Insuring You Have Insurance

It was really outrageous. It sheds light on our crazy health insurance system—and it is a warning to anyone considering going without health insurance or who thinks mandatory insurance is unnecessary. Here’s what happened:

A family member recently received an “explanation of benefits” from his insurer. He had had had a CT scan for which the hospital performing the test charged $1717. Leave aside for a moment that this is a preposterous fee. He was billed $237.21. Why the difference? The difference was due to the “discount” he received because his insurer had negotiated a rate with the hospital that was 14% of the rate the hospital wanted to charge. The insurer didn’t actually pay a cent—my relative has a “high deductible plan” and has to pay all medical fees until he his family has spent $5000 in a given year. But because he has insurance, he had to pay $237, not $1717. Put differently, if my relative didn’t have health insurance, he would have been charged the full $1717 for exactly the same test.

The system is a bit like scalpers charging extraordinarily high rates for tickets to popular shows or sports events. As long as the system of multiple private insurers is in place, where each insurer negotiates its own deals with “providers,” it’s terribly important to have insurance. If you don’t, you’ll be scalped.

With the Affordable Care Act once again under siege, it is critical to remind everyone why having health insurance matters. This is important for the over-65 population even though virtually everyone over 65 qualifies for health insurance in the form of Medicare. It’s important to older people because their caregivers tend to be under 65: if they get sick and don’t seek treatment because they lack insurance, they won’t be able to serve as caregivers. And it’s important because if those who are not quite old enough for Medicare don’t have private insurance, they may opt to defer taking care of medical problems until they reach 65. This then puts a significant strain on Medicare when they do enroll, potentially raising the cost of the program and putting it in jeopardy.

Mandating that everyone have health insurance makes sense because insurance is only viable if low-risk individuals subscribe along with those at high risk. If sick people are the only ones who buy health insurance, it will become inordinately expensive. Imagine, for example, that nobody bought car insurance until after they had a car accident—and then they expected the insurance to kick in immediately. Then the only people paying a premium would be those who filed claims. The insurance company would have to charge rates that were high enough to make good on all the claims—which means you would probably end up paying the same amount for your policy as you would have paid to fix your car—or to cover the costs of medical care for anyone injured—after an accident.  In the case of health and disease, insurers can get around this problem by deciding that if people wait until they get sick to buy insurance, they won’t be covered for precisely the condition that led to their deciding to insure!

Just keep in mind, that in addition to all these reasons for everyone having health insurance, there’s one more. As long as we have a system of private insurers that negotiate rates with health care “providers” (hospitals, physician groups, etc.), you will pay much less for medical care if you have insurance than if you don’t, even if your insurer pays nothing at all. If this seems absurd, it is, but that is how the system works.

Now, there are other ways to address this problem other than exhorting or requiring everyone to purchase health insurance. We could give everyone health insurance—as is done with Medicare Part A for people over 65—and use tax revenues to pay for the policy.  Medicare sets rates (as long as it has a monopoly, it doesn’t have to negotiate with each provider individually) and in many states, providers are required to “accept assignment.” That means your doctor cannot turn around and bill you the difference between what they charge and what Medicare pays them. But in the current world, you go without health insurance at your own peril.

Where Do All the Dollars Go?

The editor-in-chief of one of my favorite health news sources, Kaiser Health News, recently published her first book—for over twenty years she has been a journalist at the New York Times—and it’s an important one. An American Sickness: How Healthcare Became Big Business and How You Can Take it Back, by Elisabeth Rosenthal, is a powerful if somewhat monotonous recounting of the evils of American health care. But it only seeks to explain one weakness of contemporary American medicine, albeit an important one: it costs too much. Or, more accurately, prices are too high. As Uwe Reinhardt put it years ago, “it’s the prices, stupid.” 

Understanding the behavior of physicians, hospitals, drug companies, health insurers, and device manufacturers, as this book seeks to do, is critical if we are to change the system. The problem that they create, however, isn’t just that health care costs consumers too much; it’s also that the quality lags behind what is achievable—is evidenced by the poor standing of the US compared to other developed countries. Failing to consider both quality and cost is regrettable—we might, after all, be willing to tolerate the enrichment of drug company shareholders if what we got in return was an excellent, if pricey, product.

