Health Care and Insurance: A Lost (and Crucial) Distinction
Here on TMV, we’ve discussed health care reform (often with a fair amount of heat) up and down, in and out, and every which way. Usually, the threads end up circular, with everybody back at their respective starting places; we’re getting nowhere.
So I’d like to ask a different question (and perhaps go somewhere new): Why are we stuck on the “insurance” model for health care delivery?
Insurance is (or was) intended to off-set risk of catastrophic financial loss from an unexpected event. Very useful if your ship sinks en route from the Far East, and the entire silk inventory is lost… or if somebody throws a cup of java at (and hits) the Mona Lisa… or if you fall down the stairs and break your neck.
The entire concept of insurance has gone right off the rails with health care.
What is unexpected about annual exams? How did the fall flu become a surprise? When did aging stop being a normal, fully anticipated process? Medicare and insurance don’t belong in the same sentence, because barring some unexpected catastrophe, we’re all going to get there eventually.
Where did we turn the corner from risk management (for which insurance is well-suited) to health management (for which it is not)?
When you insure your ship, you don’t expect your insurance company to pay for regular maintenance. When you insure your painting, you don’t expect your insurance company to pay for the extra security — though they will reward you with lower premiums for it. When you take defensive driving classes, your car insurance premiums go down because you’ve measurably reduced the risk of loss due to your own ineptitude — but the insurance company isn’t paying for oil changes to your vehicle.
People are right when they point out that a person’s health is different from a car or a ship or a work of art — but that doesn’t change the definition of insurance. How did we get to such an unworkable impasse?
I suspect (though I don’t know) that the health insurance companies expanded their roles in response to consumer demand. It’s also possible that insurance companies tried to capture a market they had no business entering. However it came about, though, insurance companies have not done themselves (or us) any favors.
We’re thinking all wrong about health care reform. We need a two-tier system: one for protection against catastrophic loss, and another to provide maintenance (health care).
I think insurance should return to doing what it does best, and let’s start talking about how we can help people who can’t afford it handle the costs of actual health care.
‘Cuz they’re not the same thing.
126 Responses to “Health Care and Insurance: A Lost (and Crucial) Distinction”
HemmD
“could a pseudo public plan covering everyone be an option?”
co-ops are still on the table for me, providing they can be run off their own revenuse and not eligible to recieve tax dollars. You could maybe offer initial funding loans that they would be required to pay back over time (maybe 10 years total) and if they proved unable to do so would be automatically shut down. This would give government a chance to show that they could actually run an effificient program.
Polimom,
An excellent post and a brilliant job of keeping the comments thread on track (and mostly civil).!
Much good input received since I went away a few hours ago to have a day off. Let me just comment on some of the most recent input:
and
Indeed. The whole HMO concept was built around lowering the cost of preventive care so as to increase the amount of it that was demanded and received, thereby lowering the total (lifetime) demand for health care services. Anything that increases it's cost is likely to decrease the amount of preventive care demanded and received.
Having said that:
1) Is every $ spent on preventive care spent wisely (doctor visits for the sniffles, demanding prescriptions for antibiotics for the common cold!) or does the 80 / 20 rule apply here? (I'm not trying to identify which preventive care events are in the 20% that results in the 80% of benefits, but in theory it could be done.)
2) If we agree that whatever scheme emerges will have less than the socially optimum amount of preventive care, then we (i.e. the taxpayers) should probably provide a subsidy to reduce it's cost and get the level demanded and received to the socially optimal level (or at least, the 20% of interventions that result in 80% of the benefits). No, I don't want to offer suggestions on how to do that; it's late . . .
Absolutely! Pricing, not by the 'whole course of treatment' (for a given occurrence/ailment), and not even by the 'episode' of treatment, but by the 'component' of the 'episode' of treatment, is almost guaranteed to result in 'overtreatment'. That's a serious cost problem, but as a consumer of health care services, my preference would be towards being overtreated not undertreated. ANY solution to the cost problem needs to be careful not to drive undertreatment (“death panels”, anyone?) any more than absolutely necessary, AND a second mechanism will likely be needed (audits? medical appeals to “non-payer organizations”?) to keep this tendency in check.
