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Episode 45: We've Got You Covered
18 Plays17 days ago
In this episode of the Price Writers Podcast, Jeremy Keating and Karin Townsend dive into Rebooting American Healthcare by Amy Finkelstein and Liran Einav.
They explore the authors’ proposal for a universal basic level of healthcare funded by taxation, layered with optional private insurance for enhanced cover and what that could mean for insurers, regulators, and society more broadly.
From anti-selection and cross-subsidies to frontline GP access and the realities of public–private healthcare models, the discussion compares the US and UK systems, challenges common assumptions, and asks whether a better balance between state provision and private insurance is possible.
Is this a book pricing professionals should read? And what lessons does it offer for healthcare reform more widely?
Tune in for a high-level but thought-provoking look at one of the biggest policy challenges of our time.
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Transcript
Introduction to Pricewriters Podcast
00:00:06
Speaker
Hello and welcome to the Pricewriters podcast with Jeremy Keating and me, Katrin Townsend. Join us as we explore and discuss the world of insurance-related books, offering our insights and recommendations.
Introduction to 'We've Got You Covered'
00:00:18
Speaker
And today we're talking about We've Got You Covered, Rebooting American Healthcare by Amy Finkelstein and Liran Inav. Now it's a big topic and we're not American.
00:00:29
Speaker
So clearly this won't be a comprehensive analysis of the American healthcare system. But I do want to talk about the author's proposal, the implications for American insurers, and also coming from the other side of the pond, if British healthcare care could be improved this way.
Universal Basic Healthcare Proposal
00:00:45
Speaker
So a lot to discuss. Let's keep it high level, but Jeremy, what are the authors advocating for and what's the role of insurance within that? The authors have spent pretty much their entire careers in academia studying insurance in some way and very deeply the American insurance system.
00:01:04
Speaker
What they advocate for, which you don't find out until about halfway through the book, although I think you'll work out where they're leading to. So I'm hoping this isn't going to be a spoiler. But what they say is pretty much all healthcare systems in a developed society should be based on a universal basic level of cover, which is provided to everyone, regardless of their personal circumstances and probably paid for through taxation.
Healthcare Pricing Regulations
00:01:34
Speaker
And then on top of that, a private system where you pay for health insurance or you just pay from your own money if you can afford to for the better levels of care that you want on top of that.
00:01:51
Speaker
Okay, so there is some level of private health insurance here, but realistically as a pricing professional, how would that be priced? Yeah, so the idea is that people pay for the niceties and the advanced care in a system that they particularly want. It is priced on the basis of some rating factors, but regulation would control quite tightly what those rating
Affordability and Age-based Pricing
00:02:19
Speaker
factors are.
00:02:19
Speaker
For example, society may decide it doesn't want to force people to be priced based on previous or existing conditions. So it's an optional thing up to the society, but they would advocate for quite strong regulation on what can and can't be included in the pricing.
Regulation and Universal Coverage
00:02:39
Speaker
I guess even if you exclude pre-existing health conditions, the problem with tying healthcare care to age, and i assume age would have to be a rating factor, is that that would likely be unaffordable for the oldest people in society. So in the UK, the Institute of Fiscal Studies has calculated that the average annual spending per person on healthcare care for those aged 45 is £2,000. Now that might be affordable, but for those aged 85, it's £13,000 a year. And that's not realistic for most 85 year olds, right? So how does the book recommend working those cross subsidies?
00:03:20
Speaker
Yeah, so effectively you would be looking at a system that is quite tightly regulated on what you can and can't use in pricing. You can use age a rating factor because the universal basic system that picks up the rising costs.
00:03:37
Speaker
So society effectively picks up those rising costs.
Predicting Healthcare Costs
00:03:40
Speaker
But if you're an elderly person who wants to keep paying for extra niceties to your cover, you can do that. you just got to be able to afford to. it might be that age actually has chosen not to be a factor. I know that seems quite shocking to us, but in fact, interestingly, something advocate in the book, which I have heard as an argument from politicians is to say that the majority of cost is spent in the last year of people's lives. That's not a nice thing to know, but that is a statistic that's quite commonly banded about. Now, the problem they indicate in the book, which I found really interesting, is that at the outset of that year, you do not know that that is the last year of someone's life.
