As part of promoting health care reform, the President and the Democrats made a case against insurance companies and health insurance premiums. Controlling premiums became the synonym for “affordable.” That effort continues under new HHS regulations targeting premium increases for review as “unreasonable. “ Indeed the average person may be inclined to agree that the problem with health care is the high premiums and payroll deductions they pay. Targeting the most visible symptom of health care costs is easy and popular, but unproductive.
In reality, you must start from the bottom up. Limiting by dictate any aspect of health care has its consequences and may directly affect quality, accessibility and availability. That is not to say there is no room for improvement and a great deal more coordination and efficiency and yes, true competition.
However, the competition is not among insurance companies as we may believe, but rather among health care providers who should be competing on both quality and price. The problem is as consumers we do not have the ability to access either. In addition, providers have little incentive to care about costs. There is a trend among physicians to consolidate their practices and to form larger and larger groups, not so much to become efficient but as a defensive measure when negotiating prices with insurance companies. Health insurance companies gain more influence with a larger enrollment in an area (the reason why competition among more insurance companies in an area is counterproductive). Likewise, a large group of physicians will have greater bargaining power because it will be treating more patients and insurance companies will be in a position of having to enroll this group practice (at higher reimbursement rates) to attract new customers. Thus, we have driven premiums higher. In other words, we are again solving a problem ass backward.
Managing health care costs is a tricky business because of our perceptions about quality and cost. In reality, managing costs starts with managing ones health to the maximum extent possible. That is the bottom of the pyramid. Next is assuring that only necessary care is provided. That means better coordination, less duplication of services and less use of high-tech equipment. Then we have patient compliance with the care prescribed and the medication given. When serious illness strikes we need to raise the standards for hospitals to that of centers of excellence. Finally, we need to better manage end of life care (where have you heard that before?).
All this sounds complicated and yet it is only the tip of managing health care costs. Insurance companies must play a key role in all this (things like pre-certification, medical necessity review, etc.) and that will make many people unhappy because they will no longer get all they want when they want it…unless they pay themselves. As long as we think the doctor and patient are the only people to make health care decisions, we have no hope of dealing with health care costs within the current system.
If we are going to continue with a fee-for service system where the income incentive drives providing more services, we also must decide what is fair compensation for health care professionals is. That would be easy if physicians were compensated with a salary like most people but they are not. If we are wed to the current system, then we must expect misaligned incentives to continue to drive health care spending.
Last, we have a driver of aggregate cost that no one can solve, an aging population. This added to all the other factors discussed is what drives Medicare costs, the single most significant budget problem in the federal budget.
The next time you hear a politician or bureaucrat talk about controlling premiums and preventing insurance companies from interfering between doctor and patient you will know he is not talking about solving the health care cost problem. When you hear a suggestion to limit payment for this or that or to remove any cost sharing from a health care service, you will know the person speaking does not understand the health care system or human behavior.
Remember, when a health care service is limited or denied all that means is that someone else does not want to pay for it, but you can pay for it yourself if you like…unaffordable? Oh, we are back to the real problem, the cost of health care.
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