American Healthcare can be broken down into three components – payers, providers, and patients. The Patient Protection and Affordable Care Act (“PPACA”), (otherwise known as the “ACA” and Obamacare) primarily focuses on one-third of the healthcare system – that being payers (insurance), while mostly ignoring the other two-thirds: providers and patients. The overemphasis on “who” is paying, and failure to truly address “how much” we’re paying, “what” we’re paying for, and “how” we can reduce what we’re spending is a primary reason for the perceived failure of the law to reduce healthcare expenditures.
Insurance isn’t healthcare – it’s a means to pay for healthcare. This idea that insurance can strong-arm people into paying whatever they want, because people can’t say no – because not having insurance means certain death – assumes that without insurance there is no healthcare. Yet, the truth is that healthcare would exist with or without insurance; we’d just need to find a different way to pay for it. People “need” insurance – not for its own sake – but to pay for healthcare, because healthcare itself is too expensive.
Imagine the following scenario: Oil changes for your car jump to $1,000 per oil change. Rather than be outraged with the price, we turn around and demand that auto insurance start paying for it. We then get outraged when auto insurance rates increase.
Insurance isn’t without blame. Yet, with that said, blaming those actors for all the problems facing healthcare is a huge mistake.
Health insurance is not a behemoth, stomping around, forcing its will on insureds and providers. In fact, the opposite is true. Problems with the status quo arise not from the strength of the insurance market, but rather, their weakness. This weakness, which we’ll next dissect, would be abolished by a single payer system – but at the expense of medical service providers.
Presently, insurers (try to) negotiate with hospitals and drug companies on their own. To do this, many rely upon preferred provider organization (PPO) networks or other such programs, whereby someone (the insurer itself or a network acting on a plan’s behalf) negotiate deals with providers, which then allows the provider to be deemed “in network.”
In exchange for agreeing to the network terms, providers are promised prompt payment, and reductions in (or elimination of) audits and other activities payers otherwise engage in when dealing with medical bills submitted by out of network providers. Indeed, benefit plans unilaterally calculate what the covered amount is when paying an out of network provider (usually resulting in the “balance” being “billed” to the patient). When paying an in-network provider, however, benefit plans are required to pay the network rate (the billed charge minus an agreed upon discount), regardless of what pricing parameters they’d usually apply to out of network bills. This is agreeable to the payer, meanwhile, because it means they get a discount (albeit off of inflated rates), and – more importantly – the payment is payment in full… meaning patients aren’t balance billed.
Due to the payer’s size (or lack of size) and number of payers present, competition between payers and networks, and other elements present in our market, payers cannot “strong arm” providers. Compare this to markets where there is a single payer; when providers must agree to terms controlled by the payer, since it’s their way or no way.
In other words, in a pure single-payer system, there is only one payer available – and you play by their rules, or you don’t play at all. Currently, in the United States, Medicare and Medicaid are the two “biggest” payers, and thus, it should come as no surprise that they routinely secure the best rates.
So – when you ask why the current system can’t survive, look at the prices. Yes – instead of focusing on getting everyone enrolled in an insurance plan, and hoping that will somehow make things less expensive, instead look at what we’re actually paying. As with the $1,000 oil change, sometimes the simplest answer is the right answer. Healthcare is too expensive because healthcare is too expensive.
A 2011 study found that reimbursements to some US providers from public payers, such as Medicare and Medicaid, were 27% higher than in countries with universal coverage, and their reimbursements from private payers were 70% higher. This tells you two things – private plans pay way more than Medicare, and Medicare pays more than “single payer systems.”
What does this mean? If providers fail to offer private payers better rates soon, they will bankrupt the system. If that happens, Medicare will go from being the “biggest” payer to the “only” payer… and the rates they pay will drop accordingly. Why is this a problem? Read on…
Businesses need to stay profitable to stay afloat, and medical providers are no different. In a single payer system, usage increases (because – from the “consumer” perspective [aka patients] it’s free), and reimbursement to providers decreases (for reasons discussed above). That means providers are expected to do more with less. Naturally, this results in decreases in quality, and longer waiting times (assuming access is available at all).
To counter this natural shift, many nations with single payer systems also implement strict central planning. This moves many healthcare choices from individual patients and providers, and instead allows the government to set the rules.
Months to have a lump examined? Hours upon hours sitting in a waiting room? Death panels? The “horror” stories we hear from other nations with single payer systems are not shocking – they are expected. Yet, those who support a single payer system do so because the current system is too expensive. Thus, to avoid a single payer system, we need to make healthcare less expensive. How do we do that? Reduce the cost of healthcare, and reduce the cost of health insurance accordingly.
Small wonder, then, that (when polled) of the 50% of people who support guaranteed coverage via a single-payer system, a third of them did an about-face once they understood the impact it would have on healthcare itself, and the impact it would have on their total out of pocket spend (including increases in taxes).
In summary, it would result in lower payments to providers; (note that providers can charge whatever they want – but what they actually receive as payment will be reduced). The quality of care will decrease as a direct result, along with a reduction in investment by providers in new technologies. Also, access to care will decrease as more experienced providers leave the industry and fewer new providers seek to join.
So how do we save the group based benefits industry, while at the same time ensure providers are compensated fairly?
First, many have argued (and I tend to agree) that health insurance pays for too many medical services. Routine, foreseeable services should not be “insured” events. Insurance is meant to shift risk, associated with unforeseen catastrophic events. A flu shot doesn’t fall into that category. If people paid for such costs out of their own pocket, hopefully the cost of insurance would decrease (adding cash to the individual’s assets with which they can pay for said expenses). Likewise, hopefully providers would recognize that people are paying for these services out of their own pockets, and reduce their fees accordingly. If an insurance carrier wanted to reimburse insureds for these expenses (promoting a healthy lifestyle and avoiding some catastrophic costs insurance would otherwise pay) or employers want to cover these costs as a separate and independent benefit of employment (distinct from health insurance) so be it; (cough*self-funding*cough).
Next, we need to refocus on primary care as the gatekeeper. I’ve seen a movement towards “physician only” networks, direct primary care, and other innovative methods by which benefit plans and employers promote the use of primary care physicians, and I applaud the effort. They provide low cost services, identify potential high cost issues before they multiply, and steer patients to the highest quality yet lowest cost facilities and specialists when needed.
Lastly, I’ve seen benefit plans attempt to remove themselves from traditional “binding” network arrangements and instead contract directly with one or two facilities in a given geographic area. By engaging with the facility directly, they can find common ground, and identify valuable consideration not previously considered. Between increased steerage, true exclusivity, electronic payment, prompt payment, dedicated concierge, and other services payers can offer hospitals – above and beyond dollars and cents – some facilities are able to reduce their asking price to a rate that will allow the plan to survive… and thrive.