superrific
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This might be a good time to discuss the role that health insurers play in our health system, and whether they deserve the type of scorn they get. I learned from Paul Krugman the effectiveness of starting with an extremely simple model and then adding constraints, so let's do that.
1. Imagine a world with no health policy. It's just free market, with doctors and patients. How well does that relationship work for patients? Not well. There are two problems that can happen when you go to the doctor:
Doctor: I have bad news for you. You have Bonus Eruptus, a rare disease.
Patient: Oh, that sounds bad. Can I get a second opinion?
Doctor: Sure, but you've got about 12 hours to live without the procedure I can perform on you now
Patient: How much will it cost?
Doctor: All your worldly possessions, save the clothes on your back. Better to be a pauper than dead.
Doctors have the leverage because of their special expertise and because the service they provide can be, in some cases, obscenely valuable.
2. So faced with this market, what would patients do? Well, first, they have to organize together. Individual patients can never exert any leverage while they are potentially dying from lack of care. So we need a company (let's call it Spangle) of some sort that will represent patients, who will pay membership fees to be represented by it in negotiations. And what will Spangle do? First, it will negotiate sensible rates with the doctors. A doctor, after all, doesn't care about the repeat business of the patient who has already been billed "all your worldly possessions," but the repeat business from Spangle's members is certainly important. Thus can Spangle get the doctors to sign contracts that lay out a price schedule in advance, in exchange for the ability to treat Spangle patients.
But reimbursement doesn't fully fix it. You also need limits on what services can be charged. Otherwise, the treatment for Bonus Eruptus will consist of 1000 injections, each of which billed at the reasonable rate of $50 per. We'll be back to the "all worldly possessions" problem unless Spangle reserves the right not to pay for unnecessary treatments.
If Spangle sounds like what we would call a health insurer, that's not by accident! Indeed, this is how the health insurance market developed way back before WWII, and it's why the insurers were, for a very long time, organized as mutuals. At the beginning, they were nothing more than patient advocates that also pooled money to socialize expenses. They were the good guys! Really, they were.
3. So what went wrong? Why do people hate their insurers? Well, first, we need a bit more accurate terminology. Spangle didn't start life as an insurer -- not exactly. There wasn't a whole lot of insurance required in those days, because there wasn't all that much medical care. What patients needed was a centralized payer -- and indeed, that's exactly what Spangle became.
Then Employers got involved. Possibly the worst thing to happen to American health care, at least in the long run, was the special tax treatment provided for employer-paid health benefits. There were good reasons to get employers involved, to some degree. One major problem in any insurance market is self-selection. If insurance is priced at the average amount needed for the insurer to remain solvent, it will be too expensive for some people -- i.e. healthy people who have little risk and thus don't want to pay a lot for insurance. So they will opt out, leaving a smaller, sicker pool of patients seeking insurance. But now some of the people who were willing to pay the old rates are not willing to pay the new rates required by the sicker population. Iterate many times and you get the insurance death spiral, where insurance keeps getting increasingly expensive until it disappears.
The advantage of employer-sponsored health insurance is that employers can deliver large numbers of patients all at once. IIRC, the original health insurance models tended to be negotiated as part of union contracts, and they didn't require patient contributions or co-pays or anything like that. You worked at GM, you got your medical bills paid for. The health payer now gets a mix of healthy and unhealthy employees (esp. when you include family coverage), which reduces its risk, and it has a captive market that it can rely on to keep delivering the patients needed to keep the risk pool manageable.
But the problem with employer sponsored health insurance is familiar to us all: the employer is the buyer but not the user. And the employer doesn't necessarily care very much if patients occasionally get frustrated by the payment setup. After all, most employees are not patients most of the time. And non-patient employees will tend to value more compensation than a better experience in a service they don't use. Also, the no-copay system created very high costs. So co-pays and deductibles started to be imposed.
