Why Healthcare Is in a Death Spiral: Follow the Money

If each of these is not a part of any 'reform,' than all that is being done is pouring money into a monopolizing cartel, just in a slightly different way.

Unbeknownst to those of us with little inside knowledge of the complex financial plumbing of the US healthcare system, healthcare is in a death spiral that will surprise everyone but insiders who grasp the system's unsustainability.

To help us outsiders understand the death spiral, I asked a senior MD to guide us through "follow the money."

Trump Blasts "Big, Fat, Rich Insurance Companies" As Lawmakers Propose Ways To 'Fix' Obamacare.

Since this is the issue of the day and it falls within my expertise, here are some thoughts.

Executive Summary

Multiple conditions are aligning for a broad re-alignment of medical care delivery in the US, resulting in the development of a two-tiered delivery model: high-quality, efficient, innovating cash-pay for those who can pay and low-quality, wait-rationed care delivery for those who can't.

If you can't afford it, don't get sick.

Health systems make their money through inflated commercial real estate (CRE), sale of patient health information (PHI), consolidation of supply chains, and kickbacks in exchange for redirecting federal dollars. Absent a tiny sliver of procedures, the delivery of healthcare itself is a loss leader. It is a requirement for entry, not a source of value. As such, care delivery managed to prevent loss, not promote innovation.

Most health system CEOs are financial engineers, not care delivery specialists, and compare the size of their real estate management infrastructure with their care delivery management infrastructure; the former is always much more robust than the latter.

Insurers have become utilities, administering government payment programs. Their ability to bear risk as a business model was discarded with the ACA; they no longer have the infrastructure or talent to do so. You might as well ask them to make shoes.

This monoculture, the corruption of monopoly and finally the response to the pandemic has crippled both.

Health systems faced a profound interruption in throughput which they dealt with by tapping reserves, inflating CRE further, pushing the boundaries of PHI sales, increasing their kickback programs, and, most importantly, becoming fully dependent on the now ending government bailouts.

Further consolidation and partnering with private money is their only path forward. Recent experience teaches that the private money will cut the delivery of healthcare to the bare minimum needed to maximize the other sources of value. A whole lot of administrators and c-suiters are also going to lose their jobs.

After the ACA, the Insurer's only cash cow was the immensely overfunded and fraud-filled Value-Based Care (VBC) Medicare and Medicaid programs such as Medicare Advantage. The fraud is now being criminally prosecuted, the overpayments are gone, and the cost of care delayed during the pandemic and which the insurers now bear are being realized manifold.

Insurers simply have no path forward other than as payment administrators. Look for massive consolidation, starting with the individual Blues. The government has been resistant, but now it's a choice of merger or bankruptcy. In 2028 probably only Coventry, United, and Centene will be left standing, no more blues.

The ACA itself is in a death spiral. Envisioned as a universal mandatory risk pool, so many exceptions have been made that only the sickest and those who have no choice get their care there, the former being subsidized by the latter, the government, and ever dwindling coverage. The pandemic subsidies masked it and without them the coverage is non-sensical. Non-participation will be its end.

In addition, government medical care programs have long been subsidized by suppressing payment for the resources used to obtain care delivery; clinicians, labor, administration, and even bedpans. Real wages for even the highest paying doctors working within the system haven't increased since 2010, nursing wages have gone up only because so many have become free-lancing agency workers. I got offered a locums position for $145/hour, the same as I was offered 8 years ago.

All those resources are now worth more outside the system than inside. Thus, those resources are migrating to the cash-pay market. Used to be the huge government market and dependable payments was enough to overcome the difference in value between the two markets, cash vs third party. No longer.

The legacy costs, management/leadership expertise and business models of current Fee For Service (FFS) health systems preclude all but the most highly branded health systems from competing in the cash-pay model.

Access to the cash-pay market will vary based on jurisdiction: it's illegal in some states, hamstrung by others, free in still more.

Look for policy to evolve into a high-dollar, deductible, roll-over Health Savings Account (HSA) with income-based subsidies paired with a government subsidized catastrophic care program. At least until the young and disaffected elect a socialist.

A $2,000 direct payment to beneficiaries such as being currently contemplated is completely ineffectual, especially since it has to be borrowed and will just increase inflation that much further.

