The health insurance shell game reminds me of derivatives

I just realized what all these new insurance intermediaries, programs and organizations remind me of: derivatives. And we all remember how well that worked out for stocks a few years back.

Let me explain.

A few years back, a bunch of Wall Street financiers came up with a bunch of new ways to package various stocks and securities that were intended to be too convoluted for anyone to figure out that they were nothing more than a way to relieve gullible investors of their money. It worked. Really well. Well, until the housing market collapsed and the country plunged into near economic collapse. But hey, these things happen. Remember, it was all legal. It just wasn’t a very good idea. Take home message for investors: Stick to owning pieces of real companies. Whatever else happens, there will always be people who need things like houses, cars, food, and other goods and services.

Now look at what’s happening to medical care: First we had insurance companies bully their way into the doctor-patient relationship, and over the years, boy have they thrown their weight around. Administrative costs have generated such enormous profits, many of them have cast themselves as major philanthropists in their markets. They have to: Technically they’re non-profit organizations. Nice work if you can get it.

Back in the 1990s, they tried something called managed care. The stated aim was to improve patients’ health, but the real object was to shift financial risk back onto the doctors. Before this, if a patient visited the doctor five times in a year. the insurance company would have to pay five times as much as if he only went once. So they came up with something they called capitation: They paid the doctor a certain amount per person per month, and that was it. The only other pay the doctor got was a small co-pay from the patient (they started at $2) whenever she came in. If a patient came in ten times a month, the doctor only got an extra $20. Sweet deal for the insurance companies.

They also instituted things like referrals, turning physicians into gatekeepers. They withheld part of the physician payments (called “withholds,” of all things) which the docs could earn back by not spending (technically by not authorizing spending) too much on labs and other testing, specialists, and hospitalizations. As a practical matter, money withheld was rarely seen.

This didn’t work. Well, it worked great for the insurance companies. Lots of people made boatloads of money. But doctors and patients hated it: so much so that it mostly disappeared. Mostly. There are still two huge capitated programs I’ve been with for twenty years now, and I can’t drop them because the companies’ standard contracts include something called “all products” clauses. I have to take the capitated plans to participate in the others. Also, I still have lots of long-term patients in those plans, and wouldn’t you know it: Referrals remain the bane of my existence.

Eventually, the large employers moved away from them as the prices increased. Because it turns out they didn’t really save any money. Imagine that.

Now here we go with round two. Apparently not content with just siphon off money paid by patients intended to pay for their medical care, now the insurance companies are trying to get the doctors aboard, mainly by paying the early adopters tons of money to recruit their gullible peers. Things like the patient-centered medical home, team care, accountable care organizations, and so on are nothing but a shell game designed to divert funds away from the people who provide medical care (doctors) to people who are sick or hurt (patients).

Now these huge companies have even got government suckered in. They use words like “evidence” and “data,” promising that somehow the more bits and bytes of information they collect (most of which are completely meaningless) will result in spending less money for medical care while improving outcomes (another term they never define).

Guess what: It’s not going to work. Oh, the companies are going to do great.  But patients are not going to benefit materially. Doctors are not going to benefit. The system will dissipate, hopefully without collapsing too badly. And the doctors and patients will be the ones left to pick up the pieces.

You want better medical care? Find a way to pay doctors a fair compensation for their services. (Single-payer works well in much of the rest of the world.) Get the insurance companies and other middlemen out of medical care financing. Let Medicare negotiate drug prices. (At the moment, by law, they have to pay whatever the drug companies charge.) Ban direct-to-consumer pharmaceutical advertising. While you’re at it, ban hospital advertising as well. Use the money to pay for more nurses.

You want healthier citizens? Increase tobacco taxes to decrease smoking. Find ways to increase seat belt and helmet use. Enact sensible firearm laws to keep kids from dying from rampant gun violence. Address income disparity to ease the intolerable socioeconomic stressors of intractable poverty. Notice that none of these things actually involves doctors or medical care.

But please: Pay attention to the man behind the curtain. Keep your eye on the ball. Medicine is about people called doctors taking care of people who are sick or hurt. Always was. Always will be.

Lucy Hornstein is a family physician who blogs at Musings of a Dinosaur, and is the author of Declarations of a Dinosaur: 10 Laws I’ve Learned as a Family Doctor.

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  • Steven Reznick

    Well said!

  • JPedersenB


  • MightyCasey

    I’ve been saying this (all of it) for years myself (To wit: – and:

    That something like the ACA can be called healthcare reform is utterly laughable, since the only group who really got a full-on kiss on the lips was AHIP (America’s Health Insurance Plans). The rest of us? Stay tuned on that …

  • euonymous


  • dontdoitagain

    Oh brother. I was interested until we got to the same old tired phrases. It’s the evil TOBACCO users! Tax THEM! So tell me are the people who smoke marijuana immune from the same problems that tobacco users have? Smoking an unfiltered product, keeping it in the lungs until all the smoke is absorbed is healthy? Sure it is. So they legalize THIS form of smoking while demonizing tobacco smoke. IT’S THE SMOKE! I point out that there are already myriad taxes on cigarettes. Has it made people stop smoking cigarettes as much? Probably. But the downside is that the SCHIP programs rely ENTIRELY on smokers. So you want smokers to foot that bill AND deal with hostile health workers while spending all the punative tax money obtained from those unfortunates on somebody else’s health care. Whatever happened to all that money the tobacco settlement doled out? Somebody got the money ostensibly to defray the cost of smokers’ health care…where is it?

    Then you go on about seatbelt and helmet use. Here are some stats for you. 78% (last I checked) of people use seat belts. Did you know that somewhere around 90% of fatalities happen while the occupants are wearing their seatbelts. How do you reconcile this difference? On the face of it you are more likely to die while wearing a seatbelt if you are involved in a serious crash. For me, I’d rather be dead from a brain injury that a quad from a broken neck from wearing a helmet. Isn’t that my decision to make? Worried about accidents? Tax the alcohol users!

    We already have sensible firearm laws. Making more will only allow all those kids you talk about to have disarmed helpless victims. Are you saying that the perpetrators of crime should be allowed to live, because after all the decent law abiding citizens might make the situation worse? Heaven forbid that the teenage thug be harmed by his intended victim. So our duty is to give up our RIGHTS to self defense because the criminals will always have guns? Yeah, just shut up and die. Don’t cause more mayhem by protecting yourself. There is no “rampant” violence being perpetrated by the general law abiding public. There just isn’t. You are more likely to die from iatrogenic health care mistakes. Want to comment on how 300,000 people per year are HARMED BY medical care? Want to talk about the 98,000 needless deaths per year from medical care mistakes? I thought not.

    Address income disparity? Seriously? How much more do I have to pay? Do I have to pay so much in taxes that I’m dragged down to the same level as the welfare recipients? What about MY incentive to work and provide for my family myself? What about MY stress level, being required to support indolent people along with my own family. It gets harder every single time the government (and you) start in with the “income equality” crap. How about shutting off the spigot shunting my hard earned money into lazy people’s accounts? I WORKED for my money. How about the “income inequality” deadbeats actually WORKING for their money? How about we pay doctors the same as truck drivers? How will that work for you? Since you seem to make no distictions about this “income disparity” I think that doctors should be willing to work for $24.50 an hour. (That’s truck driver UNION scale in my area for construction workers) Your education, work ethic, hours of service, costs associated with running a business, training costs, all are of no value. You doctors must not have any more income than me. Then we can all be stressed out together.

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