Sadly, this is true. The idea of allowing the purchase of insurance from other (lower cost) states is essentially a back-door approach to evading heavy handed regulation and excessively generous 'minimum coverage' levels that many state governments have mandated. The better solution (in keeping with Federalism) is to replace the politicians in the offending state(s) and have them repeal regulations and excessive mandates.
Yes! Along with:
The fundamental problem with chronic illnesses and pre-existing conditions is that that the insurance model does not handle them well. In a chronic illness, the risk factor has already materialized–the only questions are how much is it going to cost (lifetime), who pays, and what conduit will be used for the payment (private insurance? govt single payer?)
For pre-existing conditions, the fact that you have had 'it' once significantly increases the chances of you having 'it' again, moving you into a different risk pool–one which will have very high average costs. One solution is community rating (i.e. spread the costs over all in the community–whatever community one is talking about), another is direct subsidization by the taxpayer (several conduits might work for this, including single payer). Since:
What seems needed here is some combination of incentivizing the right level of preventive care and direct subsidization of at least that aspect of the person's health care cost, e.g. US taxpayer pays XX% of the lifetime cost of treatment for diabetes, but the individual is treated the same as others for the risk of cancer, broken bones, etc. Preventive care incentives could take the form of discounts on health care coverage for annual physicals, weight loss/maintenance, etc. (Think discounts on car insurance for anti-theft devices, defensive driving education, etc.)
And finally (for tonight, anyway):
While pregnancy is not a totally unexpected event (usually!), and high risk pregnancies can be actuarially modeled, this “condition” can be handled by spreading the risk (i.e. cost) over the community (i.e. women, or at least women between Age1 and Age2, for example). Similarly, the risk of prostate cancer (a genuine ailment, and not a normal–though expensive–'medical condition') could be spread over the male population of the appropriate age groups. The real killer here is “aged care”. Demographically, we have quite the pig moving down the python here. This will drive increased demand (via more demanders) at the same time as many. many new, experimental treatments start to come on the scene. Sheesh . . . . .
I propose we lave this one to the next round of health care reform.
Polimom,
This was a well-written and succinct post. Thanks for advancing the conversation.
I agree totally with you. I know people that go to the doctor when they have a cold. When did people stop knowing how to treat a cold without a doctors visit that cost a few hundred dollars.
So this will probably be deemed crazy all to quickly but I can tell you how I saved a good deal of money on my own healthcare. I do not believe in being on pharm. my entire life and I do not see MD's unless I have no other choice. This means that if I go to an MD and he tells me about a new pill to fix my issues I first ask if this will help make me live longer, if not I do not take it.
The reason is that I tend to go to either Naturalpathic Docotors or ND/MD's exclusively since I figured out that unless it is something life threatening most dr's treat symptoms not problems. For instance if I am having breathing issues and I go to an md they can give me a drug to help me out I am sure but I will pay for that script every month for the rest of my life or I go to an ND that tells me “quit smoking” and I save a lot of money and effort by stopping the cause of the issue. Many people have food allergies and other environmental issues that could be addressed with a lifetime of drugs and care or could be solved by not eating dairy or garlic or what have you. The rub of course is that i have to pay to see an ND out of pocket but I will say I never see odd charges sent to me months later that the DR forgot to bill me for or the insurance company will not cover either. If by “preventative” we mean putting people on drugs to fix symptoms this will be very expensive and unsustainable no matter what plan we choose but if we can find a way to ensure that “preventative care” actually tries to address the actual problems by actually covering allergy tests that are usually not covered and for that reason really expensive costs could come down if people know what is making them “sick”. I am not saying this would fix everything but it would help a lot. I know to many people on drugs for the rest of their lives with an ulcer that they could fix even though they do not bother because the doc just hands them a monthly script. MD's are great when you actually need them but until it reaches that level an ND or Nurse Practitioner are much cheaper and they actually listen well and offer good advice.
Here are some additional thoughts and clarifications.
