Are insurance companies responsible for increasing health costs?

The insurance system for healthcare is perverse. The individual is not the customer of the healthcare company; in most cases it is the employer or the government (i.e., Medicare, Medicaid). They physician works for the insurer who determines for what and for how much the doctor is paid. But are the insurance companies the blame that is often placed on them for our current state of affairs?

This system abrogates the usual professional-client relationship as you would have with your lawyer or tax accountant. The insurer (whether that is commercial or government) determines for what and for how much your physician will be paid. The insurer, in turn, is the client of your employer or, in the case of Medicare or Medicaid, the government. And the government, either state or national, establishes the parameters around which the insurer must operate. In all this you are not the customer/client of the physician or the insurer and since you pay relatively little to your physician directly, you have limited incentive to be attentive to cost and the physician has limited incentive to treat you like a true customer.

It is somewhat different if the individual contracts directly with the insurer-then he or she is the customer of the insurer. And it is very much different if the patient pays the [primary care] doctor directly, perhaps as a part of a high deductible policy. Now the primary care doctor and patient have a direct professional relationship and there is an incentive to be cost conscious.

How did we get here? Going back about a hundred years, there was limited call for health insurance. Medical care was relatively inexpensive; hospitalizations were uncommon and it was simply expected that the individual was responsible. Disability insurance was considered much more important, in the rapidly developing industrial world. Wage and price controls came into effect during World War II with wages held steady. This led unions to push for non-wage benefits such as health insurance and business reciprocated. The idea was to insure for the high cost, unexpected health event such as major surgery or hospitalization. The individual still paid for routine care, vaccination, family doctor visits and medications. He was still very much the customer of the physician, especially the primary care physician.

Blue Cross plans for hospitalization insurance and Blue Shield plans for physician coverage developed across the country following World War II. But in both cases, the emphasis was on the unexpected, expensive care, not the routine. But over time employers (including government employers)–often at the urging of unions-began to expand coverage. Concurrently, state legislatures established mandates-requirements that had to be covered by any policy sold in that state. Slowly but surely, insurance has morphed from being “insurance” to essentially being pre-paid medical care.

Over time, larger companies found that it was advantageous to self-insure, especially if their work force was younger and healthier. They would contract with the insurance company to serve as their third party administrator (TPA) or payer (TPP).

As healthcare costs continued to escalate companies began to expect the employee to pay a portion of the “insurance”-today that largely ranges between 25 and 33 percent. To this have been added various co-pays and deductibles, all to partially shift more of the costs onto the individual.

Unfortunately the result is a system where the individual is not the customer of the doctor or of the insurer. The individual has little direct financial stake in the doctor visit (small co-pays are mostly an annoyance; they do not affect behavior). The primary care doctor, meanwhile, has seen reimbursements stay flat or decline in the face of increasing office costs leading him or her to reduce time per visit so as to accommodate more visits per day. The result is less satisfactory care, less satisfaction by the patient and less satisfaction by the doctor.

Is the insurer at fault for the messy situation? Not really. As a TTP, they are essentially working for the employer within the guidelines set out by the state insurance commissioner/state legislature. They cannot practice medicine. They do not (usually) own the hospital. The real problem, as I see it, is that the physician needs to be in a direct professional-client/customer relationship with his or her patients. This can happen if the patient pays the doctor directly for routine care, has a high deductible policy or a policy that only covers “major medical” rather than routine care.

Once the patient-doctor relationship is corrected, the patient is treated like a true customer. And the patient begins to ask questions and challenge recommendations. This rapidly leads to higher quality medicine and lower costs.

Reforms in the Affordable Care Act such as the development of exchanges should be valuable but they will not change the critical issue of the doctor-patient contractual relationship. And that is the key.

So here are my recommendations regarding commercial insurance:

  1. State governments should allow sale of “bare bones” major medical coverage leaving the individual to pay for routine care if they wish.
  2. The individual directly or via the employer should select a high deductible policy in the event that the first recommendation is not permitted.
  3. The individual (patients) will be incented to be better health educated and to challenge recommendations for care.
  4. Individuals, now dealing directly with their primary care physician, need to request-insist on
  • adequate visit time
  • thorough and intensive preventive care
  • coordination of their chronic illness care by their primary care physician with specialists and others

Combined, these reforms will improve quality, satisfaction for all parties and reduce expenditures.

Stephen C. Schimpff is an internist, professor of medicine and public policy, former CEO of the University of Maryland Medical Center and is chair of the advisory committee for Sanovas, Inc. and the author of The Future of Medicine – Megatrends in Healthcare and The Future of Health Care Delivery- Why It Must Change and How It Will Affect You from which this post is partially adapted. 

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