True reform must include:

1.Invalidation of state and federal laws which restrict cash-pay.

2. Prohibition of not-for-profit (NFP) / Religious organizations from third-party payment programs. The competitive advantage of the tax-free business model and the inherent corruption it has engendered render their participation not in the public interest.

3. Removal of restrictions on clinician ownership in healthcare delivery.

4. Renewed criminal anti-trust enforcement in medical care delivery.

Others can be added, but if each of these is not a part of any 'reform,' than all that is being done is pouring money into a monopolizing cartel, just in a slightly different way.

No improvement will occur.

It's not payments which need reform, it's delivery.

And a lot of folks' paychecks depend on obfuscating that fact.

Thank you, senior MD for the guided tour of healthcare's financial death spiral. I have long stated that healthcare in its current extractive-cartel form will bankrupt the nation all by itself:

Why America's Healthcare (Sickcare) System Is Broken and Unfixable (July 16, 2014)

Sickcare Will Bankrupt the Nation (March 21, 2011)

My questions:

1. Is any of this financial plumbing actually private insurance, or is it all just sluicing government funding through a profitable skimming operation?

2. How can a 'healthcare' system that refuses to connect digital derangement, ultra-processed diet and poor fitness to 'health' possibly generate 'health' as an output?

These questions are taboo because the answers would implode the entire system.

Medicare costs: parabolic:



Medicaid costs: parabolic:



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24 Things I'm Grateful For

Things large and small worthy of recognition and gratitude.

Of the many things I'm grateful for, let's start with 1) a garden and 2) a library. ("Those with a garden and a library have everything." Cicero)

Next up:

3. My readers, correspondents, patrons and financial supporters: Of Two Minds exists because of you.

4. Everyone who supports independent thinkers and creators. On behalf of every independent creator of content, thank you.

5. Opportunity. Opportunity sounds good but it's not easy. We often learn more from failure than success, so opportunity is often misread. A reader who managed to extricate himself years ago from an oppressive, dictatorial regime and make his way to the U.S. submitted this comment a decade ago:

"We live a very simple and happy life. It is amazing to see how most Americans do not have a clue of the unlimited opportunities we all have here. Most people want 'instant gratification' and they are not willing to sacrifice to get what they want, instead they choose to live above their means and go into debt for the rest of their lives."

6. Thrift: use it until it shreds.



7. Beautiful fresh vegetables:



8. When all seems lost... a dramatic reversal: The Catch, Joe Montana to Dwight Clark:



9. Camping in national parks: Glacier National Park.



10. Yellowstone National Park: tent camping, first snow of the season.



11. Blue sky.



12. Rainbows.



13. Redwoods.



14. Magic. To do good, of course....



15. Handmade leis.



16. homemade pizza.



17. Homemade dessert.



Don't let the dessert cart on the Titanic go by....



18. The amazing colors of flowers:



19. Walk-in beaches and campsites: no roads, no vehicles, effort fully rewarded:



20. Home-baked bread and other goodies: Simit...



21. Inspiration:



22. Making music: any kind or style is good, nothing else like it...



23. Undiscovered gems you zoom past a hundred times and then finally stop to savor.



24. "He that is without sin among you, let him first cast a stone at her."



And again he stooped down, and wrote on the ground. And they which heard it, being convicted by their own conscience, went out one by one, beginning at the eldest, even unto the last: and Jesus was left alone, and the woman standing in the midst. (John 8:7-9)

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A Stoic's Thanksgiving Gratitude

There are times when the only triumph within reach is survival.

Public expressions of gratitude are de rigueur in America: "I'm grateful for the opportunity to..." is one of the first lines of any public pronouncement: to serve the public, to play on this professional sports team, and so on.

In other words, giving thanks, as with many other virtues, has suffered from inflation driven by commoditized media over-exposure and and vacuous virtue-signaling.

Sincere gratitude is a good thing. Marcus Aurelius devoted the entire first chapter of his Meditations to expressing his heartfelt gratitude to everyone who taught him core values and shared their experiential wisdom with him.

