Bob Herbold became famous at Microsoft for noticing things others overlooked. He chronicled some of those observations two years ago in one of the better business books of the decade, “Seduced by Success” (McGraw-Hill) which regrettably was not required reading at GM and WAMU. Now Herbold is aiming his economic coherence at an issue starving for it: healthcare.
In a May 1 posting on RealClearPolitics.com, Herbold reminds people of an embarrassing disparity. America spends more, in both absolute dollars and the percentage of its economy (15.4 percent) than any other country on healthcare. Yet we rank 45th in the world in life expectancy and 46th in infant mortality.
Instead of throwing another $600 billion on the healthcare pile, Herbold argues for a clean break with the status quo. “When you’re in the business world, and one of your competitors is doing something really smart … you study it closely and figure out how you can make it work for your company as well,” he argues. “Why don’t we do that in healthcare?”
Herbold’s model is Singapore, with the world’s fourth highest life expectancy (almost 82, about four years longer than America) and the lowest infant mortality rate (just 2.3 deaths per thousand, barely a third of ours at 6.3). And yet Singapore spends 3.7 percent, of its economy on healthcare, or about one-fourth of what we spend proportionately. Why?
Herbold had adequate time and ample contacts to find out, as his wife Pat served as U.S. ambassador there until earlier this year. Singapore’s healthcare system rewards people for making smart health care choices and makes them responsible for most of their decisions. They want their health care consumers also being customers.
That’s not how we do it.
“No one has any interest at all in controlling health care costs here,” claims Herbold. He’s right. Physicians, for example, focus on what treatments and drugs are covered by insurance companies or the government. “The insurance company is in the same situation. The more the system is used, the greater the opportunity that insurers have to make additional profits. The same is true for hospitals. They like patient flow because it means revenues and profits.”
As for the patients, have you ever noticed that radio and TV ads urging you to choose this or that hospital never tell you their price? That’s because it’s irrelevant. They’ll bill someone else.
In Singapore, on the other hand, people pay a small portion of their monthly income into a “Medisave” account, much like Americans pay into a 401(k) retirement fund. The employer makes a contribution as well. The government subsidizes unemployed people. The fund pays for high deductible health care insurance (what we call “catastrophic care”), but premiums are low because the government also subsidizes the plan.
But the insurance similarities end there. Singaporeans also use their Medisave accounts to pay for routine health care expenses, such as doctor visits, which suddenly makes prices relevant. Doctors advertise for people’s health dollars just like grocers advertise for their food dollars. Medisave money can only be used for medical expenses, but it belongs to the individual and nobody else. At retirement age, that money can be tapped for non-medical uses, so people have a clear incentive to spend that money carefully.
By rewarding wise health spending, everyone has the incentive to control costs while maximizing value. Result? Better healthcare and less bureaucracy, less administrative overhead and much less money than we spend in the USA.
This isn’t some theory or Petri-dish experiment Herbold is talking about. It is a living, breathing model for healthcare that has stood the test of time, while ours is facing financial ruin. Healthcare “reform” is no longer enough. America needs healthcare restructuring.