Healthcare Cost Containment Part IV: Insurance Companies

Interspersed with posts about what is happening now, I have been posting a several part history of healthcare cost containment efforts and how it has essentially amounted to creating one straw villain after another in our attempts to find a quick fix. Part I dealt with the focus on Doctors overcharging insurance companies. Part II dealt with blaming the consumer. Part III dealt with malpractice suits.

In this final post on cost containment in what may be the waning days of this blog, since Congress may soon be making its decision, I'm not going to cover the current situation. We all know how insurance companies make a profit off not covering people, and regulating them may be the only thing opponents and proponents of reform agree on. This post will be about the time from about the late 1980s through the Clinton health reform plan when the insurance companies were being accused of coming between doctor and patient.

First, a little review. In Part I I noted how, by the late 1970s medical specialties were growing and most doctors were choosing these specialties over general practice. At that time the idea of the family doctor was disappearing. It was not unusual for individuals to have no real relationship with any one physician and to go directly to a specialist with a problem. Someone with a simple earache might go directly to an ear nose and throat specialist. Or someone who had suffered a heart attack, having no family doctor, after release from the hospital might use his cardiologist as his primary care physician.

After all the criticism of managed care, this may sound like Eden, but there were some big problems.

1. Paying a specialist for illnesses that could be easily treated by a GP was not cost-effective.
2. Specialists up on the newest methods were more likely to over-treat a problem like performing back surgery when physical therapy would have been less costly and as effective.
   
3. Patients were often forced to self-diagnose in order to choose which specialist to see.

It was in the early 80s, when employers first got serious about cutting medical costs, that it became common to offer a managed care plan. At the time these were usually HMOs, offered as perhaps a lower cost option, but not as the only plan as has become more common in recent years. HMOs were cheaper for a variety of reasons, but the one we'll look at for these purposes is the managed care approach. Participants in HMOs had to choose a primary care physician (PCP) from a list of HMO participating physicians. The PCP served as a gatekeeper of sorts. He/she was your first stop for any non-emergency illness. Whenever possible, the PCP would treat the problem. When necessary, the PCP would refer the patient to a specialist or surgeon who also participated in the HMO.

Unlike the traditional indemnity plan where patients had to meet a deductible plus a 20% copay, with HMOs the patient usually paid one small copay per doctor visit, say $15 or $25, often something larger for specialists, and maybe a fee for tests, after that everything was covered at 100%, at least from the patient's point of view. That's because they weren't responsible for anything over reasonable charges allowed the physician.

As time went on more and more employers began offering HMOs and PPOs exclusively, and insureds, used to seeing any specialist they wanted, and physicians used to working autonomously, started complaining that insurance companies were discouraging physicians from referrals to specialists as well as insisting that physicians see more patients than they could spend necessary time on. Indeed there were incentives for physicians to limit time with patients and referrals as HMOs paid contracting doctor's a certain amount per patient and the additional cost of referrals cut into everyone's profits.

While it was a shock to the system, reports of denied care were largely sensational and anecdotal. A system-wide study would have been helpful, but to my knowledge this wasn't done, but the hue and cry soon caused HMOs and PPOs to be more lenient about referrals, and instead to make profits on higher premiums, less adverse selection, and dropping people likely to accrue high costs.

However, insurance companies aren't the only ones profiting from your healthcare dollars today. Physicians who buy into imaging machines and out-patient surgical centers, for-profit hospitals, and drug companies all have a profit motive for providing more and more care at higher prices. Whether you call it managed care or rationing, without some oversight of the system, everyone will just continue to milk it for all they can get. This won't be the first time our "more is better" mentality will come back to bite us, but this time it's your life and not just your lifestyle that's at stake.

I agree that no for-profit industry should be in charge of decisions regarding your healthcare, but a nonprofit government agency that includes healthcare as well as financial professionals, that makes recommendations based on outcomes studies, can and should. No one wants to put a pillow over Grandma's face no matter how cost-effective, but when Grandma's heart is in failure and all her systems are breaking down, do we need to x-ray her swollen big toe? And it's not just end of life where we spend too much. Other countries with universal coverage spend less on healthcare, perform fewer procedures, and have healthier populations than we do.

By now it should be obvious, the clue to reforming healthcare isn't reigning in the providers or the consumers or the lawyers or the insurance companies. It's all of the above. What many don't realize in their support of the current status quo, is that the status quo is at the breaking point. Very soon all employers, large and small, will be dropping healthcare coverage or moving to countries where they can produce a product at a lower cost. Then none of us will have coverage.

Think about it.