How the Healthcare Cost Flywheel Works — and Why It Keeps Spinning, With Jonathan Baran. EP483 Part 1

A 9% healthcare renewal is celebrated as a good year. But 9% is three times the rate of inflation, and it's not going to doctors or nurses — physician compensation has been flat or declining, and nursing strikes are evidence enough of what's happening there. So where does the money go? Jonathan Baran has a very clear answer: it goes to the flywheel. And the flywheel starts with discounts. In this episode, Stacey Richter speaks with Jonathan Baran, co-founder and CEO of Self Fund Health, a Wisconsin-based health plan, about the cascade of perverse incentives that turns renewal season into an annual cost spiral — and how each stakeholder in the chain, from carrier to broker to employer to hospital to EHR vendor, is playing their role exactly as their incentive structure demands.

WHAT YOU'LL LEARN

✅ Why carriers benefit from rising premiums and have no structural incentive to control underlying healthcare costs — they earn a percentage of premiums and make money on float, so a higher premium base means higher revenue regardless of how efficiently care is delivered

✅ How the discount framework was engineered to create the illusion of cost control: an MRI with a list price of $10,000 discounted 46% looks like a win — until you realize the actual market rate is $500 to $600, and both carriers are selling the same fiction in different percentages

✅ Why buying insurance is fundamentally different from buying healthcare — and why employers who switch to self-funding without changing what they are actually purchasing will see the same costs under a different administrative structure

✅ How hospital systems use primary care acquisition not to invest in prevention but to control the referral funnel to profitable downstream services — and why after consolidation, the incentive flips to degrading primary care while maximizing high-margin procedures

✅ Why panel sizes of 2,000 to 5,000 patients and seven-minute average appointments are not accidents — they are the predictable outcome of an incentive structure that rewards throughput and downstream referrals, not prevention or chronic disease management

✅ How EHR systems function as digital moats for hospital revenue: data interoperability is a solved technical problem, but data leakage is patient leakage, and EHR vendors build for the executives who pay them, not for patients or clinicians

WHY THIS MATTERS

Follow the incentives and the behavior follows. Every stakeholder in this flywheel — carrier, broker, employer, hospital system, EHR vendor — is doing exactly what their incentive structure demands. That is why the flywheel keeps spinning despite decades of attempts to slow it. Part 2 of this conversation (EP483 Part 2) covers how to reverse it.

MENTIONED IN THIS EPISODE

EP465 with Chris Crawford: Apple Podcasts | Spotify | Other Apps

LinkedIn post by Rina Tikia on self-funded plans (link unavailable — original URL lost)

=== LINKS ===

🔗 Show Notes with all mentioned links: Episode Page

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00:00 Introduction.

08:46 Entering the health system "flywheel" at the renewal phase.

09:46 What goes on in the renewal season that contributes to the health system "flywheel"?

12:28 Why is the standard 9% increase in healthcare costs during renewal season actually problematic?

13:22 How does the purchase of discounts contribute to the skyrocketing cost of healthcare and distract from discussing the actually underlying cost of healthcare?

17:01 Why do employers need to learn to buy healthcare and not insurance?

23:18 Why are hospital executives incentivized to buy and own all of the primary care in a market?

26:35 How big electronic medical record systems play into this increase in healthcare costs.

28:27 Acquired podcast on one EHR system.

31:09 What needs to happen to reverse this flywheel of increasing healthcare costs?