SALMAN KHAN: I’m here with Professor Laurence Baker at Stanford Medical School. And what we’re going to talk about now is the overview of the health care system. LAURENCE BAKER: What is the health care system? SALMAN KHAN: Yeah, and who’s in it? LAURENCE BAKER: And who’s in it?
And what are they doing? SALMAN KHAN: I think I could give a go at it. LAURENCE BAKER: Go for it. SALMAN KHAN: And then correct me. Expose my ignorance.
So clearly, you have your providers. Those would be your doctors, and nurses, and all the rest. LAURENCE BAKER: Hospitals, pharmacies, all kinds of people are your providers. SALMAN KHAN: OK, so everyone who’s providing health care. So that’s right over there.
So that’s hospitals, doctors, pharmacies, all the rest. And then they are providing the health care to someone. So those would be the patients.
Let me do that in another color. LAURENCE BAKER: Call them patients.
Yeah, sometimes you get the details like people become patients after they need health care. But some people just have a question. They’re not really patients, they’re just asking. SALMAN KHAN: OK. What would you call them then?
LAURENCE BAKER: Call them population. SALMAN KHAN: Population. So just the population of the world, or of the country, or whatever– people. And then someone has to pay for this. And so for the most part, this is insurers.
LAURENCE BAKER: Yup. Insurance companies. In the olden days– like if you go back 100 years– we didn’t really have insurers. We had patients and providers. And patients would– if they had a question, they had a concern, they go to the provider.
They’d make some deal, pay them some money, do some service for them and work it out. We got insurance companies really only in the last 100 years, maybe. Really starting in the US in maybe 1930. 1940, they started to become popular.
So that’s kind of a new renovation.
And those three things work together. SALMAN KHAN: And the general term– and this is a word I’ve seen a lot, and sometimes it’s a little confusing because it’s very close to payer, you hear of these payors. And that would be including anyone who’s paying for the paying for the service. And insurance companies would be included there. LAURENCE BAKER: Right.
So we have– we call them payors. Sometimes we call them health plans because they arrange for some of the care that people get. And payors could be private insurance companies, or they could be government payors– government insurance companies like Medicare. SALMAN KHAN: And the insurance companies themselves, they’re not doing this out of the goodness of their heart. Someone is paying them.
And for the most part in the United States, it tends to be employers. LAURENCE BAKER: So right. So if we made another arrow on your diagram here, it would be from the population– or maybe from the patients– to the insurance companies that provides the money for the insurance companies to use to pay for the provider.
So patients might buy an insurance company– or not an insurance company, buy an insurance policy. SALMAN KHAN: Only if they’re very well healed.
LAURENCE BAKER: Some of them buy the whole thing. But they just might buy their own policy. Go buy an insurance policy, pay them a premium directly, the insurance company collects that money. Or, for most people, they work for an employer. The employer makes the arrangement to buy that insurance and then implicitly charges the population, the patients for that.
Maybe directly by having them contribute some of their salary. Maybe implicitly by just reducing the amount of cash they give them every month, and instead giving them this insurance policy.
So people do that. And the other piece that’s floating around in here is that in some cases, the population pays taxes to the government that then functions essentially as an insurer, like the Medicare program, where there’s insurance provided to people that’s paid for by taxes. So there’s some different funds flows going around here, but always money going from patients to insurers, through employers from taxes, by direct payments.
Those insurers collecting the money and then paying for a bunch of the care that’s provided by the providers. And that’s the basic arrangement.
There’s one more tiny piece, which is that sometimes patients pay the doctors or the hospitals directly. You go you have a $20 co-payment. And so there’s a small payment that goes back and forth.
SALMAN KHAN: Your copay is kind of there just so that– it kind of makes the insurance company feel good that you’re not just using it willy-nilly– that you have to pay your $10 or $50. LAURENCE BAKER: Absolutely. So insurers know that once they start paying the providers for the care, and the patient says it’s totally free, people might use stuff that might be worth a little tiny bit, but it costs a lot for everybody to pay for. So if you put a co-payment on there, it makes people think twice about using things that they don’t really need. SALMAN KHAN: Right.
That makes complete sense. And then within this ecosystem– we hear a lot about HMOs. My perception is that’s a combination of the insurance company and the provider.
It’s kind of in one package. LAURENCE BAKER: Right.
