Why health insurance is the problem and not the solution

Recently a neighbor backed into my car while I was leaving a food store. The damage was minimal, but she offered to have her insurance company pay for the repair. After contacting the company, I was offered several body shops, and chose the one closest to my home.  The work was completed in only two days, and while it was in the shop, I decided to also have some dents and scratches fixed, which were unrelated to the accident claim.

To my surprise the mild fender damage, which was covered by the other driver’s company, was paid in full without an estimate.  The amount was approximately $500.  A scratch on the other side, and four dents, were repaired, for which I paid separately a little over $400. So I spent, (out of pocket), for three times as much work, and paid less than the insurance company did.  This got me thinking about how insurance adds to the costs of services in the auto industry, and how that might be relevant to health insurance.

Having practiced medicine for over thirty years, I am convinced that when it comes to the cost of healthcare and insurance, insurance is the problem and not the solution. Health insurance is not sold in a truly free market, like home, disability, and life insurance products, etc. Let’s look at some parts of healthcare where traditional insurance does not cover the cost of the service.

In his excellent book on this subject, “Priceless,” John C. Goodman, states the case quite well. LASIK eye surgery and “cosmetic surgery prices, rarely covered by insurance, has been falling over time in real terms––despite a huge increase in volume and considerable technical innovation (which is blamed for increasing costs for every other type of surgery).” Since insurance does not dictate the prices and reimbursements for these procedures, doctors are free to repackage their services competitively, and patients are free to negotiate.

Even how health insurance functions in this country makes it quite different than all other insurance products. Automobile insurance protects against unforeseen and catastrophic events, such as a vehicular damage, theft, and human injury. There is no “preventive” insurance as seen with health care. If I pay a premium to GEICO, it does not cover the cost of tire rotations, brakes, new batteries, or oil changes. Similarly, homeowner’s insurance pays for storm damage to a roof, but not the price of roof replacement from normal wear, tear, and aging. Even the assumed theory that preventive care reduces overall health care expenditures is arguable.

Part of the difference may be historical. Post WWII, employers were not allowed to raise wages, so to attract better employees, they began to offer health insurance as a fringe benefit of employment. Soon unions used employer-sponsored health insurance as a bargaining chip in labor negotiations, and we all know the rest of the story. Health insurance is unique in this regard. After all, most employers don’t offer auto, home, or property insurance. The historical basis for this phenomenon, and our assumption that it is only humane and kind to make sure all of our citizens are protected for illness, have lead to the unintended consequences of waste, fraud, abuse, and price escalation. Soon it will also lead to rationing of care.

Although the Affordable Care Act of 2009 (ACA or Obama care) guarantees health insurance for all, it does nothing to increase the number of providers who will deliver these services. The approximately $750B of Medicare “cost savings” will be derived from reduced payments to hospitals and providers, making access to scarce providers even more difficult.  A more complete critique of ACA, and its destructive effects on healthcare however, is subject for another blog.

So back to my car and health insurance. If I had been able to get a competitive price for damage repairs from several collision shops, I am sure that the insurance company could have saved money. Instead, they pay top dollar and pass it along to their customers. Similarly in my practice, there is no incentive to hold down the number of tests I order, since the prices are essentially fixed by Medicare, so that I, the provider, as well as the patient, the consumer, have absolutely no say in the matter. HMO’s, or the new ACA mandated Accountable Care Organizations, (ACO) are no better. Their incentives are every bit as perverse––just 180 degrees in the opposite direction. Fee-for-service, or traditional Medicare encourages too much testing and services that possibly cause improvement in the quality of care; whereas the HMO and ACO are incentivized to withhold care, and thereby increase their profits, again at uncertain damage to the patients’ health.

Free market and competitive solutions would help, but with the injection of the ACA as the law of the land now, I fear this will never happen, no matter who wins in November. As long as we view health insurance, rather than access to healthcare, as a right in this country, the problem will only get worse. But don’t believe me. Recently I cared for an elderly man from Great Britain, who was hospitalized here for a heart problem. He was more than eager to share his thoughts about the British National Health system. After railing against it for several minutes, he summed it up with this, “You people are making a big mistake in this country.”