But if you happen to awaken and discover you've been transmogrified into a six-foot cockroach, gratitude doesn't flow very freely. This is the plot of Franz Kafka's famous story The Metamorphosis.

Glamorous Hardship--that experienced by extreme nature photographers, celebrities, etc.--offers opportunities for expressions of gratitude: I want to thank my fans for their support during this time, it was dicey outrunning the avalanche, but I'm grateful I got the images, and so on.

Unglamorous Hardship--the kind most of us experience--is less conducive to gratitude: I'm grateful that my business collapsed, I'm grateful I had to quit my job to take care of aging parents /in-laws, etc.

I'm grateful for the opportunity to be a repulsive, grotesque six-foot cockroach--well, actually, not so much. I'd rather have the run-of-the-mill Unglamorous Hardships of chronic illness, having to drop everything to help an injured loved one, bankruptcy, burnout, and so on.

There are times when the only triumph within reach is survival-- the Triumph of Survival. To have dodged an endless volley of the slings and arrows of outrageous fortune, to have endured an endless full-court press of misfortune and survive--this is a triumph worthy of gratitude.

In my own life, these periods tend to last a biblical seven years each--seven years in which the hits keep coming, respite is brief before yet another life crisis comes ashore and life shrinks down to the day-by-day goal of survival. Everything is a struggle, and virtually every project disappoints or fails. Success boils down to surviving this hit and picking oneself up to absorb the next one.

This is why the Stoics valued gratitude so highly. There are eras of misfortune and failure in which maintaining high expectations only increase our suffering and self-pity. Better to need little and expect the exhaustion of good fortune to continue, and to understand that gratitude is best savored in very small portions.

"Do not indulge in dreams of having what you have not, but reckon up the chief of the blessings you do possess, and then thankfully remember how you would crave for them if they were not yours." Marcus Aurelius



"The whole universe is change and life itself is but what you deem it - either gratefully better than or bitterly worse than something else that you alone choose." Marcus Aurelius

The best of Thanksgiving wishes to you and your loved ones.

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The Middle Class Is Cracking

Borrowing more to maintain spending is hanging on by one's fingernails, not middle-class security.

The middle class is cracking, but if you want a statistic that "proves" this, there isn't one. The cracking isn't a statistic, it's the culmination of observations logged over the past 15 years about these critical measures of what it takes to qualify as middle class:

1. How much income a household needs to secure the minimum qualifications of a middle class standard of living / quality of life, based on the conventional standards of the 1960s - 1980s. (The qualifying characteristics are listed below.)

2. The upward or downward mobility of those claiming middle class status. Put another way: if it requires monumental effort and perfect execution to achieve the minimum qualifications of middle class security, then that isn't a "middle class" set of qualifications, that's an elite set of qualifications.

3. Precarity: how much (or little) financial disruption does it take to tip a household into a down-spiral that becomes increasingly difficult to escape. The foundation of any non-trivial definition of "middle class" (any definition that is solely based on income is trivial) is the financial resilience offered by ownership of assets, particularly income-producing assets, and savings that can be tapped to handle emergencies.

I've been addressing these issues for many years. Here are a few of my posts on the decay of the middle class:

Priced Out of the Middle Class (June 28, 2012)

What Does It Take To Be Middle Class? (December 5, 2013)

Misplaced Pride: Most of the "Middle Class" Is Actually Working Class (June 14, 2019)

Squeezed for Decades, America's Working Class Is Finally Up Against the Wall (May 13, 2024)

Here are the minimum requirements to qualify as middle class, drawn up by myself and readers:

1. Meaningful healthcare insurance. By meaningful I mean healthcare insurance that doesn't have high deductibles--if you have to pay thousands of dollars before the insurance kicks in, that's not insurance, it's a simulation of insurance--and insurance that isn't reduced to meaninglessness by limitations on coverage and/or zero coverge for core elements of healthcare.

2. Significant equity (25%-50%) in a home or other real estate.

3. Income/expenses that enable the household to save at least 6% of its net income.

4. Significant retirement funds: 401Ks, IRAs, etc.

5. The ability to service all debt and expenses over the medium-term if one of the primary household wage-earners lose their job.

6. Reliable vehicles for each wage earner.

7. If a household requires government assistance to maintain the family lifestyle, their Middle Class status is in doubt.