00:04:21
Speaker
So when people say, oh we could cut back, we could save absolutely
Private Insurance Flexibility
00:04:25
Speaker
huge amounts of money by not providing health care to people that are terminally ill or likely to die in the coming year.
00:04:34
Speaker
Actually, we don't know if it's there last year and nobody can predict that with a great deal of certainty for the majority of cases. So in fact, actually tying it to age doesn't work as well as we would hope.
Universal Healthcare and Cost Burden
00:04:47
Speaker
Going back to just a very insurance point of view, how would you work that cross subsidy
US Healthcare Rules and Financial Implications
00:04:51
Speaker
so people feel like they're not paying a lot for other people's health care, particularly if there is that kind of private element to it?
00:04:58
Speaker
Yeah, you effectively have to allow people to stay in the system even as they age and choose to come in and out of the system as you do. Now, the universal basic level can pick up a lot of that in order to take the strain out of the system.
00:05:14
Speaker
And that's the point of it, the universal basic system. actually takes the weight of the strain away from the private system. So the private system effectively can
Societal Norms in Elderly Healthcare
00:05:27
Speaker
at all ages provide the nicer levels of cover or the more advanced levels of cover that people can actually afford.
00:05:35
Speaker
But the state picks up the heavy burden. And the fact is that people at any age, society will not generally let people go without healthcare.
00:05:47
Speaker
So even if in theory you have a system that does not provide healthcare care to people, actually it very
Comparison of US and UK Healthcare Systems
00:05:54
Speaker
often does. And in the US, they they use a lot of examples and of the US having really quite surprising rules about healthcare, care but there are rules about having to provide treatment to people.
00:06:08
Speaker
even though you can actually be charged for it afterwards. So you might well provide desperately needed care to someone and then attempt to sue them afterwards for it.
00:06:18
Speaker
And in fact, the reclaim on the amount spent on people that can't afford healthcare care in the US, it's something like under 10 cents in the dollar. So it's actually kind of pointless to even try and get the money out of people. And yet they do. They feel obliged to provide the healthcare care because we do as a society provide that healthcare to people.
00:06:37
Speaker
And it goes the same with the elderly. So the universal basic system takes the strain of providing the cover that we all as a society know that we should provide to people. But should that older person actually want better, more advanced cover on top of it, they have to be able to afford it themselves.
Healthcare Funding Differences
00:06:57
Speaker
So this actually sounds a lot more similar to the UK model than... Maybe it did when I heard about the system they were proposing initially. In America, health insurance is currently tied to employment and income.
00:07:11
Speaker
And in the UK, healthcare care is majoritarily funded through tax. How would moving to this kind of public-private partnership model reshape people's relationship with healthcare?
00:07:26
Speaker
Yeah, it's interesting, actually, because I, similar to you, thought that the US system actually is heavily tied to employment and income. But oddly, in many ways, they point out the book. And that's what people say and what is advertised quite widely and politicians will tell you in the US.
00:07:43
Speaker
But the reality on the ground is a real mixture of what's actually going on. And it's very messy. And although in theory, the government doesn't provide a universal system, the federal government, one of its biggest spending lines is actually on healthcare. care And in fact, the system is more public than our
Critique of UK Healthcare System
00:08:05
Speaker
perception. So I found that quite interesting as well.
00:08:09
Speaker
How do people's relationships change? It becomes more about a state that provides you with... basic cover and you as an individual take responsibility for actually the nice parts of the system that you want.
00:08:25
Speaker
Now they are very critical of the UK system. And the reasons are that the UK system is horrendously expensive compared to the outcomes. That's what they say.
00:08:37
Speaker
and I'm inclined to agree. And also instead of rationing by people's ability to pay, we ration by things like how long you're willing to wait for treatment.
00:08:47
Speaker
So, and a lot of people end up going private anyway. So when you need treatment, it's like, oh, it can take a long time to happen. And in fact, people end up paying themselves.
Extremes in US and UK Healthcare Systems
00:08:59
Speaker
Now, Interestingly, they also say that one of the, there's two extremes that are actually really bad for healthcare systems. And one exists in the UK, one exists in the US.
