Anyone who proclaims that universal health insurance or healthcare reform is the “solution” to health insurance cost increases completely misses the point.
Health insurance cost increases result either from excessive pricing or usage. Governments mistakenly operate as if healthcare usage results from random, individual events unrelated to external upward pressures. This is wrong! There are systemic drivers of upward pressure on healthcare usage, not the least of which is that 15 million jobs and $3 trillion a year of GDP depend on the growth of the healthcare industry.
Ultimately, we have to make a societal decision that we want to redirect some portion of this $3 trillion a year to improving our infrastructure, our education system, our new business creation capability, our environment, and our criminal justice system. Healthcare is a social good, up to a point, but it should never take primacy over everything else to the degree that it does. Everyone can get improved health, better access to higher quality healthcare, and much more affordable health insurance. They can secure these benefits at less than half the cost of what we are spending today.
Insurance limits the risks it covers to control the cost of insurance premiums, and prices insurance based on predictable claims frequency. This makes most insurance affordable for policyholders. There is no natural, well-defined boundary on what health insurance pays for and either the size or frequency of claims, which is why premium, deductible and co-pay increases will remain out of control.
Health insurance has no boundary on usage and demand, because (i) patients decide whether to access the system, and (ii) lawmakers and regulators make insurance costlier by expanding what health plans are required to cover. Annual and lifetime coverage limits used to control patient overuse, but the Affordable Care Act prohibits these cost control tools.
Pre-existing medical conditions should not prevent individuals from getting health coverage. However, the best course of action for high-cost, high-risk patients may be to create a taxpayer-funded high-risk pool, rather than loading these individuals into a smaller health plan pool. Individuals who wait until they get sick to enroll in a health plan should be penalized, something the Obama Administration never chose to do.
Why are usage and demand out of control?
Property and casualty, auto, or life insurance companies cover predictable, infrequent, but randomly occurring, events, and refuse to insure unpredictable risks, like homes built in flood zones. Imagine if millions of people moved into flood and hurricane zones and insurance companies were precluded from adjusting their rates accordingly. That is what we have today with health insurance.
Health insurance plan members could access the healthcare system every day and get their claims paid, even if medical events resulted from deliberately or recklessly self-destructive behaviors. Every other kind of insurance rates would skyrocket, but not health insurance.
A significant part of our population is less healthy than ever, and uses our healthcare system more frequently and intensively than everyone else. Yet health policy makers regulate health insurance as if healthcare system usage operates in a vacuum completely disconnected from population health.
Property and casualty insurers conditioned homeowners’ receipt of proceeds to rebuild their oceanfront homes after Superstorm Sandy by requiring rebuilding at higher elevations to avoid future storm surges. No insurer would allow them to rebuild in the same place.
Health plan members who walk out of hospitals after surgeries and violate every guideline provided by surgeons for post-operative rehabilitation are not penalized if readmitted within 30 days for the same condition, but the hospitals are. This makes no sense.
When doctors prescribe medications for chronic diseases and patients refuse to take them, patients are not penalized if, as a result of refusing to do so, they incur costly emergency department or hospital bills.
If patients consult many different physicians and get medications interacting destructively with one another, insurance reimbursement is unaffected.
Health plans need to be free to use pricing to give incentives for people who use the system properly (e.g. safe driver discounts for auto insurance) and to penalize those who misuse it.
Healthcare providers, in specialties treating patients when healthcare is discretionary, have strong incentives to increase demand and usage. Surgeries for overweight people are highly profitable and at an all-time high, even though less medically intensive weight loss programs might be more effective.
When hospitals acquire new diagnostic imaging devices, they have strong financial incentives to increase usage. They order many marginally beneficial, but expensive, diagnostic tests. Our healthcare reimbursement system encourages doctors and hospitals to overuse technology and diagnostic tools because they are underpaid for consultations and overpaid for diagnostic tests.
As pharmaceutical companies, pharmacy benefit managers and physicians develop more expensive treatments, they use powerful marketing tools to get patients to demand them, even if treatments are of marginal or even negative value. Many patients demand end-of-life treatments with Powerball lottery odds of success, because they perceive limited downside from accessing such treatments. Ian Morrison, former President of the Institute for the Future, was talking about Californians, but could have been talking about many other Americans, when he said:
“The Scots see death as imminent. Canadians see death as inevitable. And Californians see death as optional.”
The Affordable Care Act uses an incredibly stupid design principle by requiring that 80% of health insurance premium dollars must be spent on reimbursing for healthcare services or healthcare quality improvement. This design encourages the more expensive, but more financially lucrative, option for both providers and insurers, since a 20% margin on a higher cost base yields more profit dollars.
Oncologists, who buy their medications, get a fixed 6% mark-up, regardless of the whether the medication cost them $20K or $200K. Pharmacy benefit managers get fixed percentage discounts from payers, regardless of either the quantity or the price of the drugs purchased. The system is replete with examples of economic incentives that encourage more care and more expensive medications.
Anyone who watches TV experiences the overwhelmingly high percentage of ads for drugs that treat conditions previously unknown to us, or that we did not think needed prescription medications for treatment.
Dr. Larry Dorsey, a physician, wrote a 2010 essay in The Huffington Post about “disease mongering.”
In it, he quoted a 1992 book by a health science writer named Lynn Payer, who defined “disease mongering” as the process of “trying to convince essentially well people that they are sick, or slightly sick people that they are very ill.”
Payer identified some common disease mongering tactics, among them:
“• Taking a normal function and implying that there’s something wrong with it and that it should be treated,
The Viagra ads are one example of this. They make occasional erectile dysfunction into what appears to be a medical condition requiring a long-term prescription for Viagra. They are unusually persuasive in leaving the impression of a real medical problem when there may not be.
Anti-aging advertising induces healthcare system overuse by persuading individuals the message that they can be treated for conditions people may have tolerated previously. The growth of cosmetic surgeries is a source of fraudulent claims, as providers code non-covered cosmetic alterations of the nose as deviated-septum surgeries, which are covered, as this article notes, in discussing healthcare fraud.
This kind of fraud is more widespread in America because of our obsession with using the health insurance system to pay for elective procedures that “correct” conditions that may not need correction.
What are called “coverage mandates” apply to state-regulated health insurance plans. Typically, a small number of patients, supported by a group of healthcare providers or other special interest groups, petition legislators to add coverages mandates to the treatments included in every state health plan. These mandates include everything from fertility treatments, to pastoral counseling and chiropractor care. The common themeis that, although all these additional treatments might be valuable if patients uses best-in-class practitioners, they enable all providers to get more business.
Fertility treatments are particularly problematic. The best practitioners actually save the healthcare system money. However, multiple egg implants often lead to premature births and lifelong developmental problems that cost us dearly as health plan members. Legislators are reluctant to pick winners and losers in these particular specialties, so every provider gets a windfall.
Our healthcare system consumes too high a percentage of our society’s resources, especially for government employees because we have created a lethal combination of five factors:
Health policy makers, they need to recognize that the two top root causes of runaway healthcare costs are poor health, followed by misuse and overuse of the healthcare system. What are the remedies?