

Death by Regulation: Startup health insurer shutting - hga
http://www.richmondbizsense.com/2010/06/04/startup-health-insurer-shutting/

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rianjs
"Founded in 2008, nHealth was built around a high deductible insurance plan
model that utilized health savings accounts and kept costs down making
consumers more involved in their healthcare decisions."

Demand-side reforms don't work particularly well, because health care is the
only market system where supply drives demand (people don't buy health care
services like they buy cell phones; doctors prescribe it because the
information asymmetry is too great for it to be a consumer-based decision).
Just ask Singapore.

<http://www.healthbeatblog.org/2008/07/health-care-in.html>

So while nHealth's model might work amongst the young and healthy -- a very
desirable demographic -- it doesn't scale very well, and they'd be powerless
against the inexorable health care inflation (13%/yr last I checked), even as
core CPI is at 1% or less. Right now, the only thing that even comes close to
the health care inflation is education inflation.

~~~
hga
Healthcare inflation is not something I strongly considered and you're right
to emphasize it, but I submit to you that:

A) This high deductible + HSA model can't affect the market unless it's
widespread (probably very widespread), something we're not going to see in the
USA (well, not any time soon), and:

B) The experience of Singapore's first 5 or so years of the model cannot be
considered very useful (I'm assuming that between the writing and publishing
time and the lag in available statistics the referenced paper at best covers
the period 1984 to '89 or 90): the period is _way_ too short to see a change
in behavior _and_ their per-capita GDP increased by 43% (!!!) for '84-90
inclusive (from the IMF, as suggested by Wikipedia:
[http://www.imf.org/external/pubs/ft/weo/2006/01/data/dbcselm...](http://www.imf.org/external/pubs/ft/weo/2006/01/data/dbcselm.cfm?G=2001)).

But your points about inelastic demand and information asymmetry are well
taken; I in particular don't tend to think of the latter, having an RN for a
mother, my pediatrician as my father's hunting primary partner when I started
hunting, having seriously studied biology and chemistry, always reading the
prescribing info of any drug before taking it, etc. etc. etc.

That said, how widespread is the information asymmetry problem in the US? I
don't have any direct or family experience here, we've all stayed pretty much
in the confines of GP type physicians with specialists consulted mostly to
rule out things. These GP types have never encouraged "unnecessary" stuff ...
but they wouldn't economically benefit from it. The specialists are where
you'd expect problems, especially from surgeons who have a bias towards fixing
problems by cutting anyway.

EDITED: corrected fencepost error.

ADDED: this high deductible + HSA model is intended to address one area of
health care demand elasticity: avoiding your GP's office for minor ailments.
There are simple sets of rules available for treatment of stuff like upper
respiratory infections and gastro-intestinal illness including guidelines on
when you should seek medical care.

Canada is often described as a place where everyone goes to the doctor for a
sniffle because it's free. US style 3rd party payment is often close to this.
If you have to pay the entire amount out of pocket out of your HSA the theory
is you'll apply the above, perhaps through a nurse hotline, and only go in
(and get exposed to other bugs) when you really need to.

Hmmm, that brings us to American exceptionalism: are we perhaps more likely
than many other cultures to first take care of ourselves and family and only
go to the doctor when it's really needed?

~~~
rianjs
Warning: meandering, incomplete response follows...

Yeah, the HSA + high-deductible combination definitely has an effect on low-
hanging fruit like primary care stuff. I don't know if it's been measured, but
it intuitively makes sense. In terms of health care inflation, however, this
is small potatoes. When a heart attack runs ~$80K for a course of treatment...
well, primary care is pretty small. A normal course of cancer treatment (chemo
+ radiation) can run $200K and up. In this respect, controlling costs at the
PCP's office has very little effect on overall health spending trends.

Information asymmetry is significant, but it's most significant at the
specialist level. How is a patient to know that long-run (5 yr) outcomes
between surgery (we're doing something!) and physical therapy (hard, time-
consuming, no sense of immediate satisfaction) are identical for something
like herniated discs? And perhaps even better if you factor in potential
surgical complications? So there's definitely that aspect to consider. Also,
an orthopod is incentivized to do the surgery because we exist in a fee-for-
service cottage industry. This doesn't mean they'll always recommend surgery,
but there's always the financial incentives to consider. We reward more care
in the US, not better care. But this isn't exactly news.

To go back to the primary care type information problem... this is solvable to
some extent. The Internet has certainly brought a huge volume of distilled
knowledge to the masses. WebMD and the Mayo Clinic site are excellent examples
of this. Unfortunately, they aren't very good at providing physiological
context when explaining mechanisms of action (whether we're talking disease
processes or their treatments), and this results in poor consumer
understanding of what's going on in the big picture. When I was in pharmacy
school, this was a common problem when counseling patients. It was quite
common for an engineer to understand how this one drug worked on this one
problem, but they didn't know how it fit into the big picture that is their
body and how it might affect their body's homeostatic balance, especially if
they did X or Y while taking the med. It didn't even occur to them to find
out. This is where these information sources aren't enough, and where expert
knowledge from someone who thinks about this stuff all the time comes into
play. People have a frighteningly cavalier approach to taking pills... even
smart, educated people. I suspect it's a cultural thing.