00:09:11
Speaker
One extreme is where you've got a system where the people that can pay are just given lots of tests, lots of unnecessary treatments, lots of investigations, purely, let's be honest, to make money out of them.
00:09:25
Speaker
which tends to happen in the US with people that actually have the money and good health care, a lot of the reasons it's hideously expensive is because they're given lots and lots and lots of treatments and unnecessary tests that they don't need.
00:09:37
Speaker
And actually that is bad for their outcomes and potentially reduces their life expectancy quite shockingly. The other extreme is what we have in the yeah UK, where actually the system is really reluctant to give people the tests and treatments that they actually require.
00:09:52
Speaker
I'm sure all of us either have or know someone who has been telling their GP for ages that there is something wrong with them. And the GP is saying, no, you shouldn't worry about it. Come back if it doesn't go away. Oh, you're back again. No, I'm sure it's fine.
00:10:08
Speaker
And actually, like you have to really work sometimes to get that referral to a consultant. I actually know someone that happened to you that had a brain issue that the consultant was then like, I need to see you immediately. and they had waited months with their GP, with multiple GPs telling them it was just migraines and basically to stop moaning about it.
00:10:31
Speaker
And they're like, that is actually a really bad system because lots of people that need treatment are ignored by it. so there's these two extremes that exist that really don't work well for anyone.
00:10:41
Speaker
And by getting rid of that, having a basic system that will actually allow you to have tests and investigations, even if they're not necessarily the gold standard ones, but we actually do get you in and take your medical issues seriously.
00:10:55
Speaker
That's a big improvement in both systems straight away.
Investment in UK Healthcare Services
00:10:58
Speaker
Yeah, I'm actually quite inclined to believe, and it's my personal view, that in the UK it's the frontline systems that probably need more investment rather than necessarily the hospitals itself. I definitely see it as a frontline issue. It takes you weeks to get an appointment with a GP. but And that's okay if you've got something that can wait three weeks.
00:11:19
Speaker
But... If it's and more of an urgent issue, you've got find your nearest walking care centre, which, I mean, for me is like 50 minutes away, or you go straight to A&E.
00:11:30
Speaker
And sometimes you know in your heart that this is really an issue that you just need to see your GP urgently for, but you can't get an urgent appointment, for example. I wonder whether perhaps the next step in the UK would not be to go for like a privatised appointment I'm going to like healthcare in terms of like surgery and like hospitalized healthcare type saying, but more private GP type situations, like more immediate care whenever you need it situations.
00:11:58
Speaker
I imagine that that would be really beneficial. Like people would feel that they were more taken care of, I think as well. And it would do that really important job. Let's be honest of triaging who goes to the hospitals and being able to have that property triage would be kind of prevention rather than cure, right?
Public-Private Healthcare Partnerships
00:12:18
Speaker
um All right. So going back to what the author's doing, that was my own personal view. The author's challenge whether competitive insurance markets can ever deliver universal financial protection. Of course, universal health coverage would have to be heavily regulated for it to work for everyone. and So what are the benefits to insurers of stepping into this uncompetitive space? Or do you just think that most insurers wouldn't touch this with a barge pole?
00:12:47
Speaker
Yeah, the authors are quite clear, actually, that the universal basic system cannot be provided by a private payer. It
Feasibility of Private Payers in Basic Healthcare
00:12:56
Speaker
can be provided by private profit-making providers, but the actual payer, it doesn't really work for that to be a private organization.
00:13:05
Speaker
And the reasons are, as we've talked about on this podcast before, it's anti-selection related, and we touched on it earlier with age. There's just too many issues where people can select whether they want the cover or not when they need it and when they're expensive to provide it for. So in that way, the universal lower level really has to be provided by a taxation system.
00:13:29
Speaker
or or at least buy a system that's mandatory in that way and also doesn't particularly differentiate the price based on who you are. But it also can't be something that's got many frills in it because that's just going to become extremely expensive extremely quickly.
00:13:46
Speaker
But certainly providing the higher level tier of cover, the optional level of cover, that is something that private providers can certainly get involved in. And because they are providing something that's an obvious improvement upon the system, it is clear how that can work as a private system because you are giving people an extra thing on top of the basic thing that they require.
