U.S. Healthcare: Continuity Buffeted by Change

The “supreme irony” of healthcare in the United States is that while Americans eschew limits on care – as is done in Canada or Great Britain – they expect someone else to cover most of the costs. This situation creates a kind of “bizarre love triangle” among healthcare providers, insurers and consumers of medical services.

These were among the key points made by J.D. Kleinke, a healthcare economist, author, entrepreneur and analyst of the American healthcare scene, in a keynote address on trends and developments in U.S. healthcare. Kleinke spoke during TRSA’s Healthcare Conference on Nov. 15 in Salt Lake City. His wide-ranging, often witty, review of healthcare developments traced trends going back to the early 20^th century. Notably, Kleinke pointed out that the roots of today’s healthcare system stems from World War II labor shortages. Amid price controls and wartime rationing, U.S. employers were desperate to meet aggressive production goals. In response, the U.S. government granted businesses tax breaks to help pay for employee healthcare plans, a form of noncash benefits aimed at helping them recruit workers. “It’s always been this accidental,” he said. “Nobody designed it this way.”

Speaking at the Salt Lake City Marriott City Center, Kleinke noted that during the war, the Kaiser Shipyard in California brought on-site doctors to treat employees at work. Later shipyard managers developed a healthcare program to serve employees both on and off the job. While the shipyard is long-since defunct, the “Kaiser is ‘permanente,’” he quipped.

While the aforementioned labor shortages waned in the post-war era, the tax deduction for employee health insurance endured, as it continues to do to this day. But the problem with employer-based healthcare is that elderly, unemployed or small-business operators that can’t afford health insurance (even with the tax breaks) means that many lack access to insurance and suffer both the health and financial consequences of dealing with a solely “fee for service” approach. Before World War II, the latter was pretty much the rule for U.S. healthcare, Kleinke said. A farmer who got sick would pay the doctor in produce or livestock to treat his or her ailment. With the advent of health insurance, third-party organizations provided the “chickens,” he said. “Healthcare is a three-dimensional transaction, everything that involves insurance,” he said. “That instantly introduces all that complexity that we’re talking about.”

Attempts to alter this system bore fruit in the 1960s with the passage of Medicare and Medicaid, federal insurance programs designed to help elderly and low-income people gain access to healthcare. Conservative partisans argued against these programs, noting that government intrusion into healthcare “markets” would stifle innovation and lead to health declines. History disproved that argument, he said, but the problem of 10%-15% of people going without insurance remained.

With the election of President Barack Obama in 2008, along with Democratic majorities in Congress, the political stars aligned in a way that would bring more changes in the form of the Affordable Care Act (ACA). While the law passed in March 2010 has succeeded in reducing the ranks of the uninsured through the establishment of government-subsidized private “exchanges, it’s widely disliked by partisans on both the left and right, Kleinke said. The former see the ACA as an obstacle to “single payer” or socialized medicine, while the right views it as big government run amok.

Kleinke noted that the outline of Obamacare-style exchanges originated at the Heritage Foundation, a conservative think tank in Washington. Its inspiration was the desire to craft an alternative to the “managed competition” model promoted in the early 1990s by First Lady Hillary Clinton and President Bill Clinton. The so-called “Hillarycare” bill never was enacted, but Obama’s Affordable Care Act borrowed ideas from GOP policy theorists to reduce the ranks of some 50 million uninsured people, Kleinke said.

Amid these policy shifts, hospitals, doctors and insurance companies each have maneuvered in various ways to ensure their financial viability, he said. For example, hospitals have responded by consolidating into more financially stable “health systems.” Health insurers likewise have combined into larger groups that can achieve economies of scale and drive down administrative costs. Doctors too have banded together to protect their interests by fleeing private practice to join hospitals as staff physicians.

But despite these and other changes during a century of evolution, U.S. healthcare has retained its distinctive three-way arrangement among insurers, healthcare providers and consumers, Kleinke said. In 2017, there are still some 700 insurance companies in the U.S., plus “tons” of standalone hospitals. However, he acknowledged that the need to control costs is forcing some changes, including the likely demise of most rural hospitals that sooner or later are bought up or consolidated with larger urban-based systems.

While Kleinke didn’t address healthcare laundry outsourcing in detail, a fair reading of his talk would lead one to conclude that amid the pressure to control healthcare costs, in-house hospital laundries seem unlikely to survive over the long haul. And while U.S. healthcare remains expensive compared to other developed countries, costs have stabilized in recent years, and outcomes have improved through innovations in treatment as well as healthier living habits, such as fewer people smoking.

Finally, healthcare providers continue to play a unique role in the U.S. as caregivers dedicated to helping ill and injured people recover and lead healthy lives. That reality is no more likely to change than America’s distinctive public/private approach to providing medical care, Kleinke said. His advice? Keep calm and carry on … one day at a time. “Don’t get too wrapped around the axle about the next panic that’s 30 days away because it’s probably not actually coming.”