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Chapter 1: Health Insurance Seems Broken. Why? And How Can We Fix It?
24 Plays3 months ago
Health insurance in America seems broken because it was never really designed. Instead, it grew out of accidents, compromises, and changing American values. That’s why we’re kicking off a new series on The Healthcare Theory that dives deep into the politics, economics, and innovation behind health insurance in America.
In this first episode, Nikhil traces the roots of insurance back to ancient guilds, through the rise of European health systems, and into the uniquely American story of employer-sponsored insurance taking off during WWII. Along the way, we’ll explore why U.S. healthcare costs so much, why anger often lands on insurers, and how a system once rooted in community evolved into a fragmented marketplace of misaligned incentives. This is Part 1 of our multi-episode exploration of health insurance: where it came from, why it looks the way it does today, and what leaders are doing to fix it.
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Transcript
Introduction to the Healthcare Theory Podcast
00:00:00
Speaker
Welcome to the Healthcare Theory Podcast. I'm your host, Nikhil Reddy, and every week we interview the entrepreneurs and thought leaders behind the future of healthcare care to see what's gone wrong with our system and how we can fix it.
Diverse Expertise on Healthcare Issues
00:00:14
Speaker
Over the past few months of running the healthcare theory, it's been really helpful to speak to a lot of different types of guests. We've spoken to entrepreneurs, researchers, policymakers, and leading economists at great schools from Chicago to Harvard.
Challenges of Simplifying Complex Topics
00:00:29
Speaker
But one thing we've kind of realized here at the healthcare theory is that Although it's really important to go over different issues and see what's really going on with the people that are important and driving these solutions, it's almost constraining to look at an entire problem within a single episode.
00:00:46
Speaker
As you might have noticed, we're going quickly through problems You have to prevent provide context, provide the actual idea of the problem, then go
New Episodic Format for Deep Dives
00:00:53
Speaker
into solutions. And with things such as health insurance or biotechnology, it's almost an oversimplification to go over an entire episode in just 30 to 40 minutes. Health insurance is an issue that could take probably hours and hours for people to go on, maybe an entire class. So spending just 30 minutes on it might not be the most fruitful because we're only looking at it from one point of view.
00:01:17
Speaker
And when you're looking at it from just one point of view, you only see one problem and you only see one solution. So our idea is to do this from a more episodic and serial type of show.
00:01:29
Speaker
So almost like Netflix, each different season, we'll be going through different episodes that have different stakeholders covering a topic.
Deep Dive: Understanding Health Insurance
00:01:36
Speaker
And we think this will allow us to not only learn a bit more and get a lot more depth into a single issue, but just still get a wider viewpoint on what's really going on behind these and provide real frameworks to what the future of healthcare care is going to be.
00:01:52
Speaker
And for this first segment, we're going to go into health insurance. And the idea is that every few months we'll go into a different segment with six to eight episodes covering different stakeholders from doctors to doctors largely economists, policymakers, and entrepreneurs who are in this space, but also just touching into different people that will be able provide a unique value to these problems.
00:02:15
Speaker
And one of the first problems that we've been thinking a lot about here at the healthcare theory is about health insurance. Of course, healthcare in America is troubling, but largest and most pressing questions is, i mean, healthcare seems broken, but why can't we fix it?
00:02:34
Speaker
And a huge part of that is understanding who pays for healthcare, care why, and when.
Public Reaction to Corporate Greed in Healthcare
00:02:39
Speaker
And it all comes down to health insurance. And it's really interesting, I think, just a few months ago, Luigi Mangione and CEO of UnitedHealthcare. I mean, everyone heard about this, how the UnitedHealthcare CEO basically got assassinated in New York City.
00:02:54
Speaker
And what was interesting is that the result of this wasn't direct hatred towards the killer or looking for justice for UnitedHealth CEO. For most people, especially younger individuals, this reaction was a lot more mixed.
00:03:09
Speaker
And the people generally, although tended to, of course, not really want this killing to happen, there was mixed
Corporate Greed and Social Issues in Insurance
00:03:16
Speaker
feelings. And many Americans probably felt not only frustrated about the corporate greed and the role of big health insurers and driving up costs in health care, but they're frustrated about our system more broadly.
