(Part 2) The Data “Revolution” in Healthcare: Obstacles and Opportunities

Part Two: Healthcare Structural Issues (continued from Part One)

By Ellen Martin


First, let’s recognize the fundamental market disconnect between providers, consumers (patients) and (third-party) payers (employers, insurance companies, managed care), which is a fundamental reason that healthcare is not a free market.

The tax-advantaged, employer-provided insurance system is a historical accident of circa-WWII business practice and political policy. Kaiser Permanente was the original managed care organization, founded as a health care program for industrial workers on large projects such as the Los Angeles Aqueduct, then for shipyard workers during WWII, and after the war, offered as a public health plan through employers and unions.

Encouraged by tax incentives (employers may deduct employee health costs), union demand and the industrial boom after WWII, when US industrial workers peaked at more than 1/3 of the labor force, many large employers turned to healthcare as a financially attractive (tax advantaged) union-friendly way to attract workers with higher compensation.

In the 60 years since then, we have seen an ongoing accumulation of unintended systemic consequences:

  • The unemployed become uninsured (16% in 2009 Gallup link below) and often unable to access healthcare, while the percentage of the labor force in industrial jobs has gone down to 20%.
  • Growth of government-provided care for veterans, elderly and poor, now totaling one third of Americans reliant on government-mediated medical care (per Gallup).
  • An ever-increasing number of regulations and agencies, sometimes with conflicting requirements (see next post).
  • The “Affordable Care Act” (aka Obamacare), with an unprecedented Federal intrusion into the already messy insurance markets, and with its future known, unknown and unintended consequences.

Oddly enough, changes in tax policy that would separate health insurance from employers and give ownership (and tax advantages) to individuals or that support more medical use of pre-tax dollars by individuals (e.g., flexible spending accounts, SS125, etc.) have not been politically viable (indeed, the ACA reduces the amounts you can set aside for such accounts!).

Over the past 75 years, we have already seen many unintended consequences, including:

  • Consumers locked into employers or insurers, especially after events (e.g., serious or chronic illness) that raise insurance rates or reduce availability.
  • Patients don’t have pricing information and tend to be price-insensitive (“somebody else is paying for it”) and less willing to pay their own after-tax dollars for preventive care (e.g., dental work).
  • A large number of uninsured who cannot pay for their own care and disproportionately use expensive emergency services or they put off healthcare until desperately ill (also costly).
  • Multiple entities (payers, providers, patients) involved in every healthcare transaction (in the IT workflow sense), which increases problems of silos, handoffs and workflow complexity (more on which coming in Part 3).

This political and economic kludge deeply affects who cares about what in healthcare IT and data, as well as who pays whom, for what and how.

I won’t dwell on the volume-oriented, fee-for-service model, which has been challenged from all directions on the political map. A different view of big data obstacles in healthcare is, of course, from McKinsey.

My next post will focus on regulation, and the one after that on IT-specific obstacles.


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