The inconvenient truth

The Los Angeles Times ran a great series last week called "Shedding Risk" in which it detailed through compelling human stories the erosion of the health insurance market. It’s definitely worth finding the time to read.

Matthew has talked about this eroding model for a while, including in a speech about three inconvenient truths that he gave to health plan executives in March.

Here are four key paragraphs from the first article in The Times‘ series to give you a sense of the articles:

At the heart of the problem is the clash between the cost of medical care and insurers’ need to turn a profit.Today, four publicly traded corporations — WellPoint Inc., UnitedHealth Group, Aetna Inc. and Cigna Corp. — dominate the market, covering more than 85 million people, or almost half of all Americans with private insurance.On Wall Street, they showcase their efforts to hold down expenses and maximize shareholder returns by excluding customers likely to need expensive care, including those with chronic diseases such as asthma and diabetes. The companies lobby governments to take over responsibility for their sickest customers so they can reserve the healthiest (and most profitable) for themselves.Meanwhile, insurance premiums are becoming a heavier burden on employers, many of which say that rising healthcare costs cut into their ability to compete and, in some cases, to survive.

Here are Matthew’s three inconvenient truths to the insurance execs:

First, you’ve done very, very well for the past several years. But
the chances that you will be able to keep running your businesses in
the same manner in a decade or so are very low. In fact if you keep
running your businesses the same way the chances are good that you
won’t be in business. That may not matter to those of you close to
retirement, but it probably does matter to everybody else.

Second the world is changing under your feet, and if you intend to
be a health insurance company that contributes value to society, you
have to understand the changes that are happening in that wider
society.  I’m not just talking about American Idol and the ability to
track minute by minute developments in the life of Lindsay Lohan,
although of course that’s a crucial component of societal change. I’m
talking about the significant advances in technology and business
leading to significant changes in the way we purchase, consume
and—yes–produce health-care services.

Third, I’ll tell you some potentially good news.  Although I’m
essentially on the same speaking circuit as the Liberals who think that
Hillary Clinton is too right wing, I’m here to tell you that there is a
role for an intermediary between the consumer and the healthcare
system, and that intermediary need not be the government. That’s
because, if the right incentives are created, healthcare organizations
— on both sides of the payor – provider divide — can substantially
add value to society, by improving the healthcare delivered and the
health outcomes produced at a substantially lower cost.  But this is
only good news if you’re prepared to fundamentally change your
organizations, so that, when society finally demands better performance
from its healthcare system, you are ready.

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12 replies »

  1. Doug, we only need tap into their employees not their bureaucracies.
    Deron, single-pay isn’t a health magic bullet. It can only control costs while delivering universal access, not cure society. But when the taxpayer gets to see the true cost of providing for the culture that creates illness, then we will change our approach to health and sickness. Right now we can sweep the causes of illness under the carpet of 16%+ of GDP spending while ignoring the results of how lack of access is centered on those least able to pay. How can we expect people to hold jobs when they can’t get healthcare? How can we expect people to “pull themselves up by their bootstraps” when they can’t find affordable treatment? Economics, health and healthcare ARE all tied together.