00:03:28
Speaker
And I think this provided an outlet for that, for many to speak on and a catalyst for looking for reforms in health insurance. I mean, according to a really interesting poll by Emerson College, when asked with whom they sympathize more, 45% of respondents chose suspect Luigi Mangione, and 17% chose Thompson. So...
00:03:47
Speaker
so So more than two and a half times as many students and just individuals feel more sympathy for Luigi Mangione, who's a killer, than Thompson, who was the CEO who was murdered.
00:04:01
Speaker
They sympathize more with him than the person who was murdered. And I'm not here to say whether this is right or wrong, and 37% said neither, by the way, but I'm not here to say whether this is right or wrong, but it just shows this frustration with health insurance has really bled into what our value system is. we don't, and people just don't like health insurance.
Historical Origins of Insurance
00:04:20
Speaker
And through my research, I believe that yes, there is corporate greed and a profit motive is important, but I also think this kind of idea of greed and these issues with health insurance are much deeper and are integrated within the social issues and values within our country too.
00:04:38
Speaker
So to kind of explain this, let's take a step back. And around 600 BCE, e I mean, thousands of years ago, the Greek and Roman craftsmen had to deal with plagues.
00:04:49
Speaker
They had career-ending fires that could destroy their entire properties, wars across the Mediterranean. They had a lot of things going on. So they didn't have UnitedHealthcare back then, so to minimize losses, families within these communities would pull money together and pull risks together to form these benevolent societies, where in case of an accident, they might allocate money toward the victim, help rebuild their home, and even serve as caretakers to their families.
00:05:16
Speaker
And for most of the general public, their local community, these benevolent societies, was their insurance. But in around the mid-1600s, mathematicians like Blaise Pascal, Edmund Haley, Pascal you might know for and inventing the Pascal's Triangle and basically probability theory himself, but these guys developed new views on probability theory and risks that helped professionalize insurance.
00:05:41
Speaker
Edmund Haley, a mathematician, invented probabilistic life tables. which made life insurance companies huge winner the 16th century. Basically, now instead of being a guess on how long someone will live, they had precise mathematics based on different variables as to what exactly you to expect.
European Insurance Developments vs. U.S. Challenges
00:06:01
Speaker
So as Europe became more capitalist, became more secular, these benevolent societies lost a lot of influence to the commercial insurers that eventually gained a lot of prominence because their backing from the government and also just Really, they were able to provide a clearer service at a better cost along with these other trends going on They were the clear winner and life insurance took off.
00:06:26
Speaker
But over the next around 100 or so years, thanks to actuarial science, which Edmund Haley helped develop, insurance spread to new areas. It wasn't just about how long you can live, but more complicated things like property, fire, and maritime insurance were now protected well protected financiers and large governments.
00:06:48
Speaker
And which was really interesting, right? Because life insurance is probably a bit easier to guess, right? You might know how someone how long someone will live based on if they're diseased or not and just their age, of course. But fire and maritime insurance often has a lot more variables going on, which makes it hard to predict.
00:07:05
Speaker
But at the same time, around um around this time, employers and especially their workers... We're dealing with high rates of injury at dangerous factories and epidemics from cholera to tuberculosis, which really put them out of work pretty often, which is bad for the employee and bad for the employer.
00:07:24
Speaker
So in an effort to protect employers from lost productivity and create a social safety net for his constituents, German Chancellor Otto von Bismarck developed the Health Insurance Act of 1883.
00:07:37
Speaker
which created the first system of mandatory health insurance. By World War I, the United Kingdom, Russia, Norway, and many European countries had followed suit, many of which are recognized for their universal and remarkably low cost of care today.
00:07:52
Speaker
And however, in the United States, there was a different story going on. Socialized medicine was intensely controversial for America's, as you can imagine, individualistic, laws of affairs political system.
Resistance to National Health Insurance in the U.S.
00:08:05
Speaker
In America, I mean, people weren't really...
00:08:08
Speaker
they were not very homogeneous, right? People are really diverse, huge immigrant population. And that's what we pride ourselves on is that pick yourself up the bootstraps kind of mindset, the boiling pot.
