan members are spending 80 percent of the plan dollars,” Chase writes.

 

We probably imagine that our healthcare costs are so expensive because so many American’s don’t eat well and don’t exercise. I have argued in the past that we don’t support a universal healthcare system in our country because many people think the problem is that others are not taking responsibility for themselves and are simply fat and lazy, costing more for the rest of us. The reality is that a huge amount of our total healthcare spending, as much as 80% according to Chase, is from a tiny percent of the population. Our outliers are driving the cost of healthcare up at an alarming rate, and it is not simply because these outliers are fat and lazy.

 

The people who spend the most on healthcare mostly have rare diseases, congenital conditions, or need extreme emergency acute care. Chase writes, “They tend to have complex health problems, usually with multiple comorbidities.” Because we don’t recognize that most of our spending goes toward outliers, and because we are biased against a vision of fat and lazy people, we adopt policies that bankrupt these outliers who often were simply born with bad luck when it comes to health.

 

What is really detrimental to our system is that these outliers are often misdiagnosed. Chase writes, “In any given year, about 20 percent of the outlier group is completely misdiagnosed. This means that about 16 percent of plan dollars each year are being wasted on treatments for diseases the patients don’t have.” It will always be difficult to treat outliers. They are not typical patients, and have multiple health issues that interact in complex ways. But because we don’t make their care easy and because healthcare in the United States has so many barriers, we end up failing this population, and the errors and failures mean that we waste a huge amount of money and resources in their care. It doesn’t just cost the individual, but everyone on the healthcare plan.
Healthcare Safety and Data

Hospital Safety & Data

Posted on by jabittan
One problem with healthcare in the United States is that consumers don’t control their data and the information about them. Even the employers of healthcare consumers, who are paying for the services provided to patients and often responsible for whether patients have healthcare coverage at all, don’t have access to any of the healthcare data of the employees they pay to cover. Healthcare information is protected by providers and guarded by insurers.

 

A troubling result is that consumers and employers often don’t know much about the quality of care provided at a hospital or from a given provider, and don’t know about the safety record of providers and hospitals. Outcome measures are sometimes protected by law, and are other times hidden behind complex systems that prevent employers and consumers from finding and understanding the information.

 

Dave Chase compares the problem this creates to airline travel in his book The Opioid Crisis Wake-Up Call, “No corporate travel department would allow an employee to fly on an airline that suppressed its safety records (even if the FAA allowed it). In the same way, it’s unconscionable to blindly send an employee to a hospital with little or no information on its safety record. If the hospital suppresses that information, go elsewhere and tell your employees why.”

 

There are many ways in which we treat the healthcare system differently than other sectors for no apparent reason. I wrote about the way we don’t consider healthcare broker’s conflicts of interest in the same way we consider financial adviser’s conflicts of interest. In a similar example as above, we heavily scrutinize any spending by employees for lunches or hotel stays on trips, but we don’t apply the same scrutiny to hospital billing. Our failure to consider safety the way we would for employee travel, even though many employers spend more on their employees healthcare than on their travel, is a failure of how we think about the system.

 

I think that Robin Hanson and Kevin Simler explain a little of why this is in their book The Elephant in the Brain. We don’t know what medical care is effective and we don’t know which systems and providers are safe, but we do know when someone took time off work for care. We can signal our support for that individual with cards, balloons, and messages about how much we value them and hope they recover quickly. Much of our healthcare system and how we treat it is based on signaling. Accessing care shows others that we have resources and powerful allies who care about us. We also use healthcare to signal to others how much we care about them and what a valuable ally we would be to them. The result is costly, in terms of dollars and health and safety problems.

 

We have to get beyond this signaling mindset and approach to healthcare if we want to rein in prices and have a safe and effective system. If we want our healthcare to be sustainable for the long run, it can’t be built around signaling, but must actually be built around effective solutions. Employers have an important role to play by demanding the information they need to be accountable in providing valuable health benefits to employees. Hospitals, providers, and insurance companies can’t continue to monopolize and hide patient data, preventing employers and patients from making smart and economical healthcare decisions.
Another Note on Healthcare Brokers

Another Note on Healthcare Brokers

Posted on by jabittan
A point that Dave Chase makes in his book The Opioid Crisis Wake-Up Call is that employers are not fulfilling their fiduciary duties to their employees with regard to the healthcare products that they offer as benefits. I mentioned earlier that many companies have an HR person in charge of health benefits who doesn’t really understand health insurance and whose main goal is to not be yelled at by other employees for problems, high costs, and restrictions with their health insurance plan. The result has been a bit catastrophic, with plan costs rising continually, insurance companies and major healthcare systems ganging up on uninformed benefits managers, and healthcare brokers taking questionable bonuses from various arms of the healthcare sector.

 

David Contorno, founder of a company called E Powered Benefits, contributed a chapter to Chase’s book specifically highlighting many of the problems with the current broker arrangements that companies face. He writes, “Recently, a Blue Cross health plan offered their brokers a $50,000 reward for switching self-insured clients back to more lucrative, fully-insured plans. In sectors like financial services, that kind of undisclosed conflict could land a person in jail. In healthcare, however, such clear conflicts of interest are common and considered business as usual.” While this kind of broker arrangement is deplorable, the heat should not only be on the brokers. Employers are also responsible for ensuring they are partnering with brokers who are free from conflicts of interest, and there are groups now popping up to help employers identify brokers who don’t engage in such shady behind the scenes agreements with health insurance companies and healthcare systems.

 

Employers are responsible for the sound management of the financial resources they manage for their employees, whether it is retirement savings accounts or health insurance plans. Employers purchase and manage health insurance products for employees, however many of the healthcare decisions are made by people who don’t fully understand them, with the goal of not making people too angry, and with direction from actors who are not as independent as they claim. Chase worries that there could be an explosion of lawsuits against companies for operating in this system. Lawsuits holding companies responsible for out of control increases in healthcare plans could dramatically shake-up the way health insurance is provided and purchased in the United States. The bottom line is that as things stand now, the financial considerations of employees, the people who will use the product purchased for them, is not one of the main considerations in the purchasing of healthcare plans, and a lot of shady looking things take place among employer-broker-provider-insurer relationships.