Winning the Hardware Software Game Winning the Hardware-Software Game - 2nd Edition

Using Game Theory to Optimize the Pace of New Technology Adoption
  • How do you encourage speedier adoption of your product or service?
  • How do you increase the value your product or service creates for your customers?
  • How do you extract more of the value created by your product or service for yourself?

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insurance

  • The configuration of our current healthcare system is a product of its history: It has evolved into its current form as a consequence of two primary sets of factors. First, the healthcare system has evolved into its current form due to historical laws and regulations that have generally catered to the interests of healthcare payers and providers. And second, the system has evolved based on self-serving actions taken by payers, providers, and patients in response to those laws and regulations.

     

    On the Patient Side

    The current healthcare system is extremely convoluted, in large part because laws have been established to achieve an “unnatural” – inorganic – outcome: the cross-subsidization of healthcare for the old, sick, and poor by the young, healthy, and rich. Under a system of cross-subsidization, some groups (the young, healthy, and rich) pay more than their “fair share” of the total costs to support others (the old, sick, and poor) who pay less than their “fair share.” What is problematic with the current system is not the use of cross-subsidization per se. Many systems do fine with reasonable amounts of cross-subsidization between payer groups. Rather, the problem is the extent to which the level of cross-subsidization has evolved. Over time, the lower cost groups in our society – the young, healthy and rich – have been forced to take on increasing portions of the costs incurred by higher costs groups.

    A victim of the increasing extent of cross-subsidization in the current system is any meaningful relationship between risk and payoff for different sets of participants in the system. The loss of this risk-reward relationship has created massive moral hazard situations for parties in the system. More specifically, people don’t bear the full healthcare costs of their risky – unhealthy – lifestyles. As such, they choose to take on more risks and unhealthy behaviors than they would if they had to pay the full costs of doing so. Our unhealthy populations simply offload their higher associated healthcare costs onto the rest of society. This has created a vicious cycle: As people have become less healthy, healthcare costs have increased. But costlier groups haven’t been able to afford to pay the costs they have incurred, so the degree of cross-subsidization has further increased. In turn, this has further decreased the portion of costs paid for by the unhealthy, which has led them to make even poorer choices.

  • Actions Have Consequences

    I often turned to my father for advice. I would ask him, “What’s the right decision to make?” And he would invariably reply, “There’s no right or wrong. There are only consequences.”

    By taking the morality out of the equation, my father forced me to focus not on the action itself, but rather on the outcome of the action: Which action would get me to the best overall outcome?

    This taught me that actions have consequences. More than that, though, he taught me that since we choose our actions, we control (to a greater or lesser extent) our outcomes. Since the outcomes we get follow from the actions we take, we should then be led to choose those actions that end up benefitting us.

    Situations Can Be Complicated

    It can get complicated, though. Suppose we’re given the choice of whether or not to eat a big, gooey, glazed donut. Eating the donut will give us pleasure now as we consume it. However, it will also cause angst the next time we want to wear our tight jeans. Or farther down the road, the donut may be the final straw in causing a heart attack, which will not only be traumatic, but also expensive. What do we do?

  • This analysis considers how the US healthcare system would change if we were to transition from the current multi-payer system to a single-payer system. The analysis first presents facts that will be important in considering what a single-payer system might look like. Then, given these facts, the analysis considers specific issues about the transition. 

     

    Facts

    1. Four factors affect a person’s risk of premature death.

    Behavior, genes, environment, and healthcare services are the four factors that Impact people’s risks of premature death (Kaiser Family Foundation) (see Figure 1).

    Figure 1

    1 impact factors on death 

    (i)  Behavior: 40%

    From Kaiser Family Foundation: “Health behaviors, such as smoking and diet and exercise, are the most important determinants of premature death.”

    According to OECD, “Health at a Glance 2015”

    While genetics is a risk factor, only about 5% to 10% of all cancers are inherited. Modifiable risk factors such as smoking, obesity, lack of exercise and excess sun exposure, as well as environmental exposures, explain up to 90-95% of all cancer cases.

    (ii)  Genes: 30%

    (iii)  Social and Environment: 20%

    Figure 2 (from Kaiser Family Foundation) displays specific social and environment factors contributing to health.

    Figure 2

     2 social determinants

    More from the OECD report:

    Recent analysis shows that, although overall spending on social services and health care in the United States is comparable to other Western countries, the United States disproportionately spends less on social services and more on health care.

    (iv)  Health Care: 10%