Oxymorons: The Myth of the U.S. Health Care System

Reviewed by: Peter Frishauf

Disclosures

February 25, 2002

Introduction

By J.D. Kleinke
Copyright 2001
Jossey-Bass
272 pages
ISBN: 0-787-959-707
$35.00 hardcover

Noted health economist J.D. Kleinke once saw managed care as the solution to America's healthcare problems. Case management fueled by good information would increase quality, decrease hassle, and lower cost. Kleinke cofounded a public company, HCIA, in the early 90s to provide information on outcomes designed to show institutions and insurers what works and what doesn't. In 1998, he declared victory for the managed care solution in a controversial book, Bleeding Edge: The Business of Health Care in the New Century.

Kleinke was wrong, as he acknowledges in his interesting new book, Oxymorons: The Myth of the U.S. Health Care System. Managed care, he writes, has "left in the rubble bewildered consumers, disappointed employers, enraged patients, embittered physicians, and a raft of lawsuits." Among the reasons:

  • Because of the US tax code, most people obtain health insurance through employers. The result: "Every U.S. employer, has, in effect created its own U.S. health care system in miniature (that) decides which services, drugs, types of providers, and other resources are covered and for whatever medical necessity it deems severe enough." The system also leaves uninsured 44 million people who work independently, not at all, or for companies that don't provide insurance.

  • Private health insurance benefit design is regulated by state law. The 50 different mandates overlayed on employer plans make it impossible for insurance companies to realize economies of scale, and confuse employees, as those working in different states but for the same companies may have strikingly different benefits.

  • Parasitic middlemen, pointless regulation, and waste suck billions of dollars from premiums that could be redeployed to pay for care. Kleinke identifies 2 intertwined constituencies as prime culprits: the 5000 state insurance bureaucrats who preside over a "mess of state-based benefit mandate laws," and 50,000 health insurance brokers "in bed with them." The brokers, I was astounded to learn, collect commissions ranging from 3% to as much as 20% of the total cost of plans -- a "shadow tax" of some $300 billion per year on premiums, more than twice what the nation spends on all prescription drugs! Insurance companies, it seems, have been unable to break the stranglehold of brokers, and those that attempt to offer plans without brokers face massive retaliation.

Oxymorons

is an easy, informative read for healthcare experts as well as nonpolicy wonks, and Kleinke is a good story teller. We meet the ship-yard owner coming out of World War II who decides to offer health insurance, "Jim and Dave," who work for the same bank in different branches and carry insurance cards that look the same but don't pay the same. We meet a 25-year-old consultant preaching from his PowerPoint slides on the benefits of a contracting service to a hapless hospital administrator whose stomach churns from too much burnt coffee and a nephrology department that is driving his medical center to bankruptcy.

Kleinke's writing style is direct ("managed care companies do not make money by managing care, they make money by managing money"), entertaining (explaining the limitations of relying on digital technology to eliminate medical errors he writes "put simply, in the clinic, shit happens"), with a bit of hyperbole (I was half-expecting a script for the movie Aliens when I read in his preface that I would be taken on "a dark discomfiting journey through the worst architectural features of the colossal mess we call a health care system.")

One of the best chapters of the book, "Vaporware.com," dissects the discredited Wall Street hype that once proclaimed the Internet would cure all America's healthcare problems. Hopes were so inflated that at the top of the bubble, WebMD achieved a peak valuation of more than $20 billion, roughly comparable to the Boeing Corporation, despite WebMD sales of only a few million dollars.[1] In the end, except for record amounts of money raised, WebMD blazed no new trails, and its core business today is centered around the mundane tasks of clearing medical claims by non-Internet companies acquired with its once high-priced stock ("Vaporware.com" first appeared in the journal Health Affairs, and is available on Medscape).

Less informative is Kleinke's discussion of how complexity theory explains why the best laid plans in healthcare go awry. Inspired by James Gleick's popular 1987 book, Chaos, this discussion seems unnecessary -- who wouldn't argue that healthcare is complicated, chock full of unpredictable people and events that go wrong? But none of this detracts from the solid history, thinking, and interesting perspectives that are the core of Oxymorons, along with Kleinke's important recommendations for fixing what ails us. His proposals include:

  • Tax parity -- make health insurance deductible to everyone, with employees responsible for buying their insurance through a health allowance that would, in effect, get employers out of managing the benefit. The tax reform would promote direct marketing of plans to employees and consumers over the Internet, eliminate middlemen, and free up 18 cents of every wasted healthcare dollar.

  • A standardized national benefit designed to replace state mandates, with medical services that fall outside the plan purchased directly by the consumer. Basically, Kleinke proposes an update to what he acknowledges to be the "woefully outdated" Medicare benefit, the new plan to be designed by a "small, nongovernmental body of health insurance experts, clinicians, actuaries, epidemiologists, and consumer advocates."

  • Uniform federal regulation of all health insurers to replace state mandates.

Kleinke predicts economic forces will put these reforms in place, despite "a nasty fight" sure to be mounted against them by "hundreds of thousands of hungry brokers, consultants, lawyers, accountants, vendors, government bureaucrats, and workers at all level of the MCOs." In his vision, Mary, circa 2009, sits before a computer, using her company's health allowance and whatever she decides to spend out of pocket to shop for a family plan. After entering her zip code on a commercially operated Web site, she selects a plan from dozens offered based on costs and standardized benefits. After considering her options and the prices, she hits the "submit" button, and moments later gets a 1-page policy referencing a standardized benefit plan. The cost savings from these approaches would lower the cost of basic coverage to make it affordable for everyone -- either directly, or by government subsidy for those who can't afford it, largely eliminating the problem of the uninsured, at least as it applies to US citizens.

I am not a health policy expert or economist, so it is beyond my knowledge to comment on the soundness of these ideas. Kleinke, like George Lundberg, MD, [2] and others amasses a persuasive array of facts and history detailing why the days of employer-purchased coverage may be over, and that tax reform is basic to any reform. Both put greater responsibility in the hands of consumers, which is fine for many, but could be problematic when it comes to selecting the right policy or intervening when there are problems.

That 1-page policy Mary bought sounds great, but does she need to understand those "standardized benefits" behind it? And finally, if the 70% of insured Americans who make no health insurance claims in a given year all chose inexpensive policies, won't the profit insurance companies make on their premiums fall, necessitating huge price increases for policies that cover sicker people, many of whom might not be able to afford the out-of-pocket expense?

Oxymorons is an excellent, thoughtful book, full of insight, excellent details, and recommendations from someone who came to healthcare as an outsider, studied health economics, and built a business designed to help institutions and insurers provide better care. For those unfamiliar with health policy literature and issues, it's a well-referenced review, delivered with gusto and unashamed but clearly stated point of view. As an observer of the healthcare scene, I especially applaud Kleinke's recommendation to reform hospital care by redefining the role and training of administrators and clinicians who work there. It's "an extremely slow fix," he writes, "one that involves the development and sponsorship of intensive, interdisciplinary training in both medicine and health care that the current, aging generation of hospital administrators never had. The same thing needs to happen on the other side of the great divide: we need to train the next generation of physicians to be functionally literate in health care, not just medicine."

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