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Author(s): Michael Knapp (Discord: BeeBoi#1020)
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Have you ever had a bad experience with health insurance? Chances are you have. Perhaps a claim was denied, the pre-approval process resulted in a delay in medical care, or maybe with average premiums for employer-sponsored plans costing families $5,700 annually you’re one of the 9.8 percent of Americans forced to forgo health insurance altogether. Don’t forget about that time the uninsured were penalized!
It’s hardly an overstatement to say that everything about health insurance is simply awful. For most Americans, insurance is tied to their employer (a strange relic of World War II) which limits job choices and employment mobility. If instead they’re one of the 36 percent of workers that are freelancers, they’ll likely need to purchase a more expensive private health plan. With average annual single deductibles at $1,655, many shy away from necessary medical care to avoid paying out of pocket. This of course potentially increases the risk of developing larger complications down the road. Young adults need to remember that coverage under their parents’ insurance plan is probably going to be cut off when they turn 26 years-old. For physicians, the billing and reimbursement process is a cumbersome and agonizingly bureaucratic mess that results in payment delays and endless piles of paperwork. Billing complexity slows down the timely delivery of medical care, especially with regards to Medicaid (a program that 77.9 million Americans are enrolled in). This is a major reason why doctors spend more of their time writing medical charts to comply with employer and insurer billing requirements than they do face-to-face with their patients.
Of course, insurance companies also have an inherent conflict of interest in denying claims to maximize profits for shareholders. This puts patients and physicians alike in a constant battle with insurers who may end up exerting a fairly substantial influence over the plan of care. In many cases, insurers effectively end up practicing medicine de facto. Case in point:
And it’s not just private health insurance that’s the problem. Public plans are bad too. With regards to Medicare, under which 62.4 million Americans are enrolled, perverse incentives end up stifling innovation. It’s also fraught with fraud, accounting for an upwards estimate of 10 percent of all Medicare spending. Just as with Medicaid, reimbursement rates may be tinkered with but they rarely ever see a net increase since it’s a zero-sum game that requires a literal act of congress to change.
Ready to find out how much all this is costing us? Brace yourself.
U.S. healthcare spending grew 9.7 percent in 2020, reaching $4.1 trillion or $12,530 per person according to CMS. This represents 19.7 percent of our national gross GDP. Of that, administrative costs represent a whopping 34.2 percent of overall healthcare spending. We spend significantly more per capita compared to Canada with administrative costs the biggest contributor to the difference. Dividing this even further, we can see that billing and insurance-related costs are the largest component of administrative spending coming out to 18 percent of overall healthcare expenditure. Perhaps unbelievably, it’s quite possible your hospital employs more billing clerks than it has beds for patients! In the end, insurers are the ones really running the show.
It’s obvious we need to change something. But what could it be? We’ve had nine years of open Affordable Care Act marketplaces with their increasingly clear effect on stabilizing insurance premiums. This could be considered a good start although it’s not the paradigm shift we should be striving for. Some propose we enact a public option or even a single payer system like Medicare for All. There are many angles to this topic and it probably deserves its own post. Suffice to say, the sheer improbability of such a bill being passed in this country makes it a non-starter when searching for near-term solutions.
Let’s go back to the drawing board and be idealistic for a second. Imagine we have a completely blank slate to build off of. What would a ‘realistically-perfect’ health insurance system look like? How much does it cost? What values do we imbue in it? If such a solution were available on the market today, would it be able to fundamentally outcompete existing private and public plans? Is there a way to reduce, if not eliminate, the need for rent-extracting administrators?
I’d argue an ideal system is one that is provably fair, underwritten and overseen by its policy holders, and uses automation as much as possible to minimize administrative bloat. It isn’t controlled by a centralized authority with unilateral power and corruptible motives. It is instead structured in a way that broadly decentralizes governance of its operations, is anti-fragile, and facilitates goal alignment. Among its member base, a spectrum of plan options and risk pool depths are available for entry and they are designed by fellow policy holders who share similar values. Each individual component to every single policy is written in plain language and easily understandable by anyone. Decisions related to claims approval are algorithmic, consistent, transparent, and ultimately equitable. Switching policies is a seamless user experience with an instantaneous transition and no need to notify doctors offices. The confluence of all these features results in a more accessible and dynamic entry point to the healthcare ecosystem. Such a system would represent a giant leap forward from where we are today compared to an incremental adjustment of the status quo. In effect, we’d be placing power into the hands of patients— which is exactly where it belongs.
Source: https://etherisc.com/files/Etherisc_TGE_Slide_Deck_for_Contributors_1.0_en.pdf
You’re probably wondering how something like this could possibly work. In recent years, a key enabling technology has been developed that can help coordinate distributed teams as well as efficiently process insurance claims without a profit-seeking or bureaucratic intermediary. It’s called a smart contract. Smart contracts are essentially rules written in computer code that automatically execute when certain conditions are met. Smart contracts are stored on a blockchain, usually Ethereum, which means they are cryptographically secure and anyone can view and verify their execution. Once deployed, their actions are self-enforcing, can be predicted precisely given a known input, and cannot be censored or altered.
Despite being openly auditable, smart contracts applied to health insurance can be written in a way that completely preserves patient privacy (i.e. no personal data is kept in the contracts themselves— only unique, anonymous references). Their implementation in the insurance industry could eliminate large swaths of expensive administrative middlemen and result in substantial cost savings. An added benefit of living on the blockchain is that data from contract execution is forever preserved. So if someone were to attempt insurance fraud then evidence of their crime will be immutably locked into a public database. Anyone with some data analytics know-how could develop an algorithm to continuously scour transactions for anomalies. Perhaps these insurance contracts have a bounty system programmed into them that automatically rewards people that uncover fraud with a cut from the return. Smart, huh?
