Post a Comment On: Health-related Insurance in Connecticut

Why is medical insurance so expensive?

The first part of this post responds to the question about what is driving the ever increasing cost of medical insurance. My points and comments are based on interpreting information I received from the National Association of Health Underwriters Educational Foundation:
Note: I support financially the mission and work of this organization.

+ Spending for health care in the U.S. hit $2.9 trillion in 2013 and it’s projected to reach $5.4 trillion in less than 10 years.

+ Spending at this level will account for about 1 in every five dollars of the U.S. gross domestic product. Having to spend this amount prevents us as a country from making much needed investments elsewhere. Then too, very importantly, high medical insurance costs impose an undue burden on employers and their employees.

You hear or read various reasons for these high costs. Some say it's the drug companies; some blame medical malpractice lawsuits; some say expensive technology; and others indicate it's because of the high cost of all medical services.

When real medical treatment cost data is reviewed one reason for today's high cost is the soaring prevalence of chronic conditions, like diabetes, hypertension, asthma or depression. They add up to be 86% of our healthcare spending.

Note: About one-third (31.5%) of people in the U.S. have multiple chronic conditions.


There is another factor behind these every increasing costs! Most medical treatment and procedures are billed and paid today through a fee-for-service system. A visit to an MD’s office can create various charges, which will be submitted electronically to a health insurance company, MediCare, etc. showing the cost and the “treatment code” for each thing done during the visit. The provider is then paid for all these “things” without regard to quality and whether the treatment will have a positive outcome for the person.

Some sources say paying treatments this way is a big part of the large amount of spending and works as a big roadblock to a more efficient way to deliver care. From example, a report from the Bipartisan Policy Center indicated:

“Reimbursement under the fee-for-service model generates a strong incentive to perform a high volume of tests and services, regardless of whether those services improve quality or contribute to a broader effort to manage care.”
Fee for service also results in each MD, a person sees, not knowing about their other MD visits, tests, etc. This can result in duplicate tests and services.

Another issue in today’s payment system is MediCare and most health plans will not pay a primary care doctor for time to coordinate care with a specialist by telephone or email. When MDs try to keep a person healthy and don’t provide all possible tests, etc. they are paid less than when they do! There will also be reduced billing since the person won’t be coming in for care.

What all this tells us - health insurance is expensive today because the health care system is expensive.


What can be done to change today’s payment system and hopefully begin to control medical treatment costs?

To begin the second part of this post I want to share some points and comments on some steps toward payment reform. I’m glad to report part of the effort is to base treatment payments on the value of services provided. It’s not happening everywhere or uniformly but in small pockets of experimentation.
There are five strategies:

First — set up “medical homes” to coordinate care. Providers receive extra reimbursement when a patient’s primary care, specialists, and other providers work together on their total care. In one case the medical home process resulted in a 20 percent drop in inpatient hospital use and tightened control over drug costs.

Second — set up "bundled payments" for a total package of treatments necessary for a medical condition. Receiving one amount for a medical situation, vs for all the things, which are done for the person, can encourage a person’s MD to coordinate their services with other providers and not deliver extra services. In situations where this is used a person can find out up-front what it will cost for their planned surgery and follow-up care.

Third — set up “accountable care organizations” where providers are accountable for the overall quality and cost of care of the people they serve. They share in the savings of improved quality and when spending growth is slowed. In some of these they are also at financial risk if they do not meet their budget targets.

Fourth — setting "standard prices" for procedures and packages of treatments. Insurance companies agree to pay these amounts and providers agree to accept. Patients are also involved since they have to pay for any care from a provider whose prices are above the standard.

Fifth — design medical benefit plans to respond to certain medical situations. High-value services such as preventive services and certain prescription drugs are encouraged with a low or $0 co-payment. For example, people with diabetes could have the co-pays for their medications and their routine eye and foot exams waived. Co-pays for a person who does not have diabetes would not be waived.

The focus of these five strategies is to change how providers get paid for the health care they deliver. None of these payment approaches is perfect yet so there is a need to keep an eye on them. Three of the issues to watch.

First — to make sure quality does not suffer if providers are rewarded for containing costs. Today we have much better ways to monitor quality and compare providers so the possibility of an “I’m being denied care” backlash, as we saw when managed care was introduced in the 1980s, should not happen.

Second — to make sure providers don’t cherry pick healthy people. Steps will be needed to be sure the payment to a provider, who serves high-risk, high-cost people, can be adjusted based on how sick they are.

Third — stay on top of market concentration. Prices may be driven up if fewer and larger providers dominate markets and thus gain significant bargaining power with health plans.

Bottom line — it is important to act now to move away from the world’s most expensive health care.

Implementing change is never easy since human beings naturally resist it. To be effective extensive education for everyone on why the current medical treatment system must be changed will be an important part of implementing this; legislative and policy changes must be made; and today’s regulatory restrictions must be removed.

Please contact if any questions.

John C Parker, RHU, LTCP