The Basics of Healthcare Economics Number 3: Premium Waste

by Ellis M Knight MD, MBA

Introduction

Everyone pretty much recognizes that health insurance in this country is one of the fundamental problem areas within the healthcare industry. Premiums are rising, more and more cost is being shifted onto the consumer, insurers are intent on overturning popular portions of Obamacare; such as mandating coverage for pre-existing conditions, and, even in the midst of Covid, some health plans are talking about rescinding co-pay and deductible waivers for critical services like tele-health. Meanwhile, the commercial health plans and their senior executives are making record setting profits and taking home huge salaries.

Socialized Medicine — The Ultimate Bogeyman

To better understand why the payment system within the healthcare economy is so riddled with problems and yet still so popular and powerful, you have to understand the inherent bias in this country against “socialized” medicine.

I can remember in 1965 when my father, who was the only doctor in the little town in which I grew up, came home stating the world had come to an end because of the passage of Medicare legislation. To him, and most of his physician colleagues, this meant that the government was going to step in and dictate the way they practiced medicine. I even remember an LP we listened to on our home stereo system where Ronald Reagan, then an actor and spokesperson for GE, railed against the rising threat of socialized medicine.

Well, if my father were alive today he would be happy to see that most of the American public continues to resist any additional power and control over the healthcare system coming from the government, such as Medicare for all or a public option for Obamacare. They point to long waits and inefficiencies in countries, such as Canada, where the government covers most healthcare costs. But, these same individuals rail against rising premiums, copays and deductibles, denials of coverage, bureaucratic paperwork, and other evils of our current health insurance system. Finally, as these individuals become eligible for Medicare they steadfastly resist any change to this system, which is the closest thing we have in this country to “socialized” medicine.

An Inherent Contradiction in Attitudes and Beliefs

How to explain the paradoxical attitudes toward our system of health insurance outlined above? To me, it boils down to the difficulties in communicating what is truly happening within a complex and confusing system as compared to the ease of propagating an easy to accept myth — that we have the best healthcare system in the world (we don’t, however, we do have the most expensive), that government run healthcare will be centralized, standardized, inefficient, and impersonal, (when these adjectives can best be applied today to private health plans rather than government run health programs, such as Medicare and Medicaid, many of which are administered by private payers), and a rather xenophobic attitude toward other countries throughout the world who have demonstrated for decades that government funding of basic healthcare services is a foundational component of any thriving society.

Therefore, if we’re serious about improving value, one of the first places we should look is the health insurance industry in this country. As mentioned in previous posts in this series, the majority of health plans do not simply provide indemnity coverage to their members, but instead provide third-party-administrator (TPA) functions to large self-insured employers. This portion of any health plan’s business furthers the perverse incentives inherent in the volume-based, fee-for service, payment system (where the more you do the more you get paid, regardless of quality) and is why most health plans have been hesitant to roll out and promote more truly value-based reimbursement models.

Conclusion and Recommendations

In summary, the health insurance industry creates tremendous waste in the healthcare system and contributes very little, if any, to the goal of increasing value (quality per dollar of cost) to the consumer of healthcare services. While there may not be the political will to completely eliminate this source of non-value add to the system, we should start to rein it in and consider other options— direct to employer contracting by providers, provider sponsored health plans that utilize high-value networks, public options on the Obamacare exchanges, expansion of Medicaid in states that have not done so already, and incentives for Medicare patients to move into alternative payment models, such as ACOs, Primary Care Medical Homes, and provider sponsored, at risk, Medicare Advantage Plans.

Let’s quit wasting our premium dollars and demand higher value from commercial health plans. If they can’t provide us with the services we need and deserve, let’s stop disparaging other alternatives and build the system we need and deserve.