David Mokotoff is a cardiologist who blogs at Cardio Author Doc.  He is the author of The Moose’s Children: A Memoir of Betrayal, Death, and Survival.

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  • http://www.facebook.com/people/Karen-Baitch-Rosenberg/1210221408 Karen Baitch Rosenberg

    Why has there been no mention in the political arena about the huge effect malpractice insurance and lawsuits has caused on the cost of healthcare? What is youtr take on that?

  • http://twitter.com/drkezirian Dr. Eric J. Kezirian

    This is a well-written and thoughtful piece. As a surgeon with an
    educational background in health economics, you are right to point out
    the challenges of designing the “ideal” health care system. Health care
    has some similarities to other forms of insurance, with deductibles and co-pays for the customer and issues such as adverse selection (if the policy covers more services, it may draw sicker patients) for the insurer, but there are fundamental differences.

    The biggest differences are that health care as a right is at odds with having care delivered in a timely fashion with the greatest degree of technological sophistication. The state of Oregon has faced these questions for their Medicaid program and has drawn the line at covering certain services but not others. These are some of the same difficult choices we would have to make if we move to a national health care system, as all types of care will not be able to be covered for everyone (it will be more than LASIK that is excluded). Americans are generally unwilling to accept these types of limitations on their care; for example, there have been many cases of insurers being shamed to offer untested (and uncovered) therapies for cancer due to unfortunate cases where cancer has not responded to available treatments.

    The United States has been the most important driver of technological advances in medicine over the past decade, for a couple of reasons. One is the availability of payments to cover the costs of this technology. These advances would slow with limitations on this potential for payment, and the question is whether people are willing to accept that.

    When I discuss potential treatments with patients, financial considerations unfortunately play a major role. “Does my insurance cover this?” is often just as important as “How important is this for my health?” Both types of questions are important, but the design of health care insurance makes the financial question a yes/no question (patients will do anything that might help their health if they do not have to pay for it) rather than a careful consideration of cost and benefit (is the potential improvement in health worth the cost of the care?). Because health care is too expensive for patients the true costs, the answer may be something along the lines of Singapore, where people pay into an account similar to a health savings account that they can use over their lifetime. There, patients do face more of the costs of care (on a sliding scale) and do ask some of the difficult questions about the cost-benefit tradeoff.

    People often throw out the statement that the US has the best medical care in the world. We definitely have the most technology available, but the uninsured and spiraling costs will likely force us to grapple with moving to a national health care system. Many people in the health care policy arena anticipate that we will have such a system in 20 years, and the question is how we will answer some of the difficult financial and ethical questions that will be asked and how we will learn from the experiences of other countries.

  • seeingeye

    And which Medicare-equivalent auto insurance company did you get your claim reimbursement from? Nice try hoodwinking people by comparing apples to oranges. Health insurance is not the problem, health insurers are. They are the ones that drive up the costs for everyone.

    Instead of beating up Medicare, why don’t you study the costs driven by the private health insurance sector? While you are at it, why don’t you factor in the losses Medicare faces from fraud by doctors who couldn’t recognize a Hippocratic oath if it danced naked in front of them? Try googling it, $450m if I’m not mistaken – just last week in Florida, many doctors and nurses were charged. Another one a couple of months ago – same amount. Then we mustn’t forget prescription fraud by pharmacies. You cannot go on bleeding something and not have it give up.

    Then, ask yourself this: when you are eligible for Medicare a) will it still exist and b) will you be able to afford it? Most importantly, make sure you don’t need it nor any other health insurance or medication, because by the time you guys are done converting public services to private monopolies which hold the people at ransom, no one will be able to afford anything.

    Private sector insurance sets prices, they are the reason for the inflation of the associated costs. About the only correct thing you said in your entire article is that by now healthcare costs should have decreased greatly, although you cleverly put a different spin on everything. Medicare is bearing the brunt for greed – both corporate and individual.

    Of course, there is always the possibility that you already know the truth and this article is the product of an anti-ACA agenda lurking beneath the lab coat.

    • cnshap

      I am a Canadian living and working in the USA. I am desperately trying to relocate back to Canada–primarily because anyone with a choice would “run screaming” from the US medical system. While acknowledging that the Canadian Healthcare System is far from perfect, my family and friends at home would not think of trading for the system we have here. Indeed, my parents are aghast when they see what we endure. Nice try Dr
      Cardiologist.