So over time, the US has had different kinds of insurers out there. In the private market, especially, there’s been a lot of innovation in the last 30, 40 years in types of insurers that are out there. So we have different insurers that have behaved in different ways as we’ve gone through those evolutionary cycles. So one version of that is what we call an HMO– a health maintenance organization.
And that’s really just jargon.
You have to dig into it to figure out what it means. But in a lot of cases, what that is is a company that’s acting as insurance. So you pay a premium to them if you’re a patient or a person, and you buy some coverage. And then they’ll cover your care. But they’ll do that by trying to integrate themselves with the providers.
And so the organizations either are integrated because the HMO hires doctors directly, or maybe owns the hospitals– like Kaiser Permanente, for example. Or, in some cases it’s a contractual relationship. It’s not exactly the same. SALMAN KHAN: So not all of them is tightly linked as a Kaiser, where it’s like, you go to this building that says Kaiser on it. And that’s where your doctor is.
It could be doctors just have their practices, but they’re tightly linked with a– I think that’s how, what Blue Shield? Or one of those.
LAURENCE BAKER: Yeah, Blue Shield, or Aetna, or some of these different companies. And you can start to dig into the details and every one will be a little bit different from the other, but they’re contractual relationships. SALMAN KHAN: And the difference– I think this is something everyone faces when they sign up with insurance with their employer– I had to do it recently– is– they all say, you have to pick HMO versus PPO.
And they’re within the same policy. And so my perception is HMO is you have set list of doctors that they probably pre-negotiated pricing with. LAURENCE BAKER: Yeah. So the difference between HMOs and PPOs gets a little bit into the details SALMAN KHAN: OK. I don’t want to get too into– LAURENCE BAKER: We can sort of think about it in the way that you’re talking about it.
So an HMO will have a list of doctors that you’re supposed to see. And you’ll have to go see the doctors on that list. And a stereotypical one, if you don’t see the doctors on that list, the insurance company’s not going to pay for you care, you’re going to pay for yourself. And in the stereotypical HMO, there’s going to be a fairly tight management between the insurance company and the doctors about what’s going to be done, what’s allowable, and so on. SALMAN KHAN: And in the most tightly linked case, they’ll be the same.
They doctors will be employed by the company. That’s like Kaiser. LAURENCE BAKER: As you think about it as a spectrum, if you move a little bit away from that to a PPO.
What’s happening in a PPO is you’re still going to get a list, so you’re going to be encouraged to see those doctors, but maybe it’ll be a little more flexibility. Like, if you decided not to see someone on the list, the plan would still pay some amount.
Maybe not as much as they would if you saw someone on a list, but something. Whereas in an HMO, maybe nothing. And the plan will probably work a little less hard at managing what those doctors are doing to try and limit access to, say, high cost services. HMO will tend to work harder, PPO tends to work a little less hard. So it’s a little bit of a spectrum.
You’re kind of moving from more managed and more concentrated to a little less managed, but still more so than the system we had, say, in the ’50s or ’60s, where anybody went to any doctor, and any doctor did whatever they wanted. And the insurance company just paid the bill, and there was no integration.
So it’s a little bit of a– SALMAN KHAN: So that’s the main motivation why insurance companies are trying to get more integrated with the providers, is because– just like you said, in the ’50s and ’60s, you have the provider providing a service. And obviously the patient like the service. And then you have a third party paying for it.
And so there’s no check on– the person deciding and the person getting it says, yeah, let’s get more service. And someone else is– right. LAURENCE BAKER: So we created a big issue. Insurance companies are kind of an interesting thing in a health policy world.
Because we have to have them.
We have to have them to manage the risk associated with getting sick. You get sick today and get a huge bill. And so we can’t leave people on their own for that. We got to have insurance companies. But as soon as you create insurance companies, and I can have, implicitly, all my neighbors pay for the health care that I want, then I might start using things that turn out to be an efficient.
And so you got to have them– insurance companies. But you got to manage what happens when you have them also.
And so that’s the integration between providers or co-payments and utilization review, and all these things, are basically attempts by insurance companies to try and manage what economists would call the moral hazard. The using additional services that you don’t necessarily need because everybody else is going to pay for it for you. SALMAN KHAN: It makes complete sense.
Well thanks. That makes a ton of sense..