1 – Someone asked how many uninsureds might be covered with health reform. The best guesses in the Industry are some 20-25 million of the 47 million unisured. Mandatory coverage will never get everyone – auto insurance and Mass health are examples. Some people will always stay on the fringes of society. Nonetheless, even 20-25 million additional insureds means $80-100 billion in additional insurance company revenues – that makes it attractive from a capitalistic perspective.
2 – The issue of mandatory additional coverage in many states is a vexing problem. Making things like chiropractors, accupuncturists, social workers, drug and alcohol coverage, etc etc etc adds 5%-10% to the premium. Whether they are necessary or not depends on your individual perspective. Most times states pass these laws in keeping with our democractic capitalistic approach to things – if you give money to politicians you get what you want.
What I would recommend is plans and insurance carriers can opt for either a federal license or a state license, similar to what banks do. A federally chartered carrier could offer the same plan in all 50 states. Currently there is some semblance of this approach in that an Insurance contract is governed by the state of domicile of the plan sponsor and the same coverage can be offered in all 50 states. The same is true of self-insured coverage under an ASO or ASC approach. However, HMO managed care necessitates not only state specific coverage but also separate business entities by state – an expensive waste of money.
3 – It was asked if competition from little companies operating accross state lines would be adventageous competition to big insurance companies which already operate across state lines. There already are 7 national carriers, more competion than cell phone, car or computer companies so I don't see any real advantage.
4 – Medicare administrative costs run about 3.5%. However, this is not as big a savings vs group plans as most people think. Large employers under and ASO contract pay fees of 4%-5% on top of the actual cost of claims. Medium size employers pay fees of about 10-12% and small employers pay fees of about 20-25%, An individual policy runs costs of 30%. A single payer plan would cut about $200 billion in administrative costs out of a $2.2 trillion dollar health care budget. The cost savings of a single payer are half on insurance company side and about half on the health provider side as they no longer have to deal with most of their paperwork and plan confusion. The administrative savings would be enough to cover 47 million uninsureds.
4 – Even though I worked for an insurance company for 32 years, I believe ultimately we in the US will end up with a single payer plan – however it is too radical now for American culture and the job dislocations in the insurance industry alone would be enormous. However, the cost savings of size are too juicy to ignore. Consequently, I see the healthcare industry consolidating to the point we have only 2-3 carriers, each covering 100+ million people.
5 – One of the things that is going to have to be addressed is the geographical differences in the practice of medicine. The practice of medicine is primarily based on local physician culture – it's incestuous. Docs get together all the time both socially and business wise. If Otto the orthepaedist does knee replacements a certain way and if the docs like Otto, everyone follow that pattern. The referral game is the same way, if George the GP likes Carl the cardiologist, then many referrals are made and Carl will probably reward George with a case of vintage wine at Christmas and a few very expensive dinners and golf outings etc. The result is that rates of things like cesarean births, angiograms, knee and hip replacements vary by hundreds of percent geographically and there is no sound medical reason for the difference. This is one of the primary reasons health costs vary geographically far, far, far in excess of the differences in cost of living.
6 – One of the things that would be a game changer is taking the risk and management of high cost patients out of the insurance equation. This is a proposal that I tried to push in the 90's after Clinton's plan blew up, in dozens of trips to DC meeting with Congress staff and politicians. Essentially Congress would set up a quasi-public reinsurance facility like Fanny Mae and Freddie Mac for high cost patients. Insurance carriers would pay a reinsurance premium and the new Henry Health corp would cover claims in excess of $100,000. This would immediately make insuring individuals and small business far less risky and would save 10-15% of the premium immediately. Claims in exces of $100,000 amount to some $400-500 billion annually, an amount large enough to need government financing of the risk. This would allow carriers to concentrate on providing health care rather than spending so much time and energy on health care FINANCING.
7 – Ultimately we have to decouple healthcare from employers. It will aid our economic competiveness internationally, as well as make changing jobs less painful. What I would like to see replacing the employer model is a geographical model. Each state would have two competeing plans with annual rebiding to keep carriers honest. Smaller states would be grouped together to to provide critical mass. The geographical model provides incentives to attack the local disparity in medical practice approaches.
