It’s time to toss the whole business-as-usual model — for your own good and the good of your customers.
The emerging Default Model of health care — the “consumer-directed” insured fee-for-service model in which health plans compete to lower premiums by bargaining providers into narrow networks — not only does not work for health care’s customers, it cannot work. This is not because we are doing it wrong or being sloppy. By its very nature the Default Model must continually fail to bring our customers what they want and desperately need. Ultimately it cannot bring you, the providers, what you want and need.
Take a dive with me into the real-world game-theory mechanics of the health care economy, and you will see why. It’s time to rebuild the fundamental business models of health care.
The Affordable Care Act is premised, at least in part, on the notion that competition can be harnessed to reduce healthcare costs and improve quality. This explains why insurance in the individual market has not been nationalized. Instead, consumers go to an online exchange where they customers can easily (at least in theory) compare plans offered by different firms. Unleashing competitive forces should result in lower premiums for these plans. And why not? Over the past two decades, competition has been one of the few success stories in the U.S. health economy. For example, when competition intensified in the 1990s, healthcare costs moderated. When competition weakened in the wake of provider mergers and the backlash to the narrow networks that were essential to cost containment, healthcare costs rose.
When most people think about the benefits of competition, they tend to think about prices. Monopolies charge high prices; competitors charge low prices. There is nothing wrong with this perspective, but it misses a more fundamental point. In the long run, the greatest benefit of competition is that it has the potential to fuel innovation. This is as true, in theory, for health insurers as it is for telecommunications and consumer electronics. It hasn’t always been true in practice; for several decades after the IRS made employer-sponsored health insurance tax deductible, insurers tended to offer the same costly indemnity products. But consumers eventually demanded lower premiums, and insurers responded with managed care. After the backlash, insurers developed high deductible health plans and value based insurance design. Insurers are now moving towards reference pricing. These plans offer consumers reimbursement up to a pre-specified level for treatments that can be easily broken into a treatment episode such as hip replacements or MRIs. Patients have the choice of any provider, but they bear the cost of choosing a more expensive facility.
High deductibles and reference pricing are fine, but do not always work in practice. Chronically ill patients quickly exhaust their deductibles, and reference pricing does not work well for chronic diseases. In order to complement these tactics, some insurers are once again offering narrow network plans. We commented in earlier blog posts that the ACA would catalyze the return of these narrow networks and also warned that this might fuel another backlash. Unfortunately, a recent New York Times article shows, the backlash is well underway.
You’ll be hearing a lot about the number six point five million over the next few days.
Six point five million — or whatever the exact number turns out to be at the end of the day — being the number of people that the administration say signed up for Obamacare through the exchanges when open enrollment ends March 31st.
How meaningful the official numbers are will be open to debate. The bloviation factor will be in full effect. The critics will be downplaying the administration’s number, ACA supporters defending it. Data geeks-turned-media stars will explain what it all means.
Here’s a guide to some of the other numbers we should be talking about as we try to make sense of what’s really going on and what really happened during the Obamacare rollout.
FUDs: The number of people who are innocently living their lives thinking they have bought health insurance, but who, for one reason or another, be it technical glitch, bureaucratic incompetence or technicality – are going to wake up one morning not long from now and discover that they do not have health insurance.
And who one day soon will discover that they do not have health insurance. This is the group that causes people in Washington to lie awake at night; because they are going to complain – and complain loudly. While the talk from the administration to this point has been all tough, it seems logical to assume it will build an appeal mechanism that will allow FUDs back into the system. The early signs are that this is the case.
404s : The number of people / applications lost in the system, either as a result of the Healthcare.gov fiasco or because their application is sitting forgotten on somebody’s desk somewhere or on a laptop. Anybody who tried to log into Healthcare.gov at the height of the meltdown or who has gone back and forth with their insurance company over a bill gets it.
It is safe to assume that this is another number that keeps planners up at night. Let’s just say it is safe to assume that there are a lot of 404s.
CANCELS: The number of people who had their insurance plans cancelled by insurers on the grounds that they did not meet the standards set by the Affordable Care Act. In a way, being a cancel can be considered a badge of honor in the gamification of the healthcare system that is Obamacare.
UNCANCELS: The number of people who had their plans cancelled by the health insurers only to have them declared “uncancelled” by the Obama administration or their state. Nobody really knows how many uncancels there are. Don’t ask. Yes, it will take a really long time to sort out the uncancels from the cancels and the QHPs.
