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Why Are You Paying So Much And Getting So Little From Medical Insurance? Part 1

By Michael J. Harris, MD

Medical insurance premiums have doubled in the past 3-4 years for many comprehensive health insurance plans. Businesses that provided 'employer-based' health insurance are struggling to afford this employee benefit. Drug prices are skyrocketing. Doctors are retiring early or leaving medicine for other careers due to career dissatisfaction and frustration. Why is the richest nation on Earth suffering from such a health care crisis?

In this first of three articles on the health care industry, I will explain how the present system evolved and why it is so dysfunctional today. In the second article, I will outline a logical system that uses free-market forces to increase quality and reduce cost while providing care for more people with fewer resources. In the final article, I will outline how each 'player' in the health care marketplace can make simple changes that will dramatically change health care into an affordable, responsible and sustainable industry for the future.

Who invited the third party into the exam room?

In the 1950's, employers were granted tax breaks for providing 'health care benefits' to their employees. In 1965, the Medicare program was passed by Congress to provide medical benefits to the elderly and disabled. Medicaid was started later to provide for poor citizens and children. Health insurance policies have evolved to cover just about anything, including prescription drugs, annual physical examinations, eye exams and many other medical needs. I will use my family situation as a typical example of the problem and a solution to this situation.

My family of five was insured with comprehensive coverage with prescription drug coverage for about $400.00 monthly in 1997 with $10.00 co-pay for office visits and prescriptions. By 2002 the same insurance policy is expected to cost over $800.00 monthly with increasing co-pay amounts. Annual premiums would cost nearly $10,000.00 for my young, healthy family of five. If I see a non-participating physician the insurance plan barely covers half of the medical charges (charges that are quite reasonable). When the insurance premiums, co-pays and non-covered charges are added up, the annual medical care expense is well over $12,000.00 for a healthy family. It is no wonder that businesses and average income families are struggling to provide health insurance.

What is the definition of 'is'?

The health insurance policy described above is NOT INSURANCE at all, but rather, prepaid medical care consumption. Real health insurance should be something that you buy with the expectation that you will not need it, like car insurance, homeowner's insurance and disability insurance. REAL health insurance is a policy that covers all costs after a HIGH DEDUCTIBLE is met when catastrophic medical needs arise. The typical health insurance policies purchased today are NOT INSURANCE, but prepaid, over-managed, over-priced reimbursement for routine medical care and coverage for catastrophic events. Many insurance plans do not even reimburse adequately for services that they claim are covered, thus increasing out of pocket expenses for the policyholder.

Why is comprehensive health insurance bad?

In this scenario, patients are cost insensitive. When seeking a physician, the insurance book of participating physicians is consulted most often in choosing that physician. When a service is 'covered' by insurance, there is little consideration of whether it is necessary or cost-effective or even of sufficient value to justify the risks involved. Patients buy comprehensive insurance based upon the assumption that their insurance card is a ticket to unlimited consumption of medical care. Most adults have an annual physical exam and may take one or two prescription drugs for mild, chronic medical conditions. The average American family spends $550.00 annually for routine medical care. Paying an insurance company to cover routine and relatively inexpensive care is like paying someone 30% more than the cost of your groceries to select and pay for your food.

Physicians are caught between their patients and the patient's insurance company. Doctors are paid for providing medical care. If more care is provided, more payment is generally received. If treatment 'A' is effective and costly and treatment 'B' is similarly effective and less costly, the relative cost-effectiveness of treatment 'B' over 'A' is rarely a consideration. Patients generally do not ask 'consumer-like' questions of physicians. Physicians generally do not offer the answers to the 'right' questions. This is not meant as an indictment of patients or physicians, but rather a description of the evolution of the relationship when a 'third party payer' is allowed into the examining room. Many physicians do not collect from the patient; rather bill insurance companies and then bill patients for unpaid balances. This process often takes 6-12 months consuming unnecessarily large amounts of billing staff time. In some cases, insurance companies deny payment, after the fact, for arbitrary reasons. The cost of all of this non-medical work increases office overhead by 25-33%. In today's market, physicians fear loss of patients if they don't continue to participate with insurance contracts.

More about the middlemen: Insurance companies sell comprehensive policies to patients via their employer. Insurance companies then sign contracts with networks of physicians and hospitals to provide medical services at a discount, in exchange for putting those providers in the insurance book of 'participating providers'. Selection of a surgeon based upon his skill is more logical than based upon his/her insurance contracts. Insurance company profits are based upon selling more in premiums than they pay providers for care rendered in good faith that payment is forthcoming. Since the insurance company does not specifically control consumption, it is easy to see how the premiums collected one year have to increase to cover the expenses of the year before. Fortunately for insurance companies, most physicians and hospitals will sign contracts to provide care for significant discounts. Providers often complain bitterly about the unacceptable contracts offered by insurance companies, but they rarely walk away from the negotiating table, thus giving the insurance company the upper hand in negotiations. As runaway consumption squeezes the insurance company bottom line, payment to physicians continues downward. Eventually, doctors will either go bankrupt (as in the case of Southern California) or discontinue their participation agreements (as in the case of Medicaid in many states). Some advocate a single payer, government run system as a solution. Medicare patients already lack a voice in what services are covered and the government owns their medical records. The government is micromanaging citizens' lives.

In most medical offices and hospitals, the uninsured, cash-paying patient-customer is given the worst deal! When you consider that 24% of medical office overhead is devoted to billing and collecting for the medical service rendered in good faith of payment, the cash-paying patient is paying for a lot more than the medical care he/she receives. The cash-paying patient should be able to purchase medical services with a value price that does not penalize him/her for timely payment.

In the next article, I will describe a medical care delivery system that works and gets better with age. The third and final article will outline the steps that can be taken to reform our medical system.

Michael J. Harris, MD is a board certified urologist who is internationally known for developing minimally invasive prostate cancer surgical techniques. He is a member of the Association of American Physicians and Surgeons (aapsonline.org) and an active lecturer on topics of prostate cancer, health care reform and cost-efficient practice management. He has been practicing urology at 1020 Sixth Street in Traverse City since 1993.