Fixing Health Insurance Is A Small Part of the Solution

The following was my post (with a little simplifying rhetoric) in response to an indication that the health insurance industry doesn't have the largest profit margins amongst all industries: Insurers should be paying us to hold our money. A 3.3% "profit margin" becomes a bigger deal once you realize that insurance fundamentally is little more than a shared checking account. People pay in and they pay out. Who would use a bank that takes 3.3% of all money you deposit?

But that's not even half of it. The profit margin is after expenses. So it may be closer to having a bank that takes 10% or 30% of all the money you deposit.

All that said, there's a larger problem. Even if we find a way to educate insurers on how to deposit and write checks for less expense than 30% of the check, that only represents maybe 4 years of health care inflation and may do little to slow the rapid pace of cost increases.

It may be a sad testament to our democracy, after months of headline coverage, the following fundamental issues have gotten only a glancing survey by the major media sources. First off regardless of competition among check writers (insurance), competition amongst the actual health providers is fundamental to obtaining the benefits of the "free markets" everyone talks about. Health consumers need access to cost and quality information so they can purchase health care rationally. Then innovation at the care level will be properly valued and stimulated because better providers will get higher profits.

Second, while the health industry is far from market driven, the principles of supply and demand can't be overlooked particularly with all the evidence of a health care system on the brink in terms of capacity with rushed physicians and long lines at ERs. Health care supply must be increased. Perhaps this means automating processes now carried out by doctors and finding ways to do more with less training. Care would likely improve with software making decisions based on information in a nationally updated best practices database rather than doctors, particularly in primary care, who have an impossible task of keeping up with all relevant advances in medicine.

Insurance is certainly a more conceptually accessible issue but the heart of the matter lies elsewhere after we train insurers how easy it is to write checks:) These fundamental concepts of stimulating innovation and increasing supply do happen to be addressed in the current health bills but their approach merits debate because after all these are the measures that will actually impact the rate of cost increases. A failure to recognize this is either a surrender to the notion that patients can't be rational consumers and properly choose providers no matter what help they're given (which is certainly worth debate right?) or a simple intellectual error that could literally cost trillions.