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Oh how the times have changed

November 23, 2010

John dropped another rivet. The red-hot piece of metal bounced once, about an inch from the toes of his boot, then plummeted 50 feet down to the deck. A second of relief that it didn’t hit anyone washed over John, before shame crept in. He couldn’t concentrate.

“What’s the name of this one again?” John called out, towards no one in particular.

“I don’t know. William S. something or other.” A disembodied voice replied from over his shoulder.

This is the thirtieth Liberty Ship the Richmond, California shipyards has started building since John and his wife Elizabeth found out they were going to have a baby. Elizabeth has been in the Kaiser Shipyard’s hospital since last night waiting to deliver their fourth child, hopefully a boy.  John is tired of all the damn girls.

Understandably, John is having trouble keeping his mind on his job, but at least he isn’t worrying about paying for this baby. The Kaiser shipyards have taken care of all that with a unique program for providing healthcare for its workers.

In 1939, the Kaiser Shipyards introduced a first of its kind – a large scale Health Management Organization for its more than 50,000 workers. It was one of the most successful “new ideas” in health care ever, eventually becoming the Kaiser Permanente Health Organization after the war.

Prior to the Kaiser shipyards, health care was a fee-for-service system. You went to the doctor and paid for your treatment. This allowed quite a bit of freedom for the consumer, but it was also necessarily more expensive for the individual. The concept of health insurance had been used before, but it was not widely popular. There were no general health insurance policies readily available for the general public to share the risk of anyone of them getting sick or injured.

The Kaiser plan was different. As part of your compensation for working for them, the shipyards handled your health care. They set-up clinics and hospitals, provided all the doctors and nurses, and did the majority of treatment on site, for free. Well, not exactly for free, the worker paid for it, but up front as part of their compensation, as opposed to the back-end when a service was performed. The Kaiser system was also very dedicated to preventive medicine, properly understanding it was cheaper to prevent someone from getting sick than to treat them after the fact.

The shipyard workers were some of the most efficient ship builders in the country, and the Kaiser shipyards built more Liberty Ships than any other yards supporting the war effort – the relief at not having to worry about the health of themselves or their families were a huge factor in the Kaiser yards’ successes.

There were other attempts at private HMO’s prior to Kaiser, but they were always meant to be short term efforts designed to only exist for the length of a specific building project. Kaiser was different, they kept it going after the end of World War II.

Jump ahead sixty years and we can see the results of the model they created. While the Kaiser concept was fantastic for its workers and led to the most successful shipyards during World War II, it did not recognize a side-effect of disassociating the patient from the doctor. Higher health care costs.

Just like today, Kaiser as an employer, inserted itself as a third party in the doctor-patient economic relationship, they paid the bills. The patient never saw how much the services they were receiving cost. And understandably, they never saw a reason to ration themselves when it came to getting treatment for illnesses and injuries. This was not an immediate problem in the 1940’s, but it has become the primary reason for the increased costs of health care in the following 60 years.

Most people have no idea how much any given treatment actually costs. We read about how health care costs are rising, but do we mentally associate a number to that claim? No, because most American’s health insurance is provided by their employers, thus their health care is paid by someone else. When someone else is footing the bill, the consumer sees no need to ration themselves.

Look at it as if you had to pay for all your health care out of pocket. Would you go to the doctor for a cold? Or a small cut? Or a twisted ankle? Jammed finger? No of course not. You would only go when you truly needed someone’s expert opinion and their ability to prescribe you a drug you couldn’t purchase over the counter, like an anti-biotic for an infection.

Lets use an analogy. Lets say you pay 50 dollars a month into a program that allows you to go the supermarket twice a month and fill up one basket with whatever you want. Would you be price conscious? Would you buy the store-brand cheese or the Boar’s Head brand? Would you buy Gwaltney bologna, or would you visit the deli-counter and get some fresh sliced meats? Obviously you would get the good stuff. Now, look at it from the supermarket’s perspective. Their demand for the more expensive products are going up, so much so that they get rid of the name brand crap because no one is even looking at it. All you can buy now is the expensive stuff, and the price is going up because the expensive stuff necessarily has a lower supply – it is harder to make.

