Why People Should Care About How Health Care Works

In this first installment of the Breaking Down Health Care video series, John Hennessy, MBA, and Michael Kolodziej, MD, discuss the fundamentals of how health care works in the United States, including covering the main payers, to set the stage for future conversations.

Read the transcript:

John Hennessy, MBA: Welcome to Breaking Down Health Care, where we'll be discussing evolving topics in health care in the United States. I'm John Hennessy; I'm a principal at Valuate Health Consultancy. And for this video series I'll be in conversation with Michael Kolodziej, an oncologist and currently an advisor to ADVI and Canopy, an ePRO startup. We're also going to be talking about his new Substack, Decoding Health Care. We're using our expertise to dive into some nuances of the health care industry in the United States.

So, Mike, you currently have a column where you've shared your expertise and informed opinion on health care. Why did you decide to start that? And what are you hoping to add to the conversations that are being had around health care?

Michael Kolodziej, MD: Yeah, thanks, thanks, John. It's good to see you again. So, I had always planned to do this in retirement prior to the pandemic, which was my first flirtation with the unsuccessful flirtation with retirement. I was putting into motion the ability to do this in the ensuing 3 years.

I learned about Substack and how easy it is to write and then publish. So, I had always thought that I would. I would write a series on health care in America. And, you know the seed for this was really planted when I was at Aetna with my good friend Ira Klein, who many of the listeners know. Ira and I had talked about the fact that if you've never worked in a health plan, you don't really understand how the health plan works.

And I thought, “Wow, that's really true. We should put something together. We should have a curriculum for medical students.” And, needless to say, we never did that. So, I thought, well, you know, I got a lot of time in retirement. I don't really fish, and I certainly don't golf. I might as well do something.

And I thought, I'm going to write a series of articles about health care, not just oncology, and we'll talk about oncology, but about health care in general, because I think you know people have got a lot of opinions about health care, but I think in general they don't really have a lot of fundamental knowledge about health care. And I thought we should all start at the same point. That that's really what motivated me.

Hennessy: So, you and I have unique backgrounds that we've both worked on both the payer side and on provider side. And one of the things we talk about a lot is the term payer, and I think what you do really well is explore that there are different types of payers and different motivations.

So, talk a little bit about who the major payers are in health care, and how people who use that term should think about what a payer is these days.

Dr Kolodziej: Sure. So, you know, at its most basic, the payer is the person responsible for paying the cost of medical care. And Kaiser Family Foundation does a very nice job of every year are putting out this pie chart that tells us how people get their health insurance in America, and a little more than half in the US get their health insurance from employers.

Now, we might think, oh, that means insurance companies are the payer. But that's actually not true. In fact, for many, maybe even most, of employers, they are self-insured. Let me come back to that in a second.

Twenty percent of people in America get their insurance from Medicare, 20% from Medicaid. And then the uninsured rate in America hovers at around 10%. It was lower than that during the pandemic. We'll talk again about that later, down to as low as 8%. At one point prior to Obamacare, it was 16%.

So, we've got kind of 3 big pockets. We've got employer-sponsored; we've got the Medicaid population; we've got the Medicare population, and each of them are so very, very different that they deserve their own discussion.

So, employer-sponsored health insurance—which is the topic of the first blog post—employer-sponsored health insurance, I think, it has been a benefit for many US employees since the end of World War II.

So again, for some reason, we in the health care community, we in America, think that all this stuff has been going on forever. That's just not true. Employer-sponsored health insurance really started after World War II. The reason this started after World War II is because all of those able-bodied American males were fighting the war, and they came back.

And before they were fully integrated into the work force, there was a shortage of skilled workers. So, there was a potential for wage inflation. And as a consequence, the Federal government stepped in and said, “Okay, listen. We're going to cap wage inflation, and we're going to allow employers to offer health insurance as a benefit, and it won't be taxed. It won't be counted as a wage.” And so, we went from a universe where, gosh, less than 10% of American employees had health insurance, to, like I said, about 60%.

So, employer-sponsored health insurance really is a relatively recent phenomenon. And what happened over the course of that ensuing 60-70 years is companies recognized that if they just wrote a check to a health plan, to a health insurance company, they were going to pay a lot of money. They decided that it would make more sense if they bore some of that risk themselves.

