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.

Healthcare Cost Containment: A Short History Part II-It's the Consumer

Part II in my series on the villains of Heathcare Cost Containment. Part I was about the doctors.


By the early 1980s we were into the Reagan era––the era of individual responsibility. Just as the poor were responsible for being poor and needing only to be kicked off Welfare to end poverty for good, so healthcare consumers were seen as responsible for rising costs. Spoiled by employer-paid healthcare they had no notion of the expenses employers racked up on their behalf. Force them to shoulder a share of the costs and they'd pretty quickly turn into savvy consumers shopping for the best deal.

Accordingly we (yes, I cringe to admit, I was in on the design of such a plan) increased deductibles, though only to about $150, and by then that would be met with just a couple of doctor visits. A few employers required employees to pay a small part of their premiums each month. We also instituted some changes in plan design. Just like now, it seemed a good idea to focus more on prevention, so plans began covering routine medical exams and vaccines at 100%. Prior to that, believe it or not, some plans didn't cover routine physicals at all. We also covered second opinions with regard to surgeries at 100% and a third opinion if someone wanted "the best out of three." The idea was not to deny necessary surgeries but cut down on unnecessary and/or over-performed surgeries. Notice, this was an incentive, not a requirement and the anecdotal evidence at least is that it never caught on. Few patients wanted to go up against their doctors in asking for a second opinion, and when they did, physicians rarely broke ranks, so insurers ended up paying twice for the same prognosis and paying for the surgery anyway. There were also minor incentives for more out-patient procedures.

Just like now there was a great hue and cry against these changes as consumers and their physicians predicted people dying in the streets. Seems people are always more concerned about being under-treated than over-treated. This was also when the HMO offering became a popular option, though only as a second choice. More on HMOs and Managed Care in another post.

Yet again, the measures taken had little if any effect on containing costs. However, the possibly unintended consequence of causing consumers to participate more in healthcare choices, along with some studies being publicized in the press, was that patients began eying their doctors' decisions with a bit more skepticism. Maybe that young mom didn't need the hysterectomy that sent her hormones into a nosedive and deprived her of a third child. Maybe little Joey didn't really require that scary tonsillectomy. And then there were those disquieting rumors of doctors making mistakes––big mistakes––that cost lives and were swept under the rug like recent stories of pedophile priests.

Popular culture often provides a good indicator of political trends. Like Denzel Washington battling the evil insurance companies a couple of decades later in John Q. , the feel-good movie of 1982 was The Verdict in which down-and-out lawyer Paul Newman redeems himself with an early malpractice suit against a physician who, through routine error, sent a young woman into a permanent coma, financially ruined her next of kin, and caused a competent nurse to lose the job she loved because she knew too much. The climax that brings to mind the movie Babe, had audiences cheering as the jury foreman asks if it's possible to award more damages than the original suit requested. Don't believe me? Rent it.

Today many think the easiest and best way to solve our healthcare woes is tort reform. Would you say we Americans are a fickle lot?