More later.
@ jdledell,
again thank you for your commentary but you did not address most of my questions above.
jdledell — you're bringing a lot of insight into this discussion — I appreciate it VERY much.
Let's bring some of this together. I'm going to gratuitously lift a comment by CStanley from another thread, from a post started by elrod.
Elrod's phrasing is at odds with my post. I don't see the solution as a “basic health insurance package”; rather I think we should be thinking in terms of a “basic health care package”. Since that thread evolved from a different place altogether, I'm going to just invoke semantics, and see if anybody agrees with me that there are possibilities here.
I think this is focused on whether or not people make rational healthcare decisions if they have to pay out of pocket. The biggest study on this was done quite a while ago, the RAND study done in the 70's I believe. Overall, most people did make good decisions when they had to 'self ration', but there were exceptions, most notably among the poor. Simply put, it seems that if you have almost no disposable income after rent and food costs, you aren't likely to decide to go to the doctor every time you should, but if you have disposable income and are choosing between cutting a few dinners out or getting that yearly checkup, most people are pretty rational.
In my mind, sliding scales could do a lot to rectify that one flaw. Have everyone have to feel the effects of their basic healthcare decisions to some extent, but have that effect be proportional to their incomes.
A side note- there seem to be some great, issue oriented healthcare discussions going on at TMV this weekend. It figures that it's on a busy weekend for me- worked most of the day yesterday and today the weather here is idyllic and I don't intend to spend the day indoors. Hope that everyone will keep visiting these threads and continuing to post more about the issues instead of the politics.
Leonidas
I did not mean to deliberately sidestep your question, it's just that there is a lot of material in this thread to absorb. As to your question on big insurance companies vs small here is the best analysis I can give. For large companies – Microsoft, Verizon, GE etc, there is simply no way for smaller carriers to compete – the big 7 are the only answer. To break up coverage between different carriers by geography simply adds too much to the premium. For small employers who are located in one spot with say 50 employees, it's still hard for a small carrier to compete with the big boys. That is due to the large carriers having significantly more volume and thus driving better deals with hospitals and docs. With Insurance so expensive, a lower premium that large carriers can offer is 90% of the buying decision.
Large carriers use their cost advantage to pad profits by using the smaller carriers higher premium as a straw target and just undercutting it rather than pass all the cost savings along. Insurance companies don't make much, if any profit, on large employers. The buyers are too sophisticateed and competition is fierce amoung the large carriers since all of them want the big volume to drive their deals with health providers.
The plans offered by large carriers are usually consistent state to state. Most large employers opt for self insurance with the carrier providing administrative services only (ASO) This makes the palns exempt from state regulation by way of ERISA. There is no way for small entreprenurial companies to compete when premiums are so important. If I can get a computer from Dell for $500 vs having my local computer store build the same one for $1000, which am I going to buy regardless how much I like the guy at my local store? The same is true with large and small insurance carriers.
I started to write something last night but after reading it realized I was obviously trying to write when I was already too tired.
First, let me apologize to Polimom for those comments I made before questioning her honesty. They were over the top and I shouldn't have written them. Not being perfect, I cannot promise that I won't repeat that stupid error but I will be trying to avoid it. Secondly, I'm pleased that I can say that I agree with pretty much everything she has posted in this thread. I even agree with a post of Leonidas's where he is pointing out how advertising prescription drugs doesn't help our system at all.
This is something I had also been thinking of and trying to figure out how to say it. Polimom has done a wonderful job of it in this thread and the huge contribution by jdledell has made for some great reading on the subject.
Even the insurance model is not necessarily as bad as some people say in some cases. Davebo linked to an article in a post in another thread addressing some of the claims about systems outside of the U.S..