So, what happened was this: We developed this thing called self-insured plan sponsors. And self-insured plan sponsors are the employers that take the risk of the medical benefit and only use the health plan to administer the benefit—that is, pay the bills, right, medical policy, develop a network, all that kind of stuff.

So, the first important payer—employers—to a great extent dictate what your health benefit's going to be. Now, they are at financial risk, and as we know the cost of health care is going up. And as a consequence, they put in stop-gap measures to try to control how much their health care expenditure is. And those things are the things that everybody who's listening to this taping recognizes as the biggest pains in the neck that exist in health care, and those include narrow networks, prior authorization, etc, etc.

So, employers are the big payer. Employers are the big payer, and self-insured employers are the big payer, and they dictate what benefit you get.

Now, that's good, but it's also bad. And the reason it's bad is because they're conflicted, right? They want to limit expense, but they want to provide the best possible care for their employees. And that conflict would be easy, I suppose, if employers knew something about health care. And although I don't want to offend any Fortune 50 companies, they don't know doodly about health care. And so, they get health care consultants, benefits consultants, and they try to cobble together some benefit. And it's never really quite right. And they've never really figured out a way to exploit the leverage they've got in this discussion.

So, in the very first content that I want to address, I want to make sure people understood that the way employers do this really drives a lot about how we deliver care and how we pay for it.

Hennessy: So, you talked a little bit about the time you worked at Aetna with Ira, and you talked a little bit about how that that buying behavior happens from employers. Are employers looking primarily to save money? Or did you find employers who are trying to actually figure out how to deliver care better to some segment of their employee base, whether it was cancer or diabetes, or other sort of special needs?

Dr Kolodziej: Yep, well, there's no doubt they want to save money, and if you need any evidence at all of that, you can look at how if you're employed via a company that offers health benefits, they seem to change what insurance company they're using every single year because they shop like crazy for the best deal.

So, they definitely are interested in controlling costs, but they are legitimately interested in making sure that their employees get good health care. And I'll tell you what—this is all run through the HR department, and they do not like unhappy employees. So, I used to get phone calls all the time when I was at Aetna from friends who were unhappy with their employer-sponsored health insurance, and I said, “Listen, complain! Complain to the people in charge; go to your HR department and make yourself visible and loudly visible, and they will listen to you.”

Hennessy: Do you find that that's a rapidly evolving space? I think, you know, certainly we've seen growth of self-funding and growth of self-funding in smaller employers since the ACA came into being, and it's really started to remold that. Do you see it as both a growing area and maybe an area where, to your point, there are a lot of consultants out there, a lot of people trying to tug on your coattail and tell you how to do it a little bit better, a little bit differently?

Dr Kolodziej: Yeah, no, I think—so it's funny. You may remember when the ACA passed, there was a big concern that employers would dump employees and let them go to the exchange, whatever—that never materialized, ever. And I think we are going to continue to see employment-sponsored health insurance as a primary mechanism for health care delivery.

But listen. It's a space that would be excellent for experimentation, with the exception that most employers, especially the big ones, they use sort of a cafeteria plan, and you, as the employee can choose whatever option, whatever health insurance company that you like, based on where you live, for example. So that makes things a little bit more challenging.

But you know, when people talk about national health insurance, and I'm sure we'll get to that at some point, in order for that to happen, we would have to dismantle employer-sponsored health insurance, and I'm not sure most Americans want that. I think most Americans actually like the health insurance they get with their employer. They complain about it. It's expensive, right? And they complain about it because it's complicated.

Hey, listen. I'm telling you what I'm shopping for Medicare right now, because I'll be 65 this summer—Medicare ain't no simpler. It really isn’t. It isn't simpler at all. So, I would say that once employers understand what kind of leverage they've got, we could actually see some pretty interesting experiments happen in the employer health insurance space.

Hennessy: Thank you for watching this installment of Breaking Down Health Care. We hope you enjoyed the conversation and learned something you didn't know about health care and how it works in the United States. If you have questions or topics you'd like me and Mike to discuss, you can use the Contact Us feature on the website. Tune in for future conversations because we're just getting started.