  2. Deron, Peter is pretty good at sticking up for himself but I can’t help jumping in here.
    Yes, Medicare has a lower admin cost ratio in part because it has a higher total expense per member. However, when you compare Medicare Advantage plans with traditional Medicare, the traditional program still comes out with lower admin costs per person. Not by a huge amount, and certainly not by enough to make a big dent in our total costs from admin alone if we were to switch to single payer. As Peter understands (and Matt was the first person I heard say this), one of the keys to real cost control is the use of taxpayer-funded global budgets for care at the regional and organizational level. This is how most nations do it.
    Interestingly, the US is not most nations. We actually have a budget mechanism designed to force discipline on part of the system: the Sustainable Growth Rate policy that emerged out of the Clinton budget-balancing efforts (ah, those were the days!). The SGR formula has its problems, but the biggest problem from a public policy standpoint is that the physician lobbies have effectively undermined its ability to control costs. Basically, providers go right on buying expensive stuff that isn’t needed from a public health perspective and then in effect demand that Medicare pay rates high enough to recoup the cost of it. The power of the industry lobbies reveals a sickness in American society and a lack of seriousness about real reform.
    This is partly why I have advocated enacting universal health care (single-payer or multi-payer) before enacting meaningful cost controls. I think we may need the shock of seeing those extra tax dollars going to health care before America gets serious enough to overcome the provider lobbies. Now, I think that there is a slim chance that this recession will be severe enough to bring about the political will to enact reforms that reduce costs before, or simultaneous with, universal health care legislation. But I still don’t think it’s likely.
    As for where the savings will come from, it is theoretically possible to reduce expenditures by over 50% without any loss of QALYs (quality-adjusted years of life). Based on osmosis from looking at many studies over the years: up to 15% can come from streamlining admin (payer and provider combined), up to 40% can come from changed behaviors to reduce health risks, up to 40% can come from changes in reimbursement (lower fees, changes to salary or capitation payment systems, rewarding care coordination, etc.) and up to 15% can come from improved use of information technology and information exchange.
    These are NOT additive percents. There are multiple interdependencies and overlaps. For example, care coordination like in an advanced medical home and health information exchange systems like RHIOs are two ways to remove redundancies and reduce adverse drug events, etc. Those two methods fall under different buckets on my list, but you only get to count the saved dollar under one of them, which lowers the savings counted in the other bucket. Another example is admin costs: if people are healthier and reduce their claims by 20%, then no admin cost is needed to service that 20% and the potential admin savings are reduced accordingly.
    Also, it can almost go without saying that the upper limit in any of those categories will be extremely hard to achieve. Even half those upper bounds would be a huge and hard-fought achievement.

  3. Peter – I think you completely missed my point about the Medicare per beneficiary costs. Medicare administrative costs are figured as a percentage of total costs, which includes claims paid. If claims paid per insured is double that of private insurers, of course the admin cost % of the total is going to be lower.
    You mention things like cost controls and budgets and greater efficiencies. Those things sound great, but how are you going to pull it off? The bottom line for me is this: If single payer proponents can add a little more substance to their argument, I am willing to listen. If you can tell me how it will address the fact that almost 50% of the population has at least one chronic condition, I might jump on the bandwagon. If you can tell me how it will reduce the teen pregnancy rate, the obesity rate, the smoking rate, the gun violence rate, I’m on board. Those are the real cost drivers that we should be looking at.

  4. Lisa,
    Your situation with sub-Rx coverage is rotten to say the least. In California, insurers do not cap the Rx coverage (except under Medicare supplements), they do limit or exclude certain drugs. If I am in your shoes, the current system is dysfunctional. However, how easy is this to fix? Very. I hope you have a solution soon once the Kennedy plan is enacted.
    Peter – I agree no underwriting profit for insurers, however I do think we can build on their administrative systems (UHC, Anthem) rather than re-invent the wheel. The insurers should be allowed to make a small administrative profit, thats it.
    JD – Love your point 3, when will we deal with the cost of care from the provider side? People need understand when a liver transplant costs 65K in Thailand with Harvard educated Drs and in accredited hospital and 450K in the US under the same scenario, something needs to be addressed. Fee for service needs to be dead and the supply of doctors needs to increase (especially primary) significantly.

  5. “The medical costs per Medicare beneficiary are double what the costs are per private insured member.”
    Could that be because Medicare’s patients are the sickest (no insurer will take them) and by definition, the oldest in the population?
    Single-pay is NOT massages, infertility, cosmetic surgery, etc. It is universal budgets, cost control and the best use of evidence based medicine with the efficiency of less paper work and with payment oversight – along with coverage for all. Why do many think the country owns insurance companies a profit, or even a health business? Is it because they do a better job at providing healthcare, or because they do a better job of casting sick people aside, either because of pre-existing conditions, or inability to pay deductibles and co-pays, or the inability to pay premiums or because they have run their maximum of capped insurance coverage?
    Deron, if you think Medicare intentionaly frustrates clients maybe you should deal with Blue Cross/Blue Shield. I endured six months of lies, repeated paper loss, inaction, incompetence and intentional run-around, to get a simple and legitimate claim of $1600 paid – which was finally paid by the way. Medicare IS NOT how single-pay should be run. As jd says, there is as large (or larger) a political aspect to Medicare as there is a healthcare portion – brought to you by a political system that relys on corporate money not good policy.

