Economic Sustainability of Healthacare and Education

The economic model of healthcare and education is broken.

Clearly something is wrong when many doctors and teachers are quitting the profession and there are not enough teachers wanting to enter the profession. The key drivers for these professionals leaving is working conditions and costs. For example, doctors who are an on-call work 36 hours straight and yet they are still paid much less than other professions with much better working hours.

Essentially, the key reason for this problem is that doctors and teachers are not generating enough value for healthcare to make economic sense. To for economic sense to be generated, there needs to be a change in fundamental mechanics of healthcare and education.

In a relatively functioning market, the more value you generate for people, the more you will be paid. This is the reason why technology enabled businesses are so successful. For a relatively little amount of work (ie. writing lines of code), the code could be scaled indefinitely to millions and billions of people. As a result the work to value ratio is incredible favorable leading to large amount of money pouring into these companies. Massive revenue generation then leads to trickle down increases in tech salaries.

In contrast, we do not see this level of ease of scaling in healthcare and education. Every lesson taught in person by a teacher will only benefit whoever is in the class. Every treatment performed by a doctor will only benefit the patient receiving the treatment. The work to benefit ratio here is 1:1, and not the 1:100000 as seen in tech companies. Moreover, the demand for healthcare is the same regardless of one’s socioeconomic situation. This means that a poor person who has chronic cardiovascular disease is going to need the same treatment as a rich person. However, the problem lies in the poor is has much less ability to pay for such treatment. In essence, what happens is that the work to revenue ratio becomes 1:0.5, given that the patient is only able to pay for half of what the treatment fully costs.

This problem was clearly demonstrated in the UK healthcare system before the NHS was founded. Due to the unscalability of healthcare services, it only made economic sense for the rich people. And therefore, only the rich people could afford healthcare. The poor, having the developed the same diseases and requiring the same treatment will never have access to healthcare, simply because it was not economically viable for both the healthcare system and the patient. The NHS was a rather unconventional solution to this problem. The government did not try to make the healthcare system a sustainable business model, but rather, utilized the taxation system to support the healthcare costs for the poor. In essence, the government taxed the rich progressively more, and used the money to fund the NHS which now enables the poor the access healthcare. This business model is sustainable as long as the rich continue to be willing to be taxed, allowing for a steady and stable revenue stream.

However, this will not always be sustainable in the long term. This is because there is a limit to taxation. At a certain level of taxation, the rich will start leaving the country resulting in the movement of investment capital out of the country and hence leading even worse economic outcomes for everyone. There is an invisible cap to the limit of taxation, but there is no cap to the rising healthcare costs of an aging population. This is the problem that we are seeing today. The government budget is becoming more and more constrained due to the rising healthcare costs, but the government struggles to increase funding via taxation for the fear of rich people leaving the country. Perhaps this is also the reason why there was the recent push to tax the billionaires as a solution to the problem.

It is important to recognize that this business model is unsustainable and finding more ways to tax people does not nullify the fact that people are sensitive to taxes and there is a limit to how much tax people are willing to tolerate.

If we want great healthcare in the future, we need to adopt a different model.

There are two main solutions to this problem. The first is reduce healthcare costs via innovation, a much more fundamental and ground-level solution but one that is extremely difficult and time-consuming to execute. The second is to create avenues for win-win methods of progressive wealth transfer.

I will address the first solution. We need to innovate on scalable solutions such that the work to benefit ratio is no longer 1:1 but rather 1:10000. Conventional methods of doing so would be to use AI and technology to automate the diagnosis and treatment. The understanding here is that a large proportion of the volume the healthcare system receives are from people who do not necessarily need in-person procedures and treatment to be done. Rather most of the volume comes from people that simple need a diagnosis and a few drugs for that diagnosis. In this case, automation can significantly allow for a much greater increase in the work to benefit ratio in the healthcare system. Another method of lowering costs it to minimize underemployment. The understanding here is that most doctors are overqualified for the medical roles they take. Doctors learn a lot of things in medical school and in their training but most of the time as they develop, a lot of these skills are forgotten in their jobs and they only use a subset of the skills on a day to day basis. There is an inherent cost in overtraining and underemployment in the healthcare system. Therefore, healthcare workers can be trained particularly for the role they take and specifically for the skillsets they require in the job. We should avoid bundling of medical education to avoid overtraining and underemployment. These two facets of solution could experience a form of synergy in the sense that we could see medical professional specifically trained to utilize technology for medical treatment. This means that technology would become a tool to hyperextends the ability of a healthcare professions with much less training. For example, a healthcare professional who is trained to interface with an AI diagnosis tool might be able to do everything that a GP is able to do but with only a few months of training. This essentially reduces the training costs down from 6 years to 2 months.

Onto the second solution, we need to create win-win methods of progressive wealth transfer. While progressive taxation is indeed an effective method of wealth transfer, it is far from a win-win situation. People hate being taxed, it is almost as if money was unfairly taken away from them. No one is happy being taxed because it is a win-lose situation. Therefore, there needs to be a method of progressive wealth transfer where the rich willing pay for services that will indirectly benefit the poor. One example could be seen through Aravind Eye Hospital. Aravind Eye Hospital adopts a free range pricing model, where the rich could choose how much they want to pay. The assumption here is that the rich has some form of dignity and care about their self-image, and therefore are willing to pay a much higher amount to demonstrate their wealth. The margins of healthcare services to the rich is then used to fund the healthcare services for the poor. This creates a much more different mechanics to the taxation. In this case, the rich are willing taking money out of their pockets and paying for the healthcare service. This is a win-win situation, the rich are paying for great service and great healthcare, and the poor likewise can pay for however much they are able to pay.

People from your income bracket pay ranges from 1000–100000

Higher percentile gives you a different colour of receipt or NFT receipts.

Recently, I have been made aware of a development in the education space. There has been a shift toward more tutoring in the UK education system, where teachers are moving away from schools and are starting to tutor. This is terrible for income equity. Given that there are only a limited number of teachers in the education system, a teacher that moves from teaching 30 students in a class to a teacher that moves to teaching 1 student in a class is going create a massive supply shortage in education. The result of this is that only the rich will get the best teachers in the form of tutors and the poor have to stick with the remaining teachers in the public schools.