Employers have been the obvious financial victims of the current insurance driven medical care mess. They have braved insatiable double digit inflation in medical care and medical insurance costs. This might be excusable if it had also resulted in double digit improvements in medical care itself, but such has not been the case. Traditional medical insurance has proven to be a powerful and inexorable stimulator of inflation. Even attempts to alter the model with HMO designs produced only brief slowing in prices with drastic reductions in patient satisfaction and unacceptable meddling in the process of care delivery. As the prices have increased, employers have had to make the unrewarding choice between unacceptable increases in premiums and the equally unacceptable option of dropping or diminishing healthcare availability for employees. This is a classic lose-lose arrangement, and there is no end in sight. Or is there?
Employers must find it annoying when they realize that in their world, businesses survive by routinely offering better products and improved services at lower prices every year. They know that survivors in market systems find a way to accomplish this while increasing revenue and profits. The tools of the trade are competition, innovation, and technology. This is the reason that computers get better and cheaper every year, and the reason that consumers enjoy low prices for a wide variety of goods and services, while the economy gradually becomes more efficient and productive. They may then ask why can t medical care do this too? Well, it can if we remove the impediments to free market medical services. What are they?
1. Artificial price fixing instead of market pricing. Currently, physicians are directly contracted with insurers. Those contracts would be unacceptable to any sane businessman, but they have been signed by virtually all practicing physicians. These contracts put control of pricing firmly in the hands of insurance companies. Although the purpose of allowing these contracts was originally to restrain increases in price, it has had very much the opposite effect. In the current system, physicians are rewarded for charging ridiculous fees which the insurer then discounts to a somewhat less ridiculous fee. The insurers have often benefited from the higher fees since they have been able to pass most price increases on to employers and have increased their income by investing their ever enlarging cash flow. The most important point is that prices are high because insurance companies can afford a great deal more than can individual patients, particularly since they seem to be able to wring more and more out of employers every year. If patients were paying with their own money, medical care would be instantly less expensive and a great deal more sensible. As it is now, patients without insurance end up getting charged the inflated fees noted above.
2. Cost shifting instead of cost reduction. As has been pointed out by many observers, the current medical marketplace is focused on shifting costs rather than improving productivity or efficiency. Insurers try to pass the costs on to doctors and patients by reducing physician reimbursement and increasing co-pays and deductibles. And everyone does his best to shift the costs of medical care to taxpayers and employers.
3. Lack of reward for efficiency and quality. Until recently the current system didn t even acknowledge that there are or could be reliable measures of quality, though pay-for-performance plans are developing. But much of the war to increase efficiency has really just been cost cutting. This means that treatments which could actually reduce long-term costs and chronic illness (like weight loss and smoking cessation programs) go unfunded, while the expensive treatments of the consequences (stroke, heart attack, coronary artery bypass surgery, sleep apnea, etc) are fully paid. Physician reimbursement is currently based upon charges coded by the physician. There is no reimbursement for availability, prompt care, effective care, or patient satisfaction. The insurance companies make the assumption that all physicians are equal and that all care described by a particular set of diagnosis and procedure codes deserves the same reimbursement. Thus, physicians who spend more time and provide better service are often penalized for their efforts, since it decreases the number of patients they can see in a day and the number of codes they can bill. It also is the source of hamster medicine, a term that aptly describes the life of physicians, running faster and faster on a spinning wheel, trying to see more and more patients daily in order to reap gradually diminishing rewards.
4. Exorbitant management fees that are being paid to insurers that aren t managing. According to the Kaiser Family Foundation, the median administrative expenses of an HMO are 13.8%, leaving 86.2% for medical expenses. But the figures are actually much worse than that because the health plans classify activities as medical expenses that clearly are not, such as their utilization review programs. These programs require physicians to waste even more time and effort documenting their work while failing to improve quality or even hold the line on spending. How long would it take for patients to figure out which physicians were doing their jobs well using the simple tools of every consumer? Patients may not know all of the details of quality medical care, but they are far better at judging the work of physicians than any insurer or government agency on the planet. Insurance executives are not in the exam room evaluating patient care?
5. Having employers fund the care and employees decide how to spend this money. This is the crux of the problem. If patients have carte blanche with employers money, they will spend it on the most expensive treatments without a second thought. Physicians may recommend the most expensive treatment because it allows them to appear to be patient advocates without penalty and may also increase their income. Insurers pay the bill with the employers money because it s easier than fighting the patients and physicians in court and because they have little to lose by doing so. At some point, patients need to spend their own money, even if it came initially from the government or their employer. Once it has become the employee s money it will be much better protected (certainly better protected than it is in the current system). This will be particularly important in encouraging more intelligent use of medications. Many patients want the brand name drug because they don t have to pay the real incremental cost (often 3 times as much) over generics with the same or nearly the same effect. Physicians often find it easier to just go along a patient s requests, in particular much easier than entering a prolonged debate over generic equivalency when the brand name is marketing directly to patients and there is only have 10 minutes for the whole visit.
What can employers do? Look closely at some of the newer insurance products for their employees. Many of these combine a much less expensive high deductible insurance policy with a Health Savings Account (HSA). If they are already providing an expensive low deductible policy, their savings will be considerable. Employers may choose to subsidize some or all of the deductible, and if they do their money will be much better spent in an HSA policy. This is because once the money is deposited in the HSA it becomes the employee s money earning interest tax-free. If it is not spent, it can be rolled over into future years without penalty. Employees will have health insurance that rewards careful choices on their part. This in turn will decrease the cost of health care and reward physicians for providing what patients want: high quality, excellent service, and lower prices. This is a true market place and it should work the way all other marketplaces work.
This organization is currently training, inspiring, and supporting physicians who either have made or wish to make the leap to a better medical marketplace. Its members are the physician entrepreneurs that can mold the future of medical care to make it more responsive to the needs of patients while making it more effective and efficient for the employers and taxpayers footing most of the bill. Working with employers, they can stop the financial bleeding for employers and the government while taking better care of their workforce.