  6. Adding to Matt’s inconvenient truths to the insurance industry, there are a number of inconvenient truths to the reform “industry.” Some of those that would help the discussion in this thread:
    1.Almost no advanced nation is pure single payer or pure private payer, and models that emphasize either end of the spectrum are perfectly fine. Most nations have a government run component to health coverage and also allow for private companies. One extreme is Canada, which still outlaws private payers in some (all?) provinces, and on the other extreme are Switzerland and Holland, which have universal health care systems purely through private payer organizations. Of course, in multi-payer systems there is massive redistribution going on through the tax system to achieve universal coverage.
    2. Contrary to what Mark wrote above, it is certainly possible to get health insurers out of the business of avoiding unhealthy people. How do I know? Because it has been done. Holland is a nice example, but there are others. The key idea for tax dollars to fund coverage based on population health, and allow insurers (really, managed care companies) to “profit” by taking an unhealthy population and reducing the level of risk through DM, care coordination, wellness programs, etc. That said, I am not a fan of for-profit health insurance (disclosure: I work in managed care) and think it will be harder to achieve a more sensible reimbursement system to the extent that publicly-traded companies are able to influence any reforms. Health insurers are better of as non-profits.
    3. Belly-aching about Medicare–or praising it–in comparison to private insurance is mostly just an unconscious display of ideology. Medicare and private insurance in the US are entwined in so many ways, and share so many of the same problems. The differences are minor when it comes to explaining why we get so little value for our money compared to other nations. Neither one has shown the ability to control costs in a sustained way. Medicare has been hindered by politics and the market while private insurance has been hindered by the market and politics. The underlying problem is an impenetrable alliance of money-seeking provider and other supply-side organizations on the one hand, and unrealistic (mostly liberal) demands for care without concern for cost on the other. This dynamic duo then shapes (a) Medicare’s rate-setting, coverage approval and auditing functions and (b) private insurers’ need to have as large a network as possible and not rock the boat too much in terms of how providers are paid. This reduces the ability to negotiate costs or manage care effectively. Managed care and Medicare each have shown that for a short period they can control their costs…until the pressure builds and they collapse because providers/suppliers go ballistic and the public won’t support what it takes to control costs (what it really takes, not what the public imagines it takes, which is reduced profit from insurers and pharma).
    Those are three inconvenient truths that popped into my head in reading this post and thread. Plenty more out there, to be sure.

  7. Doug:
    “Bottom line, the single payor people and free market people need to sit down, realizing they both are somewhat delusional and get real, we can’t let the current system continue and we can’t afford a cadillac cradle to grave plan for everyone that includes unlimited infertility coverage, back massages, cosmetic surgery and care that isn’t evidence based.”
    I understand your point, but wonder what your suggested solution might be to the following situation. I have an underwritten policy as a self-employed person, obtained years before developing MS. Since I live just outside DC and must purchase insurance on the individual market, my choices are limited by the insurance companies’ territories.
    My policy does not cover infertility, cosmetic surgery, massage, etc. But it also does not cover the annual expense of my $30,000 multiple sclerosis meds. Prescription coverage is limited to $1500 each year and the Virginia Insurance Bureau takes no responsibility for how the drug rider is structured. Kaiser Permanente has the same limit, as do the BCBS high-deductible HSA policies.
    I’m not looking for cadillac coverage, just a policy which will help me obtain the maintenance meds which will help delay further disease activity. The option I do not want to entertain is Medicaid and possible SSDI or SSI. An insurance scheme which would help me with this difficulty would be one I could advocate.

