WHAT’S WRONG WITH THIRD PARTY PAYER HEALTH INSURANCE

 

I grew up in a home where my father, a Mayo Clinic trained orthopedic surgeon, worked twelve out of every fourteen days and took emergency call day and night half of the time. There were only two orthopedists covering the whole South Western part of our state so they agreed to each cover half of the emergency call. I remember dad saying at dinner one night when I was about ten that he felt third party payer health insurance was going to destroy medical practice in his lifetime. He often repeated the statement over the years as issues and events unfolded proving him right.

Healthcare is not a commodity in that not all healthcare is of equal quality. It is a limited resource that the free market rations the use of by making the buyer decide, whether the benefit of the care is worth the cost to him. Laws prohibit hospitals from withholding emergency care based on the patient demonstrating an ability to pay. Elective healthcare procedures are not regulated in this manner. My father was concerned when insurance companies first started requiring patients to get approval for certain procedures prior to receiving care. The second red flag for dad was when some insurance providers started requiring physicians to direct bill them for services rendered instead of having patients pay the doctor and then seek reimbursement. In the world of modern health insurance both of these payment processes go almost unnoticed because we are used to them. Most of us have never known insurance companies to act in any other way. The concern for the physician came from the fact that patients never saw the cost of their care. This tended to induce patients to overuse healthcare services as there was no direct cost to them. The overuse was exaggerated in patients whose insurance came through their employer. It was also true that insurance companies were completely insulated from seeing the degree of the problem the patient was experiencing. The decision about what medical procedure to authorize was too often based on whether a lower cost alternative was possible. The failing here comes from the fact that both parties are one step removed from the free market. The patient wants to have the finest care and not just the finest care he is willing to pay for. The insurance company is in business to make money and as such they want satisfied customers without paying so much for care that their average costs exceed average policy premiums. Doctors started to see procedures authorized but with payment caps forced on the physician. The insurance companies were trying to get the doctors to tell the patient that they couldn’t have the expensive procedure so that the patient would not be upset with his insurance carrier for denying care. Large employers and unions pressured insurance companies to cover more and more routine health issues in addition to covering the more traditional catastrophic issues. The trend naturally drove up the cost of insurance.

 Another pressure pushing healthcare costs up was the proliferation of lawsuits against hospitals and doctors. Trial lawyers found that juries were more than willing to make huge cash awards to the poor disfigured or incapacitated patient without regard to whether the hospital or doctor had been at fault. It is natural as a juror to feel empathy for the patient especially when the prevailing feeling is that it is only the doctor or hospitals big insurance company that was going to pay. Malpractice insurance premiums grew at a rate calculated by the insurance carrier to outrun the legal settlements.

The next step was the HMO (health maintenance organization) designed to get control of the upward spiraling cost of healthcare. Doctors and clinics were recruited by insurance companies and paid a flat fee / patient. The thinking was that doctors would tend to self limit how many expensive tests and procedures they recommended considering that they would only get the flat fee for reimbursement. Doctors wanted more tests to cover themselves in case of a law suit but had to keep an eye on costs. The insurance companies had little if any incentive to optimize care instead of cost. Decisions were not being made based on what was best for the patient. This was the third party payer disaster that my father the physician had foreseen. Patient care suffered as a result of care being withheld.

The government has now interjected itself into the healthcare equation. On October 1, 2012 the Obama administration started awarding bonus points to hospitals that spent the least amount of money on elderly patients. It will result in fewer knee replacements, hip replacements, angioplasty, bypass surgery and cataract operations. These are the five procedures that have most transformed life for senior citizens. Instead of being confined to a wheelchair or bed they can lead active lives. By cutting 715 billion dollars from Medicare over the next decade and rewarding hospitals that spend less on seniors, the Obama healthcare law will make these procedures unavailable.

The real healthcare reform we need is to get the third parties (insurance companies and government) out of the patient care decision process. Doctors and patients need to make the determination about what is best for the patient. Health insurance should be for catastrophic (large cost) problems only. All routine things like check-ups should be paid for by the patient. Tort reform is essential, there must be set amounts that juries can award so that the ambulance chaser trial lawyers can’t continue to drive up everyone’s healthcare costs. Finally, allow health insurance companies to compete across state lines. Competition always works in a free market.