00:08:21
Speaker
And those ideas kind of conflicted with the idea of everyone pooling together in one big health insurance system. And I think this is where it's important to mention is that national health insurance and universal insurance are two different things.
00:08:34
Speaker
Universal health insurance is the idea that basically everyone in a country will be insured and universally, no matter who you are where you come from. If you're in the United States and you're a citizen, you will be insured.
00:08:46
Speaker
On the other hand, a national health insurance just says that This will all come from a single payer, which is the U.S. government. It'll all be under the U.S. government rather than different kind of companies and smaller insurers handling all these different things like UnitedHealthcare and bigger insurers do today.
00:09:03
Speaker
In the 1910s, when this idea of of a national health system came around and universal health insurance came around, the American Association for Labor Legislation, AALL,
00:09:15
Speaker
really pushed this in Congress. They wanted this to pass, but it quickly fell up flat because, I mean, we're at World War I with Germany. So this is an idea that came from Germany, an enemy state at the time.
00:09:27
Speaker
A lot of Americans saw it like an enemy policy, which they didn't like. And at this time, the Red Scare was also going on. So this is almost like a socialist idea. So Marxist Russian policies, it was basically grouped into that idea of the Soviets and stuff like that. So it just never ended up happening.
00:09:46
Speaker
And it took almost 20 years of ups and downs with this policy for Americans to truly reconsider the plan with FDR coming on and he built the Social Security Act, but ultimately he was left out of his new deal in 1935 because it was still a little controversial.
00:10:02
Speaker
And i think this is where it gets a little murky. i mean, given how politically divided America is today, it's almost easy to chalk up our lack of national health insurance to corporate greed and Americans like almost selfishly only caring about their own health care.
00:10:19
Speaker
But that's not really exactly true. in the UK, they launched their own national health system in 1948. At the same time, President Truman, who was a strong advocate for national health insurance, won the presidency and the Democratic Congress.
00:10:33
Speaker
And America was reunited post-war. Lots of solidarity going around across nationwide. And really single payer, national single payer insurance was super high in the polls. There was majority support for it.
Impact of Post-War Employer-Based Insurance
00:10:49
Speaker
But this is where things start to fall apart. Well, the first reason was that doctors, and more specifically the AMA, the American Medical Association, which is basically a lobbying group of physicians, they didn't want it to happen.
00:11:03
Speaker
you might be wondering, why don't doctors want there to be health insurance? Well, basically physicians were worried that a third party like health insurers would interfere with their practice and...
00:11:14
Speaker
They really feared that there would be reduced fees on their services. They thought like a government with its bureaucracy and would mean that they just earn less and would have less control over healthcare.
00:11:26
Speaker
They thought healthcare should be in the hands of doctors and not the government, which is a fair argument. And they hired Whitaker and Baxter in 1948, which is a huge PR firm. And they ran the most expensive lobbying and PR campaign in newest history up until that point.
00:11:42
Speaker
They spent almost $20 million, which is around $240 million today, mobilizing these physicians to speak to patients and civic groups. Almost 50 million pamphlets were printed, and they coordinated newspaper ads across the country and framed national health insurance as an un-American,
00:12:01
Speaker
kind of un-American policy. They equated private insurance with freedom and being the American way, while the government was bad. And just before that, another thing that happened was that World War II happened.
00:12:14
Speaker
As able-bodied workers went off to go to the Pacific and Europe, the ones that stayed back created a pretty big supply-demand gap. Basically meaning that there were so many good workers that were gone, the ones that were left carried a high price for employers.
00:12:29
Speaker
They really wanted them and they were paying a lot to get them. So the U.S. government was worried about inflation, worried about wages going up too quickly. So they placed wage controls, basically capping how much employers can pay employees.
00:12:45
Speaker
In response, companies began offering fringe benefits that would attract new employees without barring wage controls. And one of these was health insurance. It wouldn't count as and increase passing the wage cap, but it would still get new people to join.
00:12:59
Speaker
So it really took off. The IRS also made these benefits tax-exempt.
Issues with Profit-Driven Insurance
00:13:03
Speaker
In private, multi-payer insurance like different companies such as United Aetna and Cigna,
00:13:10
Speaker
They took off from around 9% of Americans in the nineteen forty having private health insurance to around 116 million people or 70% of the United States by 1955 in just 15 years.