Anyway, this lack of context problem is particularly exacerbated in
psychiatry, neurology, and any other specialty where what is unknown is
greater than what is known, _especially_ when you start taking into account
non-physiologic factors like cultural context.

WRT guidelines: they're always changing as new information becomes available.
The definition of obesity is broader today than it was 20 years ago. (And
accounts for some of the increase in incidence.) Even guidelines for "simple"
stuff like ear infections (otitis media) change with some regularity, if you
follow organizations like the AAFP.

The fundamental difference with health care in the US is that we ration based
on ability to pay, rather than need. I know more about health care from both
the ground-floor clinical side and big picture economic side than I know about
probably anything else. If I were an investor, I wouldn't invest in health
insurance startups or pharmaceutical startups. There's simply too much risk
relative to the potential upside. I think this is to be expected in an
industry where the low-hanging fruit has largely been plucked, though. What's
left are niche diseases which aren't huge profit centers, as a rule.

I'd actually love to know if there's any meaningful data on health care
startups vs pure technology startups WRT return on investment, broken down by
type of health industry.

~~~
hga
A few comments, not even necessarily quibbles:

Don't most people who get a heart attack die from their first one, with I
assume little cost to the system? Of course the general improvements with so
many problems means that more people are living long enough to get cancer....

The cost of cancer treatment is high enough that it probably swamps primary
care, but one should still run the numbers. Large populations can have results
that are non-intuitive to most, e.g. the increased costs of much preventive
medicine due to the large numbers that need to be constantly screened to find
a few true positives. If I didn't have a family history of aggressive prostate
cancer (great-grandfather, 1 out of 6 uncles) I'd listen to my doctor's
discouragement on getting yearly PSA testing (now that I'm 49, and yes, I know
the test is rather iffy, how iffy I'll learn about after a baseline is
established and/or before someone wants to do a biopsy (ouch)). Then again,
I'll be paying the full cost of most of those tests.

WRT specialists and outcomes, raw full population outcomes aren't as useful
for the individual considering options. In theory/in general the specialist
will be able to go beyond the raw numbers and have a better idea of which
option is the best bet.

I myself just can't understand the compliance problem ... although I do see
the lack of appreciation of complex/the full system issues; even though I
ended up going in the directions of chemistry and computers, my early medicine
and biology learning was _really_ beneficial.

I myself find the online guides to be useful (well, the _Merck Manual_ is lots
cheaper on-line for free :-), for me the biggest limitation in using them is
not knowing what's normal. E.g. that tongue coating under these circumstances
is no problem, maybe stop taking your antibiotic a couple of days early sort
of thing. I know most people aren't in a position to get enough useful out of
them to seriously "bend the cost curve", to draw this back to the main topic.

I'd never consider otitis media to be simple, it just obviously isn't, too
much hidden, too much guesswork, especially since outcomes are so often ...
not optimal (e.g. I lost some hearing in one ear due to one infection in the
'70s, a girlfriend as well in the '80s).

Anyway, thanks for the intelligent discussion.

~~~
carbocation
To just respond to one point: even in the 1990s, mortality from acute MI was
down to ~12%: (e.g., <http://content.nejm.org/cgi/content/short/356/11/1099>
). There are many sequelae of acute MI that are likely to be expensive in the
long term (esp dilated cardiomyopathy). Then, there are the lifelong visits to
cardiologists; cardiac imaging; and pharmacologic interventions.

~~~
hga
That's not the statistic I was referring to, which is is (or includes) the
people who don't make it long enough to get admitted, i.e. those who are DOA.

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tednaleid
Changing regulations create opportunities as well as destroy them. My startup,
Bloom Health (<http://gobloomhealth.com/>) is getting a big boost from the
latest changes. We make it easy for small/mid size companies to provide health
insurance to their employees with an predictable costs for the employer, and
more choice for the employee. The mandate that all employers need to provide
coverage for their employees is a huge market opportunity.

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MaysonL
Perhaps a better health care business model is found in Qliance
(<http://qliance.com/>). They advertise as "Like a health club membership, but
for health care." Essentially flat monthly membership fees (from $44-84 based
on age), providing primary and urgent care, including telephone and email
contact. They recently opened a third clinic, and closed a $6 million round of
financing from Bezos, Dell, and Drew Carey.

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hga
First part of title from this essay:
[http://www.theatlantic.com/business/archive/2010/06/death-
by...](http://www.theatlantic.com/business/archive/2010/06/death-by-
regulation/57701/)

I'll also note that the high deductible insurance plan model has up to now
been one of the best ones available for startups, although it doesn't address
the not so healthy who need a bigger pool of one sort or another (private or
public) to spread out the risk and/or costs.

~~~
thrill
spreading out the (unknown, but actuarially estimable) risk is insurance ...
'spreading out' (known) costs is something other than insurance

