The British Are Coming!
In 2005, Humana engaged me to develop a business plan to enter the population health business in the United Kingdom. As I sat in the Virgin Health office on the sixth floor of a house on Half Moon Street in London owned by Richard Branson’s mother, the only thing that seemed more impossible than finding common ground between the American and British healthcare systems was a literal moonshot idea called Virgin Galactic that two guys were developing on the seventh floor.
On one of my visits to London, I came down with a stomach bug that resulted in my first encounter with England’s famed and revered National Health Service (NHS). The nurse with whom I spoke on the telephone was very friendly but not very helpful, and my colleague Crispian Hotson arranged for me to visit his internist the next day. I remember my surprise at being told that the internist could not see me until the afternoon because he treated his NHS patients in the morning.
The U.S. healthcare system has long relied on the commercially insured patient to underwrite the entire ecosystem. The recent secular trend of a slowly declining number of commercially insured patients has rapidly accelerated as more than 40M Americans have filed for unemployment in the last 90 days, of which more than 21M filed continuing claims in the last week of May[1][2]. The supply of commercially insured consumers has drastically, suddenly and, perhaps, permanently shrunk.
If on November 3, 2020 Joe Biden is elected President and the Democratic Party wins control of the 117th Congress, then a number of elected officials, policy wonks and Twitter users will postulate that there is a mandate for Medicare for All or a public option for universal healthcare. Given America’s “special relationship” with the United Kingdom, it is not illogical to think that Medicare for All might resemble the NHS. If so, what does that mean for U.S. health systems?
In England, 79% of healthcare is funded through “public expenditures”, i.e. taxes.[3] Said another way, most of the “nationalized” and “universal” healthcare systems in Europe depend on some sort of private financing for more than 20% of expenditures, meaning that they are actually plural, not universal, from a financing standpoint. (See: https://data.oecd.org/chart/5ZvJ)[4]
In this context, the U.S. is not so different than England even today. According to the Congressional Research Service (CRS), health consumption expenditures (HCE) from Medicare, Medicaid and the U.S. military totaled $1.486T, or 42.5% of total U.S. HCE in 2018.[5] Adding the $370B of HCE categorized as “Other Health Services”, which includes the Indian Health Service, the Maternal and Child Health program, federal and state health activities, etc., total government funding of healthcare is approximately $1.85T, or 53% of total U.S. HCE.[6]
What might a Medicare for All scheme, as the British like to call it, mean for U.S. hospitals? According to Kevin Schulman, M.D. and Arnold Milstein, M.D., it would be devastating.[7] Everybody knows, and MedPAC confirms, that the vast majority of hospitals already lose money on Medicare and Medicaid.[8] CMS’s guidance to postpone elective surgeries for just six weeks in response to the Covid-19 pandemic devastated the financial profile of American hospitals, which calls into question their ability to endure a permanent structural change to the reimbursement system. Whatever the scheme, “universal healthcare” will be celebrated loudly by many consumers and quietly in many corner offices while being met with cries of distress by providers.
And yet…to paraphrase Lloyd Christmas, I’m telling you there’s a chance…
If at least 14% of healthcare expenditures are funded privately in every OECD country, it is certain that some portion of the U.S. healthcare system will continue to be privately financed. America will not outdo Norway in terms of public financing of healthcare, and it probably will not outdo England either.
If, after almost 75 years, 20% of healthcare spending in England is privately financed, then it seems reasonable to assume that at least 20% of U.S. healthcare spending – or $700B – will be privately financed regardless of what happens in the halls of Congress. Viewed from the employer perspective, it seems difficult to imagine a scenario in which the number of commercially insured consumers declined by more than 50%, which would suggest that at least 80M Americans would continue to have employer-sponsored coverage.
An unsung but powerful force will also ensure that a significant portion of U.S. healthcare expenditures will continue to be privately financed: American individualism, which has fascinated scholars since Alexis de Tocqueville.
The most important difference between the NHS and any past, present or future U.S. healthcare policy is this: the British revere the NHS and count it among the greatest accomplishments in the history of England, if not the world.[9] Americans, in contrast, revere the idea of things that are “free”, i.e., goods that are subsidized directly or indirectly: social media, shared Netflix accounts, interstate highways, credit card miles, state parks, casinos guaranteeing 98% payback, employer-sponsored cafeterias, college education and healthcare.
Fortunately, the Americans comprising the triple venti/half-sweet/non-fat caramel macchiato, Amazon Prime, UberEats generation will inevitably discover that universal healthcare is a “thumbs down” consumer experience. Some will find out too late, as many employers will move quickly to disentangle themselves from the thicket of employer-sponsored healthcare. However, many valuable knowledge workers will discover that “free” healthcare is an inferior good compared to commercially insured healthcare, just like the 24M Americans currently enrolled in Medicare Advantage.[10] Employers in certain industries, particularly technology, will decide or be forced by competition to continue to offer private health insurance to recruit and retain the most talented employees.
The result?
First, the people who have most loudly decried the inequity of our current healthcare system as a result of the Covid-19 pandemic will, ironically, permanently entrench a two-tiered system that differentiates between the highly sought after commercially insured knowledge workers in the private healthcare market and everyone else in the public healthcare market. Most of the people who can afford the private system will choose it, just as they do in England.
Second, freeing payers and providers from the constraints of designing benefit plans to cross-subsidize the entirety of the healthcare system will unleash what the NHS refers to as “value for money.” Employers forced by competition to provide coverage to their valuable and mostly healthy knowledge workers will be able to influence benefit design. Insurers will finally be able (and forced) to deliver on the “brand promise” of high value networks, as the most qualified physicians will be in high demand. Health systems will compete vigorously to be “in-network” to serve a group of consumers who are both better funded and have lower acuity than those covered by Medicare for All.
Which providers will win the market to serve 80-100M commercially insured consumers in a Medicare for All scenario? Cedars-Sinai, Mayo Clinic and Cleveland Clinic are certain to win. Wal-Mart will dominate the rural healthcare market, leveraging their unparalleled real estate portfolio and supply chain expertise to deliver primary care profitably to Americas with publicly funded insurance. United, which is already the largest provider of ambulatory healthcare in the United States, will continue their expansion, using their legislative advantage to employ physicians at salaries that hospitals cannot match. HCA will win, with its massive cost advantage, competitive positioning in growing markets and, importantly, decades of experience operating private hospitals in London. The Black Swan? The combination of United and HCA, which would result in a national Kaiser Permanente for private health insurance in the most attractive labor markets in the United States.
In a world of have and have nots, where will your system be? Are you prepared to win?
[2] https://www.dol.gov/ui/data.pdf
[4] https://data.oecd.org/healthres/health-spending.htm
[5] https://fas.org/sgp/crs/misc/IF10830.pdf
[6] Ibid
[8] http://www.medpac.gov/docs/default-source/reports/mar19_medpac_entirereport_sec.pdf
[9] https://www.nuffieldtrust.org.uk/health-and-social-care-explained/the-history-of-the-nhs/
[10] https://www.kff.org/medicare/issue-brief/a-dozen-facts-about-medicare-advantage-in-2020/