But also look at it from the perspective of someone without “Grocery Insurance”. The cheap stuff is no longer even available, because there is not enough demand for it. So the person who is buying food the old-fashioned way is forced to pay for the expensive stuff because that is all there is.

Now some of you might have noticed that eventually prices should level out, because eventually supply will match up with demand, and we would get back to a traditional model of differing levels of quality and price. That would be true, except we have to introduce competition in the “Grocery Insurance” market. This could be from the same company, or another company, but lets say it’s the same company. Following the wild success of their first plan, they decide to offer two new levels, a cheaper level for people that can’t afford the standard program, and a Cadillac plan. The cheapo plan allows one visit a month and only to grocery stores in the “network”, and the Cadillac plan allows unlimited visits to any grocery store of your choice.

Prices of groceries continue to rise, and the worst part, family grocery stores disappear or are gobbled up by large mega-markets who can necessarily offer all the goodies the American consumer desires. This is our health care system in a nutshell. When you no longer have to worry how much a procedure costs, you have no reason to avoid getting it. This is evident in the elective cosmetic surgery market, which is usually not covered by insurance.

To quote the excellent editorial Patients Should Pay Their Own Bills from Investors.com:

Citing American Society of Plastic Surgeons data, he [Devon Herrick from the National Center for Policy Analysis] says 1.7 million cosmetic surgical procedures were performed in 2008, “more than 40 times the number performed two decades ago.” Yet cosmetic surgeons’ fees, he says, have remained relatively stable, rising only 21% from 1992 to 2008.

The rather flat line of growth in spending on cosmetic surgery is due to the nature of the market. Almost all payments are made out of pocket by patients, which forces them to be wise consumers. It also requires doctors to compete on price.

In comparison, covered health care costs have risen 98% in the same span of time. The primary reason for the 21% increase for cosmetic surgery was an abundance of demand with a lack of supply. The market is now catching up.

All this evidence points to one obvious conclusion, universal health care multiplies all these problems ten-fold. Not only does the consumer disassociate cost of care, but they will begin to disassociate cost of insurance, because they “must” pay for it – it is taken out of their paycheck whether they like it or not. There is no sitting at the kitchen table writing out a check for your insurance, instead, you are just covered for “free”. The ridiculous wait-times for service in Canada and Britain are obvious results at this lack of self-rationing in the system.

Unfortunately we have crossed the point of no return with Obamacare. There is no fixing the system when we are going headstrong towards a program that by its very nature will force costs to go up, and offers the worst form of cost rationing – the faceless merciless rationing of bean counters at a desk.

Our world has changed quite a bit since John was trying to focus on building a ship while worrying about his expectant wife and his new baby, and it is going to change more, for the worse.

John Jr. loves to tell his grandchildren about how he was born in a shipyard hospital on a September night in 1942. He was the first boy in the family, after three sisters, and rightly so, took his dad’s name.

“My father was working on a liberty ship that day, but he always tells me his thoughts were on my mom and me in the hospital,” John Jr. tells little Mary sitting on his lap.

Mary has no clue about health care costs or insurance or anything, she only knows how strong and loving Grandpa is as he holds her and bounces her on his knees.

John looks down at Mary and is frightened for this little beauty who has no fear for the future of America. He feels guilt at the world he is leaving her, and the bills he and his generation have saddled on his children. Will she even be allowed to have more than one child when she is old enough? What if one of her children has autism or something, will she be forced to abort it?

Mary asks Grandpa why he is crying.

He can only choke out two words, almost a whisper, “I’m sorry.”

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13 Comments leave one →
  1. November 23, 2010 11:08 pm

    Excellent sir. That has been one of my main rationales for reform. When someone else is paying for it, no one cares about the cost.

    Sadly, such was the demand for labor in WWII, companies began to offer health coverage as an incentive. Now, it’s an expectation that is a drag on the economy…all because someone else is picking up the tab.