00:13:23
Speaker
And while employees and their families were excited about receiving coverage for the first time, as you might imagine, there are a few issues with your employer deciding on your health insurance. Not only does it restrict employees from making their own decisions on their health care,
00:13:41
Speaker
But it also forcibly locks workers to jobs they don't want. And maybe they even avoid entrepreneurship just to keep coverage. And this is like quite a big issue. A huge issue again is also that health insurance also are for profit under this system.
00:13:57
Speaker
traditional capitalist mindset is that when people are for profit, they're more likely to innovate, they're more likely to provide better services and grow and reach new customers. But the issue with health insurance is that often profit comes at the cost of delivering good care, which is why many economists believe that health insurance is kind of has too many externalities for a completely free market to be a perfect system.
00:14:22
Speaker
And the issues that private insurance, which is ah kind of has that profit motive and is working with employers, that's only part of the puzzle, right? Because not everyone gets their insurance from their their employer, right? Many are unemployed, many are sick, disabled, or their employer just doesn't provide insurance.
00:14:40
Speaker
And... Because healthcare care is basically treated as a market good instead of a social good, the us ah US government had to fill this gap.
Call for Policy and Tech Solutions in U.S. Healthcare
00:14:49
Speaker
and what they can't do is they can't fix all these issues themselves, right?
00:14:53
Speaker
When you have all these sick people in different insurance pools, all their risk pooled together, it basically means that their insurance is going to be more expensive than others. which is a huge issue. You have these private for-profit insurers getting the healthier patients and still charging a lot because that's their goal. They're public companies. They have to show investors they're earning profit. And the public insurance policies are often much slower moving.
00:15:17
Speaker
And they're filled with less healthy patients that really defeats the point of insurance. If everyone and think about fire insurance, for example, if everyone's house was likely to be set on fire, would insurers really provide a good plan?
00:15:31
Speaker
They know they're going to get, quote unquote, screwed anyway. Right. So health insurance is the same issue with elderly care. Everyone is more likely to spend money. So for health insurers, there's a lot of misaligned incentives there.
00:15:43
Speaker
Again, because there's a private system for this, it also means that without a government to negotiate everything to themselves, there's a lot of different parties that are now getting involved. and And creates a very complicated web.
00:15:56
Speaker
For example, with drug companies, they need to charge high prices to innovate. So there's a lot of complex negotiations there. Providers also want a lot of money because it costs a lot of money to deliver this healthcare.
00:16:08
Speaker
there's a lot of negotiations going on there. And then, of course, there's pharmacy benefit managers and a lot of intermediaries in healthcare, which creates a lot of friction. And what that basically means is that today's system is it's fragmented, it's transactional, it's adversarial.
00:16:27
Speaker
It's not what we're looking for. And there's a lot of issues which we'll be going over over the next few months, the next few years, on what's going wrong with health insurance. But I really hope this is a helpful way to understand why we're here in the first place.
00:16:41
Speaker
It's easy to be mad at health insurers and say... They're the bad guys because they collect the bill and they do a lot of things that deserve some justified anchor. But the real problem is that our entire system is structured around misaligned incentives because we didn't plan for this system.
00:16:58
Speaker
The U.S. health insurance system wasn't designed on a map. And it wasn't carefully architected by policymakers and economists. It happened because of circumstantial things and it snowballed into what it is today, where we're so entrenched in it that it's hard to fix.
00:17:14
Speaker
So, i mean, it's nice to say that let's just fix this and do healthcare for all and the and ACA, which President Obama passed. it helped, but we can't do these sweeping reforms realistically um so easily with how America is looking today. So we need to find different solutions within technology and within slow step-by-step policy moves that help ensure that we can basically provide better healthcare for all. But the thing is that this issue is not just like now technological or political. It stems into many different areas and
00:17:51
Speaker
That means the solutions should too. So over the next few episodes, we're going to be diving into different people such as um economists and policymakers and entrepreneurs, along with a physician and a consultant at McKinsey to really get an idea of how we can fix health insurance and what's going on today.