Structural Flaws and Reforms in UK Healthcare
00:14:11
Speaker
So in that way, we're incentivized. It's okay to profit from that. No one particularly would feel uncomfortable about profiting from that. And also you can make it a system that's financially viable and works for people.
00:14:25
Speaker
And it's not just about it working for people right now, either. It's got to work long term. And obviously, as pricing professionals, we know a lot about lifetime value, not just projecting the premiums that we want to collect this year, but five years, 10 years into the future.
00:14:42
Speaker
Now, in the UK, we do have a universal health care system, but critics argue that it's just unsustainable as the population ages. Do you think that there's an intermediary step that could be taken in the fairly short to medium term to start decoupling health funding totally from tax or to start implementing this public-private layering healthcare system?
00:15:12
Speaker
Do you think that would make it work better? Yeah, I do actually. I'm pretty convinced by the system that they propose as someone who's quite the insurance nerd and knows about different healthcare systems in different countries. So this system is roughly what actually exists in Australia and it does work pretty well on the whole. There are as ever reforms that can be made in the system.
00:15:35
Speaker
They're very critical of the UK system and I do tend to agree with them. The UK has just got this nasty kind of hodgepodge of compromises Where some things you will be, you effectively get free treatment for other things. You end up paying for your prescriptions that can really add up for people at just ah this really strange random number that's chosen. So everyone pays the same unless you get it for free.
00:16:02
Speaker
But it's connected to how much you buy. So there's an incentive for doctors to prescribe you a lot of things at once in the UK, because you only pay £9 per, I think it's based on the box that you get.
00:16:15
Speaker
So if the box has got like 200 tablets in it, you pay the same as if the box had two tablets in it. So it's kind of in the doctor's incentive, if they want to be kind to you and save you money over prescribe your drugs.
00:16:29
Speaker
And that's just one example of a negative incentive in the UK system. So yeah, I think this is actually a thing that we should consider. I mean, it's a horrendous political hot potato to do anything to the healthcare system.
00:16:41
Speaker
But certainly I think pushing people more towards the private level and making the existing system really about providing the basic level actually makes a lot of sense.
00:16:54
Speaker
One
Challenges of UK Healthcare Reform
00:16:55
Speaker
of the things, as an example, in the UK system, if you require a cancer drug that say costs the NHS a thousand pounds a month, you will get that probably for free because cancer tends to be one that's on the list of free things that we do.
00:17:10
Speaker
If you do have private medical insurance or you choose to buy a better drug that, say, costs £1,600 a month, the government will not fund any of that for you at all.
00:17:22
Speaker
You're just on your own. So instead of saying that we'll work together and the government still funds the £1,000 and you maybe pay £600, our system says, nope, you're on your own. So getting rid of things like that. to move us more towards a system that incentivizes people to go private.
00:17:39
Speaker
I think one of the really big problems at the center of the UK system is that we've got this tug pull going on between people that are like, it should be extremely expensive and provide everything that anyone could possibly need against this other pull that is, no, it really shouldn't. and We should incentivize people out of it to buy their own private medical stuff.
00:18:00
Speaker
by slowly making the cover worse and worse and worse and the waiting time longer and longer and longer. And it's this nasty sort of battle that's been going on for decades in that system has made it a real nasty sort of hodgepodge of not really working that well for anyone.
Impact of Insurance Premium Tax
00:18:16
Speaker
And of course, the other problem with private healthcare is the IPT on it. It's a lot of extra costs, right? is that So obviously removing reducing that could encourage people more to buy who could encourage people to buy more health insurance coverage. I've also heard some different things about the elasticity of health insurance. I've heard that even a bit of a reduction in price does really encourage people to buy a lot more.
00:18:43
Speaker
So...
00:18:46
Speaker
Are there other things like that that could be done by existing PMI providers to encourage take up more?
Social Perceptions and Public-Private Services
00:18:54
Speaker
Yeah, I definitely think so. i think a lot more could be done to incentivise people to enter into it.
00:19:01
Speaker
But I think we socially have a bit of a weird relationship with private medical in the UK. What do you think about this, actually? So I think it's a thing that a lot of people do buy, but they are they can be frowned on for doing sakes.
00:19:16
Speaker
When I had my first child, I had it at the local hospital. And just after and had had the baby, they said, now you're currently on a ward with six people and obviously therefore six babies as well. So it's a pretty noisy, loud environment. And they said, look, we do have these private rooms available. It costs $1.