  • http://www.facebook.com/people/Samir-Qamar/1843287708 Samir Qamar

    Nice article.
    Insurance was meant to cover rare, expensive events, not common, routine ones. Using insurance for both, as is commonly practiced in the medical industry, drives up costs across the board. Direct Primary Care (DPC) practices, like MedLion, decouple the routine medical care in primary care from health insurance, forcing it back to where it needs to be – in hospitalizations, surgeries, and other rare, expensive events. The solution is to expand DPC, and reserve insurance for the CABGs, not the back aches.

    • http://Blog.SnapHealth.com/ SnapHealth

      Completely agree – insurance needs to come into play for catastrophic events, not as a payment mechanism — DPC is definitely one viable solution -and we think SnapHealth with an Amazon-like interface to buy everything else after primary care (specialty care, imaging) but before catastrophic hospitalization and surgery.

  • seeingeye

    Nothing happens one-sided. However, consumers have no say in the matter. They do not set prices, they do not decide the premiums. I’m with you if you say people need to be more aware, but that is a common issue, not just limited to insurance. However, when my insurance claims report shows that the insurance was billed 1000 for X procedure, 800 was reduced and then my insurance covered the remaining 200, to me there is something wrong there.

    This system is being systematically screwed by a whole bunch of people – insurers, consumers and doctors alike. And I wish people had the guts to say so.

  • glandsone

    About 14% of the population has no health insurance. Is that working well for them? My children have aged out of my policy and are uninsured. Any serious medical problem would be financially devastating for them, and for me, as their backstop. I can’t wait for them to be able to buy insurance at reasonable cost through Obamacare. My uninsured patients are hurting, even though I charge them less, when indicated.

    Maybe you’re too young to remember patients in need of dialysis dying because they couldn’t pay for treatment. I remember that. Wasn’t that rationing? Remember when Reagan and the AMA derided Medicare as the start of socialism and the end of freedom in America? So, how did that work out?

    Do you think anyone could pay for the latest improved chemotherapies without insurance? What other developed country lets its people go uninsured? Medicare for all would take the profits away for insurers, and probably rein in some of the rapacity of providers and Pharma. We would have that, except that our politicians meet the criterion for honesty, in that once the AMA, the drug and insurance industries bought them, they have stayed bought.

  • M. Bleviss

    As a Canadian retired primary care physician, I do not understand the need for insurance companies to be involved in health care. In our province all services (except cosmetic) are covered. The fees are set by negotiation between the provincial medical association and the government. The patients are all treated equally. There are some delays in access but these are being addressed. Our cost of collection with a single payer is less than 2% of billings, including our staff time and, we are payed within 10 days. The US would have a huge unemployment problem if all the billing clerics and insurance people become redundant.

    • LBENT

      Being on the Canadian border, we see much more than “some delays” in
      access. You don’t have enough primary care docs and it’s hard to see a
      specialist. Limitations are made on the number of implants done. The government should totally stay out of health care except for the truly needy. And even then they should outsource.

  • Killroy71

    You just admitted that – thanks to the very existence of insurance – you have no motivation to hold down costs for your patients. Yet insurance is the problem? You just bit the hand that feeds you! Direct pay might work for those with the means, but what happens when we get to the big-ticket items? Cancer, organ and joint replacements, biomeds that can cost tens of thousands per year. People need help to pay for that, and whether that comes from public or private pot of money, it remains that risks and costs must be pooled to afford modern medical miracles. Or even a routine trip to the doctor’s office, for some.
    The reason the covered car repairs cost less is because the INSURER negotiated that cost, with its market leverage behind it, versus you with your puny market leverage. Once you were in the door, all bets were off – not unlike showing up at a hospital, with it’s $30 aspirin and bandages.
    Insurance was invented to be the solution – witness the birth of Blue plans, when the rest of the insurance industry wouldn’t touch medical care. The problem is manifold: there’s more to do for patients now, at higher costs, and our culture wants everything at a low price.