8. A percentage of non-paper, non-real estate hard assets such as family heirlooms, precious metals, tools, etc. that can be transferred to the next generation, i.e. generational wealth.

9. Ability to invest in offspring (education, extracurricular clubs/training, etc.).

10. Leisure time devoted to the maintenance of physical/spiritual/mental fitness.

11. Continual accumulation of human and social capital (new skills, networks of collaborators, markets for one's services, etc.)

12. Family ownership of income-producing assets such as rental properties, bonds, family-owned business, etc.

The absolute scale of these requirements is less important than all twelve being included in the household's quiver. In other words, it's not necessary to own equity worth millions, but it is important to own meaningful equity across the range of assets listed above.

Back in 2012, I went through each requirement and arrived at a minimum household income of $106,000-- adjusted for inflation, the equivalent sum today is $152,000. Before you scoff, please read the entirety of Michael Green's careful analysis of what qualifies as "poverty level income" and "middle class income:" How a Broken Benchmark Quietly Broke America (via Cheryl A.)

Green concluded the minimum income needed today is $140,000-- more or less the same as my estimate, especially given his detailed explanation of why this minimum is barebones.

Green's analysis of middle-class precarity dismantles all the statistical rah-rah presented as evidence that we're all getting richer every day, in every way. Like insurance with stupidly high deductibles, this isn't middle class security, it's a simulation of middle class security.

This report in the Wall Street Journal suggests this reality is now so undeniably obvious that the WSJ had to address it: The Middle Class Is Buckling Under Almost Five Years of Persistent Inflation: Workers growing tired of economy in which everything seems to get more expensive.

As Green explained, soaring costs for big-ticket essentials--all the things required to participate in the economy in a meaningful fashion--are crushing the middle class.

Unless you lucked into an early seating for the banquet of wealth served up by The Everything Bubble--then life is good: Feeling Great About the Economy? You Must Own Stocks: Investors' rosy feelings about their stock market gains are powering spending--but it's a different story for everyone else.

This has generated a generational divide in security/precarity and wealth accumulation: those who bought stocks and housing long ago when they were relatively cheap have piled up wealth not by being more productive, but by becoming early owners of capital that has been goosed by policies seeking to boost spending via "the wealth effect."

That this bubble-generated wealth flowed predominantly to older households with incomes that enabled asset purchases effectively made the rich richer. Those without these advantages lost ground, and absent the cushion of wealth piled up by The Everything Bubble, their claim to middle-class security is more a simulation than the real thing.

The middle class is cracking, and the Everything Bubble hasn't even started to pop yet; once it does, job losses will accelerate due to the self-reinforcing nature of job losses reducing income and spending which then triggers more job cuts. How the U.S. Economy Became Hooked on AI Spending: Growth has been bolstered by data-center investment and stock-market wealth. A reversal could raise the risk of recession.



This chart illustrates the reality: the already-wealthy have pulled away as financialization, globalization, precarity and inflation gutted the middle class.



The solidity and economic dominance of the US middle-class is illusory. The middle class is cracking, and borrowing more to maintain spending is hanging on by one's fingernails, not middle-class security.



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Is AI a Catalyst for Growth--or For Collapse?

Yes, AI is a catalyst. But for what is not yet knowable.

The current narrative holds that the big problem we need to solve is conjuring up cheap energy to power AI data centers. Fortunately for us, the solutions are at hand: building modular nuclear power plants at scale and tapping North America's vast reserves of cheap natural gas.

Problem solved! With cheap energy to power all the AI data centers, we're on a trajectory of fantastic growth of all the good things in life.

Let's consider the implicit assumptions buried in this narrative.

1. The unspoken assumption here is AI will solve all our problems because it's "smart." But this assumes the problems are intellectual puzzles rather than self-reinforcing, self-destructive structures fueled by corruption and perverse incentives embedded in the system itself.

2. The assumption is that if we replace human workers with apps and robots, that will automatically generate Utopia. But this is based on a series of baseless, pie-in-the-sky assumptions about human nature and the nature of social and economic structures.