And you will probably want to shoot the person explaining it to you. In the gamification of the healthcare system, level ups go to people who have been cancelled, uncancelled and bumped.
BUMPS: The number of people who have been “bumped” out of network and are being forced to change doctors. What’s going on? In gamification terms, bumps make things more exciting. In real life, they suck. Getting bumped off a flight is annoying, getting bumped in the health care system is potentially life-threatening.
LIVES SAVED: As we speak Nate Silver or a smart person who looks and sounds a lot like Nate Silver is sitting at a computer in a darkened room somewhere trying to come up with a reliable quantification of the number of lives the Affordable Care Act has saved and will save by shielding people from the barbaric US healthcare system.
How would you go about coming up with that number? Would you look at people turned away from emergency rooms? Would you look at the number of preventable deaths under the old system? Would you total the number of deaths from cancer, heart attack and stroke? Compare mortality rates over the decade from 2004-2014 with those from 2014-2024? It will be long time before we have the data we need to really understand how well we’ve done.
You can forget the nonsense we’ve been hearing about Obamacare costing the lives of thousands of Americans by taking their health coverage away from them. There is a difference between losing your coverage temporarily because the system is in transition and losing it and knowing that you’ll never be able to get it back. Ever.
Calculated over decades to come the number of lives saved is likely to total in the thousands, if not the millions. And that will be the true test of the Affordable Care Act as a historical accomplishment for Barak Obama and his administration.
In a recent New York Times opinion piece, Obama advisor Ezekiel Emanuel attempts to ease the minds of millions of Americans who may be selecting narrow network plans in the exchanges.
In defending narrow networks, Emanuel cites the well-known example of Kaiser, which has for decades required enrollees to choose among only Kaiser-owned hospitals and Kaiser-employed physicians.
He goes on to propose some “safeguards” for plans in the exchanges such as mandating that insurers disclose the criteria used to establish their network of providers and requiring that insurers pay for second opinions from elite out-of-network providers.
Perhaps surprisingly given our previous commentary, we agree with the general thrust of Emanuel’s argument, which is that freedom of choice is overrated. And while we do not agree with many of his recommended safeguards, our quarrel today is not with his proposals for even more new rules and regulations.
Rather, our primary quarrel is with the vast majority of the individuals who chose to comment on, and often lash out at, Emanuel’s article. These comments are emblematic of the general misunderstanding of the role of narrow network plans in controlling the future growth of health care expenditures.
In a nutshell, this is the archetypal response against Emmanuel’s claim: “Evil insurers have given us narrow networks. The government must intervene in this bloodthirsty lust for profits. Give us freedom of choice! (And preferably with the government taking over the business of insurance altogether).”
Given previous comments on this site, we suspect that many readers of our blog might share similar sentiments. So we would like to take our readers on a stroll down memory lane to explain how insurers ended up creating networks, and why we are all better off for it.
Some health plans sold through the Affordable Care Act’s (ACA) health insurance marketplaces use “narrow networks” of providers: that is, they limit the doctors and hospitals their customers can use.
Go to Doctor A or Hospital A and the plan will pay all or most of the bill. Go to Doctor B or Hospital B, and you may have to pay all or most of the bill yourself.
The narrow network strategy emerged long before the ACA, during the managed care era in the 1990s, and insurance companies and large, self-insured employers have used narrow networks ever since to control health care costs.
In fact, for the first time, the ACA creates new consumer protections requiring that insurers provide a minimum level of access to local providers. A number of states have exceeded these federal standards using their discretion under the new law.
Nevertheless, some consumer advocates and ACA critics still find narrow networks objectionable. Narrow networks mean that some newly insured people are no longer covered for visits to previous providers, or, if they didn’t have a doctor before, are limited in their new choices. Not infrequently, narrow networks exclude the most expensive doctors and hospitals in a community, including some specialists and academic health centers.
More expensive doctors and hospitals are not necessarily better, but for patients with a rare or complex health problem, such restrictions can be problematic.
Welcome to the world of competition in health care, because that is what narrow networks are about. Narrow networks are used by competing plans to control health care costs, and perhaps improve quality as well. In fact, if you don’t like narrow networks, you’re saying, in effect, that you don’t like competitive solutions—as least under current market conditions—to our health system’s problems.