Jolly's Volley: The State of US Healthcare

For those used to reading my volleys, you know that most of these notes are based on personal experiences (and written via stream of consciousness on long intercontinental flights). This one is no exception! The reason for using firsthand experiences is plain and simple – authenticity and direct personal impact. The narrative, as a result, comes from the heart. And there is no aspect of one’s life that is more personal than one’s family’s health. While the particular set of incidents presented in this volley is not unique, my goal is to highlight just how broken and opaque the US healthcare system is, and unfortunately how there is almost no incentive on the part of the incumbents to change. Not only is there no incentive to change, there is a perverse incentive to keep the system so complex that somehow only the insiders have a clue as to how it actually works. US healthcare spend is nearly 20% of the country’s GDP, a statistic greater than any other developed country by far and at the same time delivering a sub-optimal quality of healthcare when compared to its peer group. The cost per capita for healthcare in the US increases by roughly 8 to 10% annually, exceeding the rate of inflation, and without any anticipated reduction in the near to midterm. You get the picture. Enough with the preamble. Let’s dive right into the morass… 

There was a sequence of events recently that motivated me to write this piece. Earlier this year, the Jolly family was together for a long weekend. My older daughter happened to bump her head while exercising. We were concerned that there might be a concussion. As a result, we consulted a physician who suggested getting a CT scan done at Stanford as a precaution. When we called the clinic to understand what the cost might be, we were quoted $7000 for the routine scan!!! I know what you are thinking. In the US, a CT scan is a bargain at twice the quoted price, since there is free coffee and designer slippers provided at the clinic. Ok, I am joking. What the fudge factor was that number! The fact that the Stanford representative provided the figure in a ‘matter of fact’ way, without any emotion, was also quite telling.  My wife and I could not believe it, as we tried to pick our jaws up from the floor. I was glad that at least we called beforehand rather than end up with a massive surprise bill, post facto. By the way, healthcare in the US is the only market where the patient has no idea how much a treatment might cost until after the product or service has already been purchased (aka “sticker shock”). Some universities are now offering Ph. D’s in “Decoding the US Healthcare Code”. Ok, again, I am just kidding (I am sure some of you stopped reading and googled the phrase already). Note to the audience (in the US) – please call before getting any procedure done, especially at a location affiliated with a large healthcare system! My wife and I definitely wanted to get the CT scan done but not for the price of a new Toyota Prius in the process. We used our own network (thankfully) to get in touch with a local radiology clinic and did get the scan done. The cost…$300! A 20x+ delta for a commodity procedure is a symptom of a convoluted system that is not only broken, it is intentionally opaque, designed not to provide a clear pricing rationale to the customer (patient).

The incident highlighted above is far from unique. And many who either don’t care or don’t have the necessary connections would have probably not inquired or questioned the exorbitant cost of a straightforward procedure. The reason for the high quote from Stanford could be related to yet another issue that plagues many in the US when it comes to healthcare…the so-called high deductible insurance plans. In those cases, the patient is responsible for the initial big chunk of out-of-pocket costs for healthcare before insurance actually kicks in and starts covering some portion of the healthcare costs. Now, let me get even more personal to drive this 'particular painful point' (my own version of the PPP:)) home.  

In the US, size does matter, especially when it comes to healthcare. Larger the company, usually better the healthcare coverage, lower the premium, deductibles and out of pocket annual maximums for its employees. In terms of data, by the way, 30 million Americans are without healthcare, and another 25 million list health related debt as their number 1 cause of financial stress. On the personal front, once the family came off my wife’s prior insurance, I thought it would be fairly straightforward to get covered through the online healthcare marketplace (resulting from the Obama era Affordable Care Act (ACA)). But it turns out that certain Stanford physicians (that we needed access to for our kids) did not accept coverage through the ACA (the rationale is still unclear to me, since many of the same insurers who provide insurance to companies do so for individuals on the marketplace). If the family wanted continuity with the Stanford physicians, we had no choice but to somehow get what is referred to as PPO insurance. I connected with an insurance broker who was able to get us an Anthem Blue Cross small group PPO coverage.

That was a small victory, or so we thought. The only plan that the family could qualify for was a Bronze level high deductible plan, but I did not fully understand how much of a financial hit we were going to take as a result of that decision. Our healthcare coverage worsened, out-of-pocket expenses quintupled, and our monthly premium more than doubled from what it was under my wife’s benefits through her prior employer (which, btw, was a growth stage startup, not a F500)! In essence, what we have realized with this experience is that health insurance in our case is closer to life insurance from a financial ROI perspective. We were simply paying massive premiums AND high deductibles, so the only time health insurance would actually help is if God-forbid a member of the family needed a major surgery that cost tens of thousands of dollars. In that case, with the annual deductible fully met, the insurance company would pay 80% of the cost and in a strange way, we would finally “get the bang for the premium buck”. Rationally speaking, It might actually be better for us as a relatively healthy family to simply forego health insurance altogether and simply pay out of pocket cash as and when healthcare related expenses are incurred. For the foreseeable future, that would make a lot more financial sense.

Iron Pillar, my firm, has presence in three geographies – UAE, India and the US (with me as the only person based here). Both UAE and India have multiple employees and therefore have good coverage through major insurance providers in those countries. As a matter of fact, one of my India based partners indicated that he currently has a 1Cr (~$150k) healthcare cover with only an INR 50k (~$700) annual premium for his family. This may be an "apples to oranges" comparison since India is a very young country with a much lower cost of healthcare delivery. Hence, the premiums will certainly be lower. But the fact that there is a two orders of magnitude difference in annual healthcare premiums for my crappy Anthem Bronze plan and my partners’ robust India plan was also a major eye opener for me.

I often speak with friends and family that are part of the US healthcare system and its inefficiencies. At the same time, many of my VC brethren have invested billions of dollars into digital health under the hypothesis of making healthcare more effective, efficient and even affordable. A list of digital therapeutics and diagnostic devices constantly makes the list of top Christmas gift ideas. These technologies are supposed to change our behavior, have us eat better, exercise, sleep better, meditate etc. etc. to improve our overall health and quality of life. At the same time, according to some studies, roughly one-quarter to one-third of healthcare spend in the US is wasted either due to unnecessary procedures, non-compliance by patients, workflow complexities, lack of automation etc. Per capita healthcare spend in the US has increased from $10k in 2018 to $17k in 2023. In my mind, the only way I will believe that all that VC investment in improving healthcare has actually worked is when that per capita healthcare spend curve starts to flatten and turn negative. Until then, we will all be complicit in keeping a broken system truly broken, with ever increasing costs and ranking lower than our peers in the quality of healthcare delivered. As a friend of mine in the industry once said, “to fix the US healthcare system is to start from scratch. Control-Alt-Delete. There is no other way.” As with many challenging conversations and dilemmas, not just in the US but globally, perhaps AI will play a role in altering the trajectory of US healthcare in a positive way!

Image credit: DALL-E (from OpenAI)