  • http://twitter.com/WSouthernBreeze Warm Southern Breeze

    I’ve thought similarly for quite some time, and succinctly analogize it
    thus: Insurance is paying someone to pay someone. It’s like having
    someone stand in between you and the grocery clerk. Insurance is you
    paying the middleman to pay the clerk. Any time anyone gets in between
    you and who you pay, it’s gonna’ cost more. Why? The middleman has to
    make money too. And once you come to rely upon them, and they have your
    money… it’s all over but the crying. They call the shots – not you.

    And
    yet, I recall that the July 1798 law entitled “An Act for The Relief of
    Sick and Disabled Seamen,” provided for healthcare for said service
    members. Congress enacted a per-head tax upon private vessels to pay for
    the sailors’ health care. Eventually, it became the Marine Hospital
    Service, which is today the Public Health Service.

    A friend of
    mine observed – somewhat unknowingly – after learning that a
    snaggle-toothed, nearsighted fellow whom he knew joined the Army, and in
    that process got his health needs addressed, was that the reason the
    United States military provided for the health care and treatment of
    their Service Members is that they know they’ll get a better quality
    soldier. After all, it’s difficult to fight when one is hungry, can’t
    see properly, and/or sick. I marveled at his expression, not merely for
    his observation, but because it seemed so opposite his opinion on
    “ObamaCare,” which he openly opposed.

    As I considered the matter
    further, it occurred to me that the productivity of the American worker
    could significantly improve if they were similarly cared for. The
    Family Medical Leave Act – while well intentioned – didn’t go far
    enough, to provide job security, advancement, and pay during that time
    off, as have other nation’s laws that similarly protect their citizen
    employees. And yet, our nation’s military does precisely that. However,
    the essence of what we’re discussing is – in a nutshell – progressive
    ideals versus regressive ideals. And these days, it seems that the
    regressive squeaky wheel is getting the grease.

    Those points are
    by no means the exclusive problems, for in 1975 Congress enacted – and
    just as quickly rescinded – the law that led to the states creating
    their own Certificate of Need laws and boards. That was done to reign in
    escalating health costs, but repealed it in 1986 when the Government
    Accounting Office (now named Government Accountability Office) found it
    had little, or no effect upon them. The only state that didn’t enact any
    CON law was Louisiana. Interestingly, a joint FTC & DOJ 2004 study
    denounced CON laws as “anti-competitive,” writing that they “pose
    serious anticompetitive risks that usually outweigh their purported
    economic benefits.” (“Improving Health Care: A Dose of Competition,”
    July 2004)

    Again, while it seems that regulatory authority could
    remedy some of the problems, we are not wont to enacting them, nor
    changing them as necessary, to continue meeting our people’s needs.

  • civisisus

    I am growing REALLY weary of pointing out & correcting the elementary conceptual errors in “well-written and thoughtful” pieces like this one. These errors betray the cursory attention the authors typically bring to bear on the matter of how we pay for health care in the US. All too frequently here at KevinMD, the authors of such stuff are physicians.

    So excuse me if I point out just 2 in this archetypal post.

    1) “Health insurance is not sold in a truly free market, like home, disability, and life insurance products, etc”.

    Home, disability and life insurance products are not sold in “truly” free markets. No market is “truly” free. You want something approaching “truly” free markets? Try the souvenir bazaars in Victoria Falls, Zimbabwe.

    What this assertion indicates is that the author has not thought through the most fundamental of elements undergirding his main contention.

    2) “There is no “preventive” [auto] insurance as seen with health care. If I pay a premium to GEICO, it does not cover the cost of tire rotations, brakes, new batteries, or oil changes. Similarly, homeowner’s insurance pays for storm damage to a roof, but not the price of roof replacement from normal wear, tear, and aging”

    Few US auto insurers even bother to market policies that do not incorporate safe driver discounts of various sorts (for airbags, for regular maintenance, now even for monitored travel – see Progressive). The policy is effectively “paying” consumers who would otherwise lay out higher premiums for behavior modification. Insurance policies of ALL kinds employ these kinds of behavioral incentives. That health insurance has not done so as creatively as other forms of insurance does not make the author’s inaccurate distinction between health insurance and other forms the more accurate or useful.

    I could go on to share my views about why it’s supremely difficult to include the name John C. Goodman and the term “excellent” in a truthful sentence, but I believe it’s cruel to pull the wings off flies.