  8. Mark – I don’t want to get too caught up in a back and forth about single payer. I talk about it extensively in my blog and in previous posts here. I would just be interested in hearing you address the point I made about the fact that we screwed something else up and now we’re expecting the government to step in once again. If you think our healthcare problems are caused by Republicans or insurance companies alone, you clearly don’t understand the complexity of the problem at hand. You’re simply reciting political talking points.
    Doug – I agree with nearly everything in your post, particularly the part about people getting together and hashing things out instead of waving the white flag for government to step in. I too am scared about Medicare for All. Anyone who thinks that’s the way to go has never dealt with Medicare. I once went to a seminar about Medicare billing in which the speaker was a former employee of Medicare. She said that as part of the training process, Medicare call center reps were actually given tips on how to give callers the runaround to get them off the phone. It is a huge heaping mess and single payer proponents need to be careful of what they wish for. A big reason why Medicare appears to have lower administrative costs is the fact that the costs are typically expressed as a % of total costs. The medical costs per Medicare beneficiary are double what the costs are per private insured member. Of course that will end up looking like Medicare is more “efficient”. Don’t get me wrong, I’d like to see private insurers do away with the excessive underwriting and marketing costs. That would help bring things back in line.

  9. Sarah, your points to the insurance execs are right on, and I am from the insurance industry. The good news is there is a huge opportunity to improve our current system, however people on the insurance company bashing side need to understand that over 50% of current health expenditures are from government plans (Medicare, Medicaid etc.). Medicare may have lower administrative costs (some do to cost shifts to the private sector) but it is a program that is in trouble, big trouble and most politicians don’t want to discuss it.
    The single payor people are also guilty of “magical thinking”, I might consider a single payor system if it weren’t run by the government. I am afraid of a “medicare for all” program may be coming our way, it scares me to death, the younger generation better be vigilant or we will stick them with a new deficit from which they will never recover.
    Bottom line, the single payor people and free market people need to sit down, realizing they both are somewhat delusional and get real, we can’t let the current system continue and we can’t afford a cadillac cradle to grave plan for everyone that includes unlimited infertility coverage, back massages, cosmetic surgery and care that isn’t evidence based.

  10. Deron:
    Making insurance companies non-profit will not eliminate the problems of selecting only healthy insureds and then denying them benefits. Non-profits still need to compete on price and to stay solvent so these practices will continue.
    On Cost: How is it that other developed countries manage to provide health care for everyone while spending only half (per capita) of what the US spends to cover only part of our population with poor quality coverage and care? Look at the excess profits and expenses of the insurance companies, hospitals, pharma, and everyone else in the food chain then add in the incredible inefficiencies of our fragmented care system. There is lots of money there.
    On Government: The Republican ‘free market’ neocons have conditioned everyone to believe that government is the problem and have followed through by systematically dismantling government and mismanaging government in order to demonstrate how bad it is…
    The ‘free market’ is not ‘you and me’, it is business. Government is ‘you and me’. Government works for you and me. When it doesn’t work, we have an election and throw the bums out (see the elections of 2006 and 2008 for reference).
    Medicare manages to pay for health care at much lower cost than the private insurance companies. We really need Medicare for everyone.

  11. Sarah – Great post. I agree with Matthew that insurance companies are going to need to take a more responsible, system-wide view of things if they want to continue on. However, I think the needs of society are not always in sync with the needs of shareholders, even though we’re all citizens in the end. That’s not an argument for single-payer, but it might be an argument for making all health insurance companies not-for-profit like many of the Blues are.
    Mark – Couple questions: How much will it cost to implement single-payer and how long will it take? What will happen to all of the real drivers of our high costs while we’re dedicating the vast resources needed to implement something of that magnitude? Who is this “free market” you refer to? I’ll answer that for you: It’s you and me and every other citizen. If you’re ready to hand over the keys to the gov’t, you are essentially saying that the citizens screwed up once again and you don’t want to be part of the solution. That’s very American of you.

  12. Interesting that Sarah correctly identifies the problem but still thinks that ‘the free market’ can fix itself and (somehow) become the progressive socialist force that is needed.
    This is ‘magical thinking’. We need single payer health insurance run by the government. The health insurance industry has shown complete ‘market failure’ for health care and it is time for it to go away. They have only succeeded in producing excessive profits for themselves while bankrupting the country.