The litany of shenanigans by big business may be familiar to many readers, but Rosenthal's comprehensive and detailed accounting is impressive and compelling. Consider the first chapter on “the age of insurance.” The book recounts the story of how the same treatment costs orders of magnitude more--$100,000 vs $19,000 per medication infusion for a drug given monthly—when administered at NYU’s Langone Medical Center than when provided at another nearby facility. For the patient, whose treatment was covered by insurance, it didn’t much matter over the short run. But for the system as a whole, and ultimately for all patients through higher insurance premiums, it did matter. And the reason for the discrepancy is that NYU negotiated a better deal with third party payers than did the competition. What Rosenthal outlines but does not emphasize is that more powerful hospital systems and physician researchers interact with (some might say collude with) health insurance companies to produce this result. She explains that because of an arrangement with the NYU researcher who was largely responsible for creating the drug, NYU derived profit if total sales of the drug exceed a particular threshold. By negotiating a very high payment for the drug from the insurer, NYU is likely to exceed the threshold and cash in. So it’s not just the motivations of physicians, hospitals, and insurance companies acting separately that impact the health care system; it’s the way all of these forces work together that is crucial to achieving the end result.

Rosenthal presents one disturbing case after another. There’s the way hospitals and physicians game the system to assure that patients essentially have to use out-of-network providers when their insurance company will only cover in-network providers, forcing patients to shoulder what can be enormous costs. There’s the notorious “facility fee” that enables hospitals to charge insurers vastly more for a simple procedure such as injecting anti-inflammatory medication into a joint if it is done in an outpatient clinic than if it is done in a private office. What she neglects to explain is the way the system conspires to provide what is often inferior medical care to patients. Maybe this is more egregious with older patients than younger ones, and her focus is overwhelmingly people who aren’t enrolled in Medicare: either those with private insurance or no insurance at all. The facility fee example, for instance, doesn’t just mean higher costs. For a frail older person to get to a hospital clinic may mean going by car, negotiating a confusing parking garage, and walking a considerable distance from the garage to the office, none of which is so easy if you’re 85, have severe arthritis (the reason for going for the joint injection in the first place), and maybe have a little cognitive impairment to boot. The enthusiasm for high tech procedures, driven in part by the manufacturers of the devices used in the procedures, doesn’t merely drive up costs: for vulnerable, older individuals, such technological intervention may cause more harm than good. The anesthesia may result in confusion and the hospital stay in functional decline—quite apart from the effect on the cost of medical care.

Alas, the fixes the author proposes, the part of the book devoted to taking "health care back" from big business, aren’t going to fix the system. She calls for creative insurance plan design, for example plans that cover “essential” treatment fully and levy co-pays for “semi-elective” treatment. That’s much like what the ACA does when it requires full coverage for preventive services such as a screening colonoscopy, but allows the same colonoscopy to be billed in full (if the patient has a high deductible health plan) if the procedure is ordered to remove a cancerous polyp. Maybe that’s a good idea, although it leads to some bizarre incentives—better to get that polyp removed at the end of the plan year, when you might already have burned through your deductible, than at the beginning of the year, when the growth might be more curable; better to say nothing to your doctor about the blood you’ve noticed in your stools and just have a “screening test” than to mention the blood and undergo the procedure to treat a “disease.” But whether or not “benefit redesign” is a good idea—and one of the last major benefit redesign ideas wasn't so thrilling, it was those very high deductible health plans that are conquering the market—it’s not going to help patients now. Even the suggestions that could, in principle, help right away, such as “demanding price transparency” when getting an MRI, are a bit pie-in-the sky. You’re in the doctor’s office and s/he wants you to get a scan right away. You’re supposed to get a list of 5 centers that do MRIs and compare their prices? Really? What about quality? What about accessibility of the image to your physician? What about transportation to these other sites?

An American Sickness goes a long way to uncovering the workings of the health system and for that it is to be lauded. It is extensively and for the most part carefully researched, though there are errors. Rosenthal says pharmacists should be able to prescribe birth control pills because they all have PhDs and shouldn’t just be relegated to counting pills. Maybe they should be able to prescribe birth control pills, but most pharmacists have a BPharm (a bachelor’s degree), not a PhD. She says the website GoodRx allows comparison of prices for prescription drugs only for Medicare patients. Maybe that was once true, but it is no longer. But read this book for the insight it may give you on how the design of the system affects outcomes. We will need to build on that scaffolding to investigate the full range of systemic consequences—for quality as well as cost of health care, and to engage in meaningful reform.

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