Insurance does not have incentives to lower costs or improve quality

Whether we have commercial insurance through our employer or Medicare, the incentives are poorly aligned to lower costs and improve quality.

In fact, they actually encourage greater and greater expenditures. In most instances, our insurance covers everything from prevention to basic routine care to complex care of serious illness. Coverage may not be all that good for some things like preventive care and our primary care physician feels underpaid for routine visits but nevertheless we basically have “prepaid medical care” meaning that insurance is designed to go from A to Z. And we are not the client contracting with our physician. We get our insurance through a third party – employer or government – and although we may pay for part of it, we do not feel a contractual arrangement with our physician. Not does the physician. He or she has a “contract” with the insurer, not us.

Since we have “prepaid” care, we have no incentive nor does our physician to look for ways to reduce the costs. Yes, we may have a co-pay or a small deductible but that does not really get us thinking much about what is being proposed for our care.

Take drugs. Let’s say you need an acid suppressor for reflux esophagitis (acid reflux or GERD). Your doctor could tell you to go to the grocery store and pickup Prilosec for about $30 for a months supply. Or, he or she could give you a prescription for Nexium. It would cost about $150 for a two week supply and is no better than Prilosec. But your insurance will pay for it except for your co-pay of, say, $15. So your doctor will probably suggest Nexium since it will cost you less. But the overall system is paying out a huge amount more than necessary. What a perverse incentive.

Much better if we all had insurance with a high deductible. In practice this might mean a general insurance policy and a separate medication insurance policy as with Medicare; but each would have its own high deductible. In that situation we pay less for the insurance and self insure for the deductible, just like car collision insurance. Now we are focused on cost effectiveness. We would purchase the Prilosec at $30 and save $120 off the cost of Nexium.

Better still would be having the physician actually spend time with us to talk about preventing the reflux in the first place. Here again, if we were paying out of pocket for our routine primary care, we would expect our physicians to spend the time with us to review the following – don’t eat just before going to bed; avoid caffeine before bedtime; cut back on alcohol; avoid spicy foods; and put the head of the bed up on 4 inch blocks. These don’t cost anything and generally will solve the problem without the need for any medications.

Now that is real cost effectiveness.

Stephen C. Schimpff is a retired CEO of the University of Maryland Medical Center in Baltimore and is the author of The Future of Medicine — Megatrends in Healthcare. He blogs at Medical Megatrends and the Future of Medicine.

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  • K

    I don’t know how the insurance companies really work in figuring out what’s covered and what’s not, but it looks like the problem here, then, is that they don’t do their job well. At least for this specific problem, clearly the solution is insurance companies should stop covering Nexium when there’s an equivalent medication in its class that’s significantly cheaper.

  • Alina

    “Or, he or she could give you a prescription for Nexium. It would cost about $150 for a two week supply and is no better than Prilosec.”

    This is simply and absolutely NOT true!

    At $150 for 14 days this would mean that one would pay $10.71 per pill. Not only that the GERD market would not support such prices, but tell me, can you see the insurance companies paying for this much?

    And let’s be honest, OTCs are just not as good as branded products. I’ve taken both so I know.

    Now back to the prices….just as doctors and hospitals, etc give discounts to insurance companies, so do pharma companies. The price that an insurance company would pay for a PPI is considerably less than what you outlined in your article.

    I wish people would just stick to the actual facts.

  • HJ

    “Better still would be having the physician actually spend time with us to talk about preventing the reflux in the first place.”

    Why would I pay for advice I can find on many health related websites?

  • http://b-nice-intime.blogspot.com Brandon

    “Better still would be having the physician actually spend time with us to talk about preventing the reflux in the first place.”

    Why would I pay for advice I can find on many health related websites?

    I believe doctors have a valued opinion of health in general and that is worth the payment. To address the quote above, I think the problem is doctors and insurance companies do not know what the other is doing.

    What if we could customize each health insurance plan everyone. Is something like this possible.

  • Marc Gorayeb, MD

    Talk about missing the point, people!
    K: Allowing insurers to dictate treatment decisions by limiting valid options has always been a bad idea.
    Alina: Granted, the numbers don’t add up, but the perverse incentives discussed by Mr. Schimpff absolutely do exist.
    HJ: That is precisely the point. YOU should be the one to decide whether the services you actually pay for are valuable to you.

    • Alina

      Marc,
      When one feels compelled to use these sort of numbers that “don’t add up” then it really nullifies the argument. We all know there are plenty of issues with this whole health”care” system, so why not use real examples?

      Does someone know why did the doctors went along with the whole insurance scheme in the beginning?