I'm here with Professor Lawrence Baker at Stanford Medical School and what we're going to talk about now is the overview of the healthcare system- -What is the healthcare system? Yeah, and who's in it? -And who's in it, and what are they doing? I think I can give a go at it. And then correct me, expose my ignorance. So clearly, you have your providers, those would be your doctors and nurses and all the rest. -Hospitals, and pharmacies, all kinds of people . . . Okay, so, everyone who is providing healthcare. So that's right over there. So that's hospitals, doctors, pharmacies, all the rest. And then, they are providing healthcare to someone. So those would be the patients. We did that in another color. Call 'em patients yes, sometimes you get details like people become patients after they need healthcare. But some people just have a question, they aren't really patients. They're just asking. Okay well, what do you call them then? Call them the "population." Population? So just the population of the world, or the country or whatever? People. And then, on the other hand now, someone has to pay for this. Someone has to pay for this. And so for the most part, this is insurers. Yep, insurance companies. In the old days - like if you go back a hundred years - we didn't really have insurance. We had patients and providers, and patients would, if they had a question, they had a concern, they would go to the provider, they'd make some deal, pay him some money, do some service for them, and work it out. We got insurance companies really only in the last hundred years, maybe really starting in the US in maybe 1930, 1940 they started to become popular. So that's kind of a new renovation. And those three things work together. And the general term - and this is a word I've seen a lot - it's sometimes a little confusing, because it's very close to "payER," You hear, it's kind of like, "payORS." That would be including, that's anyone who's paying for the service. Yes. And insurance companies would be included there. Right. So we have - we call them payors, sometimes we call them health plans, because they arrange for some of the care that people get. You know, payors could be private companies, private insurance companies, or they could be government payors, government insurance companies like Medicare. And the insurance companies themselves, they're not doing this, you know, just out of the goodness of their hearts. Someone is paying them. Right. And for the most part, in the United States, it tends to be employers. Right. So we've made another arrow on your diagram here. That would be from the population, or maybe from the patients, to the insurance companies, that provides the money for the insurance companies to use to pay for the providers. So patients might buy an insurance company, or buy an insurance company... Buy an insurance policy! [chuckling] Patients might buy their own policy, go buy an insurance policy, pay them a premium directly, the insurance company collects that money. Or, for most people, they work for an employer. The employer makes the arrangement to buy that insurance, and then implicitly charges the population, the patients, for that, maybe directly by having them contribute some of their salary; maybe implicitly, by just reducing the amount of cash they give them every month and instead giving them this insurance policy. I see. So, people do that. And the other piece that's floating around in here is that in some cases, the population pays taxes to the government - Oh right, right. - that then functions essentially as an insurer like the Medicare program, where there's insurance provided to people, it's paid for by taxes. So there's different funds flows going around here, but always money going from patients to insurers, through employers, through taxes, by direct payments. Those insurers collecting the money, and then paying for a bunch of the care that's provided by the providers. That's the basic arrangement. There's one more tiny piece, which is, at some times, the patients pay the doctors or the hospitals directly. You know, you go, you have a $20 copayment. And so there's a small payment that goes back and forth. Right. Your copay is kind of there, just so that, it kind of makes insurance company feel good that you're not just using it willy-nilly. That you have to pay your, you know, whatever, ten dollars, or fifty dollars. Absolutely. So, insurers know that once they start paying the providers for the care and the patient has it totally free, people might use stuff that, you know, might be worth a little tiny bit, but it costs a lot for everybody to pay for. So if you put a copayment on there, it makes people think twice about using things that they don't really need. Right, that makes complete sense. And then within this ecosystem we hear a lot about HMOs, that - in my perception - is a combination of the insurance company and the provider. It's kind of in one package. Right. So, over time, the US has had different kinds of insurers out there. In the private market especially, there's been a lot of innovation in the last 30, 40 years, in types of insurers that are out there. So we have different insurers that have behaved in different ways as we've gone through those evolutionary cycles. So one version of that is what we call an HMO, a Health Maintenance Organization, and that's really just jargon; you have to dig into it to figure out what it means. But in a lot of cases what that is is a company that's acting as insurance; so you pay a premium to them if you're a patient, or a person . . . and you buy some coverage, and then they'll cover your care; but they'll do that by trying to integrate themselves with the providers. And so, the organizations either are integrated because the HMO hires doctors directly, or maybe owns the hospitals, like Kaiser Permanente, for example; or on some cases, it's a contractual relationship. It's not exactly the same . . . Oh right. So not all of it is tightly linked to, like a Kaiser, where it's like you go to this building that says "Kaiser" on it, and that's where your doctor is. It could be doctors just have their practices, but they're tightly linked with a - I think I saw what, Blue Shield? or one of those. Yeah, Blue Shield, or Aetna, or Cigna, some of these different companies. And you can start to dig into the details, and every one will be a little bit different from the other. But they're contractual relationships. And the difference - and I think this is something everyone faces when they, you know, sign up with insurance with their employer - I had to do it recently - is, you know, they always say, you have to pick HMO versus PPO, and they're within the same policy; and so my perception is, HMO is - they - you have a set list of doctors, that they probably pre-negotiated pricing with. Yeah. So, the difference between HMOs and PPOs gets a little bit into the . . . OK, I don't want to get too far into the weeds . . . . . . But, we can sort of think about it in the way that you're talking about it. So, an HMO will have a list of doctors that you're supposed to see, and you'll have to go see doctors on that list. In a stereotypical one, if you don't see the doctors on that list, the insurance company's not gonna pay for your care. You're gonna pay yourself. And in a stereotypical HMO, there's gonna be a fairly tight management between the insurance company and the doctors about what's gonna be done, what's allowable, and so on. And in the most tightly linked case, they'll be like, the same . . . the doctor will be employed by the company. Right, that's like - -Right, Kaiser. As you kind of think about it as a spectrum. If you move a little bit away from that to a PPO, what's happening in PPOs is you're still gonna get a list; so you're gonna be encouraged to see those doctors, but maybe there'll be a little more flexibility. Like, if you decided not to see someone on the list, the plan would still pay some amount, maybe not as much as they would if you saw someone on the list, but something; whereas in an HMO, maybe nothing. And the plan will probably work a little less hard at managing what those doctors are doing, to try and limit access to, say, high-cost services. HMO will tend to work harder, PPO tends to work a little less hard. So, it's a little bit of a spectrum. You're kind of moving from more managed and more concentrated to a little less managed. But still more so than the system we had, say, in the 50s or 60s, where anybody went to any doctor and any doctor did whatever they wanted, and the insurance company just paid the bill; and there was no integration. So, it's a little bit of a . . . So that's the main motivation why insurance companies are trying to get kind of more integrated with the providers, is because just like you said, in the 50s and 60s, you have the provider providing a service, and obviously the patient would like the service, and then you have a third party paying for it. And so there's no check on, you know, the person deciding on the service and the person getting it says, "Yeah! Let's get more service!" And someone else is . . . Right. That's just, we've created a big issue. Insurance companies are kind of an interesting thing in the health policy world. Because we have to have them. We have to have them to manage the risk associated with getting sick. You can get sick today and get a huge bill. And so, we can't leave people on their own for that; we gotta have insurance companies. But as soon as you create insurance companies, and I can have implicitly all my neighbors pay for the health care that I want, then I might start using things that turn out to be inefficient; and so, you gotta have them, insurance companies, but you gotta manage what happens when you have them also; and so that's the integration between providers, or copayments and utilization review; and all these things are basically attempts by insurance companies to try and manage what economists would call the "moral hazard," using additional services that you don't necessarily need, because everybody else is gonna pay for it for you.