3. The assumption is that being "entertained" by staring at screens all day is the foundation of human fulfillment and happiness, and so getting rid of human work will usher in Nirvana. The reality is humans are hard-wired to find fulfillment in purposeful, meaningful work that is valued by others. Staring at "entertainment" on screens all day isn't fulfillment, it's deranging and depressing.

This is human nature in a nutshell: Idle hands are the devil's workshop.

4. Another assumption is that every technological revolution generates more and better jobs by some causal mechanism. But there is no law of nature that technology inevitably creates more jobs than it destroys, or that the resulting jobs are more rewarding. That recent history supports this idea doesn't make it a causal law of nature. By its very nature, AI destroys jobs while generating few replacement jobs.

The handful of top AI programmers are paid (or promised) millions of dollars; the industry doesn't need more than a handful of top designers because AI can generate its own conventional coding.

5. This narrative assumes AI will be immensely profitable and the profit motive will push its limitless expansion. But once again, there are no laws of nature that every new technology is inevitably immensely profitable just because it's a new technology.

If the projected use-value doesn't materialize, the investment in the new tech is mal-invested--a stupendous waste of capital chasing a delusional pipe dream. Some percentage might generate some use-value, but this use-value may be obsoleted long before the massive initial investment pays off.

6. Even if the new technology continues expanding, the speculative bubble can deflate 80%. This is the lesson of the dot-com era: that the Internet continued to expand didn't mean the speculative bubble continued inflating: the speculative bubble is not the same thing as the actual use-value in the real world.

The Internet continued expanding even as the dot-com stock bubble collapsed. In other words, this is the best-case scenario: if the use-value of AI is questionable, then the losses can approach 100%.



Here's how this feels in real-time:



7. Perhaps the greatest assumption being made is that there is some law-of-nature inevitability in AI's eventual supremacy. From the perspective laid out in What We've Lost, AI's influence on systemic problems is zero because AI can't reverse moral decay, and it actually reinforces destructive concentrations of capital and power in oligarchic cartels.

In other words, AI is a force not just of disruption (i.e. creative destruction) but of disorder, for its promoters are not accountable for its consequences, which are already visibly corrosive and potentially disastrous.

8. Every trend and every technology reaches an extreme version of its initial state. This extreme can be transformative--but not necessarily in the way proponents anticipate. AI could also be a catalyst for collapse, as the mal-investment on a vast scale bleeds the system of capital while generating consequences which destabilize a system already on the verge of disorder due to extremes of wealth-income inequality and unaffordability.



Put another way: AI is the ultimate projection of disruptive technology, but there are no guarantees that its consequences won't catalyze systemic collapse.

9. AI boosters assume the public will either embrace or be forced to accept their AI dominance. That there could be pushback against AI supremacy that itself catalyzes disorder leading to collapse doesn't enter their blinkered worldview.



Here is how the public may well view AI oligarchs:



10. Technocrats love to declare victory because their models indicate victory is inevitable. But models aren't reality, as things get left out of models without the model builders being aware of what was left out. Consequences generate second-order effects that aren't included in the projections.

Things always look great when simplified into a chart based on projections and data selected to support the shared delusion.



Yes, AI is a catalyst. But for what is not yet knowable. Never mind, here are AI's boosters presenting their version of the "Five O'Clock Follies."


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THE REVOLUTION TRILOGY:
Investing In Revolution     Ultra-Processed Life     The Mythology of Progress

Systemic Problems/Solutions

Investing In Revolution (2025) Introduction (free)

The Mythology of Progress (2024) Introduction (free)

Global Crisis, National Renewal (2021) Introduction (free)

Money and Work Unchained (2017) Introduction (free)

A Radically Beneficial World (2015) Introduction (free)

What You Can Do Yourself

Ultra-Processed Life (2025) Introduction (free)

Self-Reliance in the 21st Century (2022) Introduction (free)

When You Can't Go On: Burnout, Reckoning and Renewal (2022) Introduction (free)

Get a Job, Build a Real Career and Defy a Bewildering Economy (2014) Intro (free)

Novels

The Adventures of the Consulting Philosopher Intro (free)

The Secret Life of an Asian Heroine First chapters (free)


Become a $3/month patron of my work via patreon.com.

Subscribe to my Substack for free

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Read more...