"The Innovator’s Dilemma: Health Care Edition"

Chistopher Mims at Technology Review nails it: Spiraling health insurance costs are taking a hit on American innovation: 

Tech startup founders who have it all—a great idea, a pile of cash, and enthusiasm to burn—are still missing one thing. The ability to provide basic health insurance to themselves and their dependents. It’s a powerful disincentive to creating jobs in an economy that desperately needs them, and forces innovators who would otherwise strike out on their own to continue sharecropping for someone else…

We pay more for less, according a recent OECD survey, or, as Reuters put it: “The U.S. healthcare system is more effective at delivering high costs than quality care”  How much more effective? Health care is nearly two-thirds cheaper in Switzerland, with generally better results. 

The damage is both specific and systemic.

  • Many would-be entrepreneurs remain in the “would be” category
  • Spiraling costs chip away at profits
  • Less money to plow back into the business
  • Consumers have less to spend

On a more subtle level, higher insurance costs translate into higher income tax deductions, which means less money going into the public till—less money to invest in such “greater goods” such as basic research and public health. 

Innovation in health care has largely been on the tech side. (Is there anything a smart-phone can’t do?) The most intriguing start-up on the cost side is a price comparison site Castlight Health, described as the “Travelocity for medicine”:

It’s easy to compare prices on cameras, vacations, and homes. But in the United States, patients fly blind when paying for health care. People typically don’t find out how much any given medical procedure costs until well after they receive treatment, be it a blood draw or major surgery.

This lack of transparency has contributed to huge disparities in the cost of procedures. According to Castlight Health, a startup based in San Francisco, a colonoscopy costs anywhere from $563 to $3,967 within a single zip code. EKGs can range from $27 to $143, while the price for a set of three spinal x-rays varies from as little as $38 to as high as $162…

(Technology Review

Yet Castlight, which has raised over $80 million in venture funding, is not a consumer website. Rather, it sells its services to self-insured employers trying to reign in costs.

Some insurers, however, refuse to share information, “calling it a trade secret.” 

Shame on them.  

RELATED ASIDE: FOLLOW THE MONEY (if you can…) 

This year, I got my flu shot at a nearby drug store, which was more convenient than my doctor’s office—and with free parking, too. Also, unlike my physician, the nurse practitioner on staff knew the exact cost of the shot: $29.99. 

My insurance company, Blue Cross Blue Shield of Illinois, had worked a deal with the drug store chain, paying them $11.25 for the vaccine and $10.01 for the jab—so a discount of $8.73 off the walk-in price. (btw BCBC, why are these two costs disaggregated on the statement?  A flu shot is not a DIY sort of thing…). 

My insurance plan includes a mandatory $20 co-pay per medical visit, so I saved $10 off the walk-in price.

Still, I suspect it would have been more profitable for the drug store simply to have dropped the price directly. In other words, charge me $21.26—the insurance company reimbursement rate—and leave BCBSI out of the loop altogether.

Tally in savings from not having pay a legal team to negotiate a deal with BCBSI and the drug store likely could have easily afforded to drop the price to a flat $20 without hurting margins, while gaining competitive advantage.

Honestly, BCBSI, what did you bring to the party? 

—J. A. Ginsburg / @TrackerNews