    • November 23, 2010 11:26 pm

      Thank you. Yep, it was a good intended system from the start, but I don’t think they predicted human nature.

  2. November 23, 2010 11:38 pm

    I like the grocery analogy. Obama wants to regulate the size of the cart, as well.

    • November 23, 2010 11:41 pm

      Yeah, I could have gone further on that analogy, but I ran over 1600 words as it was, I felt I was getting a little too long.

  3. JustFacts permalink
    November 23, 2010 11:53 pm

    Kind of an aside to your excellent, and VERY true post, is that my father actually worked on the construction of the very first Liberty ship built, the Patrick Henry. It was built in Baltimore, MD at the Bethlehem-Fairfield Shipyard (now Sparrows Point) in 1941. It was not a Kaiser shipyard. My dad said that he worked until midnight the night before she was due to be launched on Dec. 30, 1941, to get it completed in time for the ceremony. He actually was a riveter and talked about the guys heating the rivets in the oven, and then tossing them to the catcher who used a funnel type device to catch them.

    A couple of years ago, we found out that one of the Liberty Ships, the John W. Brown has been restored and that they run cruises out of Baltimore harbor into the Chesapeake Bay. My older brother, who was born before WWII, and his wife were celebrating their 50th Anniversary about that time, so the family all decided that we would drive up to Baltimore and take this one-day cruise to commemorate our late dad’s contribution to the war effort. It was a really fantastic cruise, with mock attack by several planes out in the Chesapeake, with the ship firing blanks out of its 50 cals, and 5 incher. I highly recommend it to any history buffs. Check it out at Project Liberty Ship.

    • November 24, 2010 12:26 am

      That is really cool. I like the fact the first Liberty Ship was named the Patrick Henry, very fitting.

      All the Kaiser yards were on the West Coast in California.

      Thank you for the kind words.

  4. November 24, 2010 6:19 am

    Again we see an example of the unitended consequences of good intentions. I love the grocery store analogy as well, I think you did a great job explaining the cause and effects of healthcare using that analogy.
    Great post!

    • November 24, 2010 9:32 am

      Thank you for the kind words. =)

  5. November 24, 2010 8:09 am

    Beautifully written Fleecy. I will be sharing and bookmarking this post for future use.

    • November 24, 2010 9:33 am

      Thank you, I appreciate it very much. =)

  6. bunkerville permalink
    November 24, 2010 8:21 am

    Another 5 star post. My one thought is that Medicine has become oh so much more complicated with the advancement of Technology, drugs that cost billions to develop since this time. A MRI machine just to buy is 1 to 3 million with another $300,00-$500,000 to build the suite. Then we have the staffing and upkeep. We have extended life by over 23 years since WW II. This all must be paid for. Charges may seem out of sight for Tests and Drugs, but this all must be paid for if we want to have advance technology and drugs. Mary now has the opportunity to have a very long and healthy life. No longer taking a dozen eggs to pay the Doctor will cover the little packet of pills he use to give out.

    • November 24, 2010 9:42 am

      You are correct on the expensive procedure for sure, but the majority of illness and injury require none of those machines and expensive drugs, which is the other reason they are so expensive.

      Not to mention, as far as the machines are concerned, the costs truly don’t justify the expenditure for most hospitals. Some of those high profile machines are purchased for a completely separate reason, advertising. To be the only hospital in a city or region with a certain machine – like in Richmond, one of my hospitals frequently advertises they are the only hospital in Virginia with the “Da Vinci” minimal invasive surgery machine (or something along those lines). I am sure they use it, but the PR and advertising they gain from it are much behind the reason they purchased it.

      As far as drugs are concerned, you have to look at the health model to see a chicken and egg effect. Would drug companies be seeking to design drugs that are so expensive if the American insurance model did not offer a way for patients to purchase it? Of course not, they would have to change their R & D to a method that is much less expensive. This of course would lead to some drugs never being discovered, but it would also have lead to much less expensive drugs because the pharmacy companies would go bankrupt if they pumped a billion dollars into a drug knowing they would never recoup the cost.

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