Going back to healthcare, though, one of the things that I consider vital to a decent health care system is that it include dental, vision and mental health care. This doesn't mean that a system should have to provide Lasik surgery but I would consider glasses reasonable (Think of what it means to your ability to work.) and dental shouldn't have to provide purely cosmetic procedures but anything to do with abscesses, infections, etc. should be as should tooth replacement. People die from poor oral health care. An article in The Nation referred to this as the hidden health care crisis. There are also economic issues. Two different articles I've read have pointed out the obvious, which is that it is just this side of impossible to get a job if oral health problems have cost you some of your teeth.
[...] Health Care and Insurance: A Lost (and Crucial) Distinction | The Moderate Voice themoderatevoice.com/44031/health-care-and-insurance-a-lost-and-crucial-distinction – view page – cached Here on TMV, we’ve discussed health care reform (often with a fair amount of heat) up and down, in and out, and every which way. Usually, the threads end up — From the page [...]
@jdledell
Thanks for your reply it is appreciated.
I do wonder about one thing, you say there is no way the smaller carriers can compete, yet they are still in business, seems to me they can compete at least on some level. Also you say that: ” To break up coverage between different carriers by geography simply adds too much to the premium.” That seems to support my position that there would be a cost savings at least for a portion of the competion in allowing for purchasing across state lines.
Would it make sense to make this a sticky post? There is a lot of great info and discussion here and I am afraid it is going to get buried.
[...] Health Care and Insurance: A Lost (and Crucial) Distinction – The Moderate VoiceHere on TMV, we’ve discussed health care reform (often with a fair amount of heat) up and down, in and out, and every which way. Usually, the threads end up circular, with everybody back at their respective starting places; we’re getting nowhere [...]
[...] Health Care and Insurance: A Lost (and Crucial) Distinction – The Moderate VoiceHere on TMV, we’ve discussed health care reform (often with a fair amount of heat) up and down, in and out, and every which way. Usually, the threads end up circular, with everybody back at their respective starting places; we’re getting nowhere [...]
[...] Health Care and Insurance: A Lost (and Crucial) Distinction – The Moderate VoiceHere on TMV, we’ve discussed health care reform (often with a fair amount of heat) up and down, in and out, and every which way. Usually, the threads end up circular, with everybody back at their respective starting places; we’re getting nowhere [...]
[...] Health Care and Insurance: A Lost (and Crucial) Distinction – The Moderate VoiceHere on TMV, we’ve discussed health care reform (often with a fair amount of heat) up and down, in and out, and every which way. Usually, the threads end up circular, with everybody back at their respective starting places; we’re getting nowhere [...]
[...] Health Care and Insurance: A Lost (and Crucial) Distinction – The Moderate VoiceHere on TMV, we’ve discussed health care reform (often with a fair amount of heat) up and down, in and out, and every which way. Usually, the threads end up circular, with everybody back at their respective starting places; we’re getting nowhere [...]
Creating a reasonable, tiered system of health care is a real priority. Definitely, the first step, politically, is to make people understand that health care is not co-equal with insurance.
We really need to break down the costs of providing general health care. In this country we rely on high cost health labor (doctors) for services that in other countries would be provided by someone at the level of a nurse or pharmacist. It is ridiculous what people have to pay as an upfront cost for acquiring a prescription, for example. An expansion of Free Clinics offering a modest array of premium services, if universalized, would be a great addition to our health services. Also, an extension of authority for lower-level healthcare professionals.
[...] Health Care and Insurance: A Lost (and Crucial) Distinction – The Moderate VoiceHere on TMV, we’ve discussed health care reform (often with a fair amount of heat) up and down, in and out, and every which way. Usually, the threads end up circular, with everybody back at their respective starting places; we’re getting nowhere [...]
One thing I am amazed that I can never find is a good revenue/cost analysis of all the members of a supply chain for a procedure or class of procedures. I don't even know how anyone can be expected to make a judgement about where our system needs to go without that kind of information. We don't really know whose costs are driving healthcare inflation.
Any ideas?
[...] Health Care and Insurance: A Lost (and Crucial) Distinction (themoderatevoice.com) [...]
[...] Health Care and Insurance: A Lost (and Crucial) Distinction (themoderatevoice.com) [...]