The End of Health Insurance

Paul Tullis has an interesting article in Bloomberg about how self-driving cars might kill auto insurance "as we know it."  After all, if human error is responsible for 90% of auto accidents, and those humans are taken out of the equation, what's left to insure?

Many people don't think much about autonomous vehicles, but Mr. Tullis reports that Michelle Krause, an Accenture insurance expert, says that their impact on auto insurance "...comes up in every strategic conversation" within insurers.

It made me wonder: what would it take to kill health insurance...as we know it?

I.U. professor Rodney Parker told Mr. Tullis: "Liability is likely to migrate from the individual to the manufacturer and the licensers of the software that drives the AV."  This means that, as David Ross Keith, an MIT professor, also told Mr. Tullis: "It’s foreseeable that insurance is a much less consumer-facing industry in the future."

The experts that Mr. Tullis talked to see closer relationships between auto makers and auto insurers; as for potential mergers between the two, Ms. Krause told him "those conversations are going on as we speak."

It makes healthcare mergers like CVS-Aetna or Cigna-Express Scripts look far-sighted.  After all, UnitedHealth's non-health insurance subsidiary, Optum, has already become a powerhouse for the company. 

CVS prototype Health Hub.  Credit: CVS

Let's think about what health insurance is for:

• Averting losses: Like every other form of insurance, health insurance was originally about protecting people against unexpected, catastrophic losses.  It still serves this purpose, and should you ever have the misfortune, say, to have a premature baby or to go through a long program of cancer treatments, you'll appreciate this aspect.  
• Budgeting: Americans somehow came to expect that their health insurance should protect them even against expenses that were moderate and predictable -- most notably, preventive care.  It's not that most of us could not afford these services, we'd just rather finance them via our health insurance premiums rather than budgeting them ourselves, which is a crazily inefficient way to do so.  
• Subsidization:  ACA instituted a program to subsidize cost-sharing for lower-income people via insurer payments (although the Trump Administration has been trying to end them).   As a result, health insurance has become the de facto mechanism to transfer money for health expenses to lower-income people not on Medicaid/Medicare.

I'll take these in reverse order:

Subsidization 

Health insurance is not the right mechanism to do wealth transfers.  It's not what it is designed for, and it is not what it is good at.  Such transfers are a social problem, and should be dealt with via the tax code and/or social welfare payments (as we do, for example, with payments for food or housing).   

Budgeting

It's a failure on our healthcare system's part, that we feel we need financial incentives to get preventive services.  Either we've failed to convince people that getting such services is in their best interests, or we've been promoting services for which that case is unclear.  Neither of these is good.  

We need to stop expecting health insurance help us budget for expenses that, in any other aspect of our lives, we'd be paying for ourselves.  

Averting losses

Even if we accomplished both of the above, health insurance would still probably not look too different than it does now.  Our healthcare system would still have catastrophic expenses, and we'd be looking for protection against them.  We'd still have networks, negotiated prices, and tensions between those who deliver health care and those who pay for it.

Credit: WSJ

We have to attack the root problem, which is not just the prices, but also the costs.  Some examples of how this can happen:

Virtual care will allow us to get advice and even treatment where/when we want it, and increasing reliance on A.I. rather than human expertise will both cut direct costs and, hopefully, unnecessary treatments.  

DIY health is a trend that has promise to greatly impact costs.  Whether it is hearing aids, insulin pumps, or "biohacking," we're starting to move away from reliance on expensive solutions from traditional healthcare sources to cheaper, even home-grown solutions.  

Robots, right now, fall within the "more technology, more expensive" ethos of our current healthcare system, but that cannot last.  Robots will get smarter and more versatile, we'll get better at building them, and they'll allow us to take costs out of healthcare in the way they've taken costs out of manufacturing. 

Hospitals, are, as I've stated previously, "19th century institutions operating under 20th century business models in the 21st century."  

We need to move to a future that is not institutional.  We need to move to prevention, to addressing root causes of health problems, and to delivering more care at home and in the community.  With better real-time monitoring, we can do this cost-effectively.

Prescription drugs are one of the biggest pain points for consumer healthcare spending.  Part of this looks a lot like greed, such as seemingly exorbitant increases for previously affordable drugs (e.g., insulin), part of it is the U.S. not negotiating prices as other countries do, and part of it reflects the long pipeline for drug discovery and development.  The former two are more price issues than cost ones, but the latter one is one 21st century technology can help address.

Credit: Chemistry World

For example, we are already in the era of 3D printed prescription drugs, and this will rapidly advance, even to the point of printing your own drugs at home.  This will have huge impacts on manufacturing and distribution costs.

We are also early in the era of using artificial intelligence to aid the drug development process.  A.I. can sort through vast amounts of data to identify likely combinations and monitor side effects, among other things.  The FDA is encouraging such uses.  Novartis, for example, sees itself as a data company, according to Business Insider, seeing A.I. as its "next great tool" in drug development.  

Long story short: take the big costs out, as is possible, and the need for health insurance goes away, or greatly lessens.

We shouldn't accept the status quo; not in how care is delivered, not in how much care costs, and certainly not in how it is financed.  If auto insurers are discussing merging with automakers, Apple is thinking about its post-iPhone era, Ikea wants to become the "Amazon of furniture," and Amazon's own future may be more about cloud computing than retail, then certainly health insurers should be looking to a very different future.