The Fundamentals are Fundamental

We are in a series exploring the idea of a single payer healthcare system.  Click here to find the prior posts.

Two-a-day preseason practices are legendary in high school football lore, especially in the August heat and humidity of the south where I grew up.  As the sun began to slide toward the horizon, the gaggle of very sweating, smelly players longed to hear three simple words: ‘One more play.’  Once Coach said that, we knew we had about an hour left.  He was a football coach, not a math teacher, because that pronouncement meant we’d run about 20 more plays.  And then just run.

While I am not yet ready to end this series, it seems about time to call ‘one more play’ and try to wrap this thing up soon.  I mean that just as Coach meant it.

Before we leave this ‘Medicare Advantage for all’ idea – not necessarily the plan that Democrats might advance if given the chance, but a good exercise to help us explore the base concept – there is something else we can learn from the current MA world.

How’s the care under this model?  And how’s the underlying cost?  Is it better or worse or about the same?

Well, of course, this is a complex question because everything in public policy is.

But there is some credible, and growing, evidence that the MA model delivers care that is as good or better, and does so with lower rates of utilization.  For example, counties with a high rate of MA participation have lower rates of hospitalizations for seniors than do counties with low numbers of MA beneficiaries.  Another study found that MA members go to the doctor less, have fewer procedures, visit the ER less frequently, have fewer joint replacement surgeries, but have a few more heart bypasses.

Yet, we immediately confront the big question anytime HMO cost savings comes up. People opt into MA for lots of reasons, but as with HMOs generally, there is an argument that they are healthier, so willing to tolerate a restricted delivery network to save a little money because they don’t expect to use it much.

Are these results from better care management or is it just selection bias?

Another interesting study looked at what happened when people in an MA plan lost access to it because all MA carriers left their county, forcing them back to traditional Medicare.  Guess what? Utilization went up as soon as they returned to an ‘unmanaged’ fee-for-service world.

Was this legitimate pent-up demand, care they needed that was being unnecessarily restricted by the evil HMO model that rewards the payers and even providers for limiting care?  Or was it simple proof that the FFS model encourages unnecessary utilization?  Who is evil here? Our answers depends mostly on our core beliefs about the way the world works (or should work). 

It’s complicated.

But the big take-away for me comes back to an essential economics fundamental.  Total cost is the simple function of PRICE x UTILIZATION.  Regardless of the payment mechanism, solving the big problem means getting movement on one or both of those variables.


1 × 1 =


Tim Coan, ALN’s CEO, writes an insightful and witty blog three times a week about a variety of topics relevant to independent physician practices.

Yes, I'd like to get Tim's blog.