00:19:38
Speaker
I can't remember what. It was like £250 a night, I think. I remember thinking that's like a fancy hotel, but it wasn't ridiculous. So I did and it was really lovely. But I think why that really worked is that they was very clear about what you were getting that was extra, which is effectively peace and quiet. Mm-hmm.
00:19:58
Speaker
It was clearly very popular. but They only had a certain number. I think they had four rooms or something a my local hospital that are available to do that. And it's on a first come first serve basis. If you have the baby and and there's no room available, then you're not going to get offered that. There's no amount of money you can pay to make a room become available. And I think that worked really, really well. is It clearly works well for the hospital and and and for the parents who benefit. And also, let's be honest, it makes the wards quieter because then on on the ward that did have six people in, now there's five people on that ward.
00:20:30
Speaker
So it automatically becomes a bit quieter for the others who didn't pay as well. So... i I think that there are examples where this private-public partnership can work really well, but it's going to be a difficult road to get to a stage where we're really clear on what it is. you know In that case, it was fine because it wasn't actually healthcare that I was buying. I was buying an environment.
00:20:51
Speaker
I think it would be very different if the difference was an effective drug versus a much less effective drug or something that improves my chance of survival or chance of recovery versus something that's not.
00:21:04
Speaker
So I think that's probably, for me, the real differentiating factor and something that politicians, healthcare providers and insurers are going to have to work out.
Critique of Insurance Premium Taxes
00:21:16
Speaker
Yeah, definitely. And that is a really good example of what they are advocating in there. And I'll just finish up by saying, as we mentioned IPT, that IPT really ought not to exist. It's a tax on effectively being sensible about how you behave about your risk.
00:21:34
Speaker
And it doesn't go back a long way. It was introduced in the nineties by the Chancellor Ken Clarke. And he literally says in his biography that he looked around for things he could tax and chose that.
00:21:45
Speaker
because it was a way of sort of putting a tax in that felt people couldn't really do much about and not complain very much about. So it's kind of a nasty tax to me. Also, it's not very well known. Insurers can't reclaim VAT.
00:21:58
Speaker
So actually about 30-ish percent of your insurance premium goes in tax straight away as soon as you pay it. So absolutely bonkers that is, terrible system.
Conclusion and Next Episode Preview
00:22:10
Speaker
All right. Okay. So we just did a real Wurzelstop tour there. So that you let us know in the comments what you think. And if you work in healthcare, we would love to hear from you on this issue.
00:22:22
Speaker
Do you recommend the book, Jeremy? I know we've covered a lot, but do you recommend this book? No, don't actually. ah If you are extremely nerdy about insurance and particularly health insurance like me and are really into this subject, then yeah, go ahead and read it. But I don't think for a pricing professional in your everyday work, it's going to really do anything for you.
00:22:45
Speaker
What about people who are interested in kind of social justice? Yeah, I'd say if you are interested in this as i subject or you healthcare care or healthcare care reform,
Book's Relevance to Social Justice and Healthcare Reform
00:22:55
Speaker
definitely. If you work in healthcare care and you don't understand why the insurance system is such a mess or why the spending is such a mess, then go ahead and read it because you'll understand that the regulation plus the natural way that insurance works with things like anti-selection.
00:23:12
Speaker
are very often in competition and the compromised results tend not to work for everyone. So if you want to know about that, go ahead. But if you're pricing professional thinking about a book to read to help you with your career, I don't think this one's going to do it.
00:23:26
Speaker
All right. That's a fair recommendation, I think.
Teaser for Next Podcast Episode
00:23:29
Speaker
Next week, we're moving on to a much lighter topic. We'll be celebrating World Book Day. So if you're parent, get those costumes ready.
00:23:38
Speaker
We'll be talking about the process of writing a book, our approach to it, how we each found publishers, and how to start your own writing journey, if that's something you've always wanted to do.
00:23:50
Speaker
going to be a really special episode. We've never done this before. So join us next time.
00:24:06
Speaker
PriceWriters transforms pricing professionals into the most respected leaders in insurance. Find out more about our PriceWritersPray platform by visiting pricewriters.com.