The Times reported recently (Reed Abelson, Health Insurers Making Record Profits as Many Postpone Care, May 13, 2011) that "major health insurers are barreling into a third year of record profits." A major reason for their "success": utilization is down among their policy holders and, therefore, care providers are submitting fewer bills than expected. Policyholders did not suddenly become healthier, however. Instead, the cost-sharing required by the policies they can afford has become so burdensome that many deny themselves beneficial care.
Studies show patients have trouble differentiating between services they really need and those they can safely do without. As a result, many become sicker unnecessarily and require services they could have avoided if they had taken care of the condition before it became too serious to ignore. When that happens spending is higher than it would have been.
Despite their good fortune, insurers want approval for double-digit rate increases because "they expect costs to rebound." That's an easy one: we can consider higher rates when their profits abate. We might even feel better about it if, in the meantime, they stepped up to the plate to help make the health system better. Here is some background.
Our system relies on private health insurers. Until fairly recently, the system was dominated by the many not-for-profit Blue Cross and Blue Shield Plans, but now, many insurers are for-profit companies. Promoters of the insurance marketplace idea expected that, to attract customers, competing insurers would need to find ways to improve their offerings and lower their prices, and everyone would win. Unfortunately, that storybook notion never worked in practice. Instead, although insurer profits grew dramatically, so did the problems of rising costs, inadequate access, and declining quality of care.
Insurers' first goals are to make a profit and grow the value of their shares. Yet, to achieve them, they have only 3 ways to differentiate themselves in that marketplace: (1) they can influence who buys their policies, encouraging those likely to need fewer services and discouraging those likely to need more; (2) they can adjust benefits and coverage rules, usually by limiting the amount of services covered or increasing cost-sharing; and (3) they set prices.
When insurers succeed in spending less of their premium revenues on care, a secondary effect is to reduce provider income. That is, doctors, hospitals, and others lose cash needed to keep up with the latest developments, maintain and modernize their equipment and facilities, and invest in information technology. In other words, the health care delivery system continues to deteriorate as providers search for ways to make up the lost income. For example, they might diversify -- perhaps, to earn fees for participating in clinical trials (which can also create conflicts of interest). A side effect of that approach is to divert providers' attention from their patients' medical needs, thus eroding the quality of care, which already is unreliable enough.
Society's goals, on the other hand, are to "bend the cost curve," improve access, and avoid undermining quality further. That means changing utilization decisions made by patients and their doctors. The key to success in that regard lies in the second way that insurers can differentiate themselves, setting the rules for coverage. Here is what they should do to improve the system: (1) contract only with Accountable Care Organizations (ACOs) -- these are organizations of providers that take responsibility for meeting the care needs of patients who enroll with them -- and (2) pay them a risk-adjusted "capitation" rate for each patient who enrolls instead of a fee for each service provided.
If ACOs are paid for "taking care of patients" instead of for individual services, then, they can aggregate their capitation payments into a budget, and figure out the best way to use it to care for their patients. Here are three examples: (1) reach out to patients with chronic conditions to increase the chances that they obtain routine tests and their underlying condition does not get worse; (2) hire nurses to do home visits with bed-ridden chronically ill patients to avoid expensive hospitalizations by preventing bedsores and the infections that follow; and (3) invest in electronic medical records and decision support modules which provide primary care physicians with current information about patient conditions they don't see often.
Paying ACOs by capitation changes the incentives, which is central to increasing access, improving quality, and controlling costs. Yet, while forming ACOs and paying them by capitation are necessary steps, another critical ingredient is patience.
The reality is that behavior changes leading to new utilization patterns take time to achieve. But investor-owned insurers have no patience. Therefore, they will not create plans that would transition over time to a better societal reality. They understand incentives, but their time horizon is too short -- usually no longer than the next quarter. Yet, unless we make the investment, the only ways to keep expenditures under control are to induce patients to use fewer services. But that will undermine access and quality of care because, as we saw earlier, most patients don't know which services they can safely avoid and which they need to use.
Society's interest is clear and so is the path to get there. How bad do the problems need to get before we finally face the reality that investor-owned insurers do not want to be part of the solution?
Professor, Boston University School of Management and Author of Still Broken: Understanding the U.S. Healthcare System, (Stanford University Press, 2010.)
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We the People, are the most accepting population on the planet. We think being screwed by corporations make us stronger.
It's about the money, not you!!
Then, individuals would be in a position to afford health care individually. This position would afford us the opportunity to reform and restore our Health Care System. A Living Wage is a first step in returning liberties both to the patient and the doctor thereby ensuring a sustainable system for generations to come.
You are now officially a Marxist. Get out of my country.
I. Nothing in society will belong to anyone, either as a personal possession or as capital goods, except the things for which the person has immediate use, for either his needs, his pleasures, or his daily work.
II. Every citizen will be a public man, sustained by, supported by, and occupied at the public expense.
III. Every citizen will make his particular contribution to the activities of the community according to his capacity, his talent and his age; it is on this basis that his duties will be determined, in conformity with the distributive laws.[5]
and then go read the U.S. Constitution and the rights of citizens to own personal property and learn that slavery has been abolished.
See, you argue the right of individuals (businesses) to own slaves. BUT wages are earned. You have the right to fire and hire BUT a days wage is earned and a just wage is a Living Wage. See, you want to profit at the expense of the liberty of another. You want the right to have wage-slaves. That is Unconstitutional.
You can profit and own personal property while paying a living wage.
Anne C
NY Health Insurer
See also: the environment, the debt, etc.
Individual incentives are totally rational and totally destructive to society--we need some more leadership to keep the balance.
You do realize that central planning was the downfall of communism, right?
Read von Mises.
While i don't believe that all of the moving parts of our health care system should be in the 'for profit camp'; I do believe that for-profit innovation is the cause of much, if not most of the medical science progress that we have seen. If a hospital weren't a profitable entity to at least some, it would be an overwhelming task to take on. People who invent specialized heart pumps and stints should be wildly compensated for their value. Through organized medicine (not solo/small group practitioners) costs for equipment can be shared/spread out and purchased. Because of the liability of these sorts of ventures, profit is a must. I do think that medical-loss ratios and percentages of budgets going to care are a must in this system. However, to take the incentive out of innovation will doom the advancement of medical care.
Countess, Ludomancer, and Kenneth Muratore's central planners will do all of the innovation our social democratic state will need.
Looking to the mythical ACO to solve our patient care crisis is a cop-out. They don't really exist yet and the regulations are a thousands of pages thick. There are all sorts of confusing terms, like 'meaningful use' and a list of requirements a mile long that will prevent already cash-strapped practitioners from forming one; leaving ACOs in the hands of for-profit entities solely. Doom the entire system to heading in that direction, please.
Legalized extortion and in some cases just breaking the law by ignoring it because they are pretty sure they won't be prosecuted.
Vote (the current conservative republican platform) and we are screwed! (more than we already are)
Short of that, every state can put a public option on their state's coming health insurance exchange.
The Democrats can commit to using a budget reconciliation vote to give everyone under 65 the option of buying into Medicare as an alternative to for-profit corporate insurance.
The government can be given the power to use its purchasing power, like any other bulk purchaser in the free market, to negotiation and bargain down pharmaceutical prices.
There are many solutions that don't involve throwing people to the corporate wolves.