4. The modern "health insurance" company was born from this arrangement. Our company Spangle had policies that weren't aggressive in paying for care; mostly it just reviewed bills to make sure there weren't any utterly ridiculous charges or treatments. But then a competitor pitches employers on a new approach: being more restrictive in the treatments paid for, and how much they are paid, and thus halve what employers had to pay. It's not hard to see how this is going to work out -- Spangle can't survive unless it also starts clamping down on claims. Everyone has to be like United Health, because otherwise United Health will take their business.
Employers turned Blue Cross/ Blue Shield from a well-liked mutual another faceless corporate villain. But there were no alternatives, because nobody else could deliver huge batches of patients with a high risk diversification. Individual markets were dysfunctional for reasons sketched out above. There's also the potential for government to get involved; we can deal with that in another post or another thread.
5. Anyway, once Blue Cross/Blue Shield stopped being a mutual, and instead became a corporation . . . well, we know how this story ends. Profits and shareholders and all that. But even though the payers are now hated, they still perform an important function. Reimbursement rates and prior approvals are generally good things for patients. Sometimes we hate them, but without them, medical care would be even more expensive than it is now.
And that matters because otherwise we do stupid things like . . . get pissed off at payers who try to limit payments to anesthesiologists. That Anthem policy that has come under fire? That was good for patients! It was bad for some of the most overpaid doctors in the world. And somehow, those doctors managed to enlist populist anger at insurers to protect their bottom line. Hey liberals, you were had! Wake the fuck up! Hey Chris Murphy, BMW dealers all across the country thank you for helping to crush that Anthem policy -- you've helped ensure that their best customers continue to rake in the money and thus continue to buy luxury vehicles.
www.vox.com
Now, in fairness, this type of policy change would have been terrible a decade and a half ago. That's because of the way doctors fought back against health payers once they stopped being mutuals: balance billing. When the payers were mutuals and looking out for their members, balance billing was (IIRC) typically prohibited by the reimbursement contracts. But once they became corporations mainly catering to employers . . . . they stopped caring, because their incentives were skewed. The employers would much rather pay $75 per doctor visit, with the doctor having the ability to charge the patient an extra $50, than to pay $90 per visit. Only a handful of patient/employees would suffer, and again most of the workers would enjoy higher pay. Companies that didn't permit balance billing would lose all their business, and again it's easy to see where this is going.
But balance billing is now illegal. And without balance billing, the risks of policies like Anthem's are not borne by patients at all.
6. THUS, IN CONCLUSION:
Health insurers used to be patient advocates. They still perform economic functions that overwhelmingly favor patients. Without third-party payers, health care would be way more expensive than it is now. BUT over time, the insurers became captured by THEIR payers, and they morphed from good guys into some of the more reviled companies anywhere.
BTW, and this is really worth another post if not another thread: these problems are endemic to paying for health care. If we were to go to Medicare For All, we'd have to do a better job of grappling with these issues than Medicare does. Otherwise, costs will grow out of control. And then, I imagine, people might not like Medicare as much as they do now. It's tricky.
1. Imagine a world with no health policy. It's just free market, with doctors and patients. How well does that relationship work for patients? Not well. There are two problems that can happen when you go to the doctor:
Doctor: I have bad news for you. You have Bonus Eruptus, a rare disease.
Patient: Oh, that sounds bad. Can I get a second opinion?
Doctor: Sure, but you've got about 12 hours to live without the procedure I can perform on you now
Patient: How much will it cost?
Doctor: All your worldly possessions, save the clothes on your back. Better to be a pauper than dead.
Doctors have the leverage because of their special expertise and because the service they provide can be, in some cases, obscenely valuable.
2. So faced with this market, what would patients do? Well, first, they have to organize together. Individual patients can never exert any leverage while they are potentially dying from lack of care. So we need a company (let's call it Spangle) of some sort that will represent patients, who will pay membership fees to be represented by it in negotiations. And what will Spangle do? First, it will negotiate sensible rates with the doctors. A doctor, after all, doesn't care about the repeat business of the patient who has already been billed "all your worldly possessions," but the repeat business from Spangle's members is certainly important. Thus can Spangle get the doctors to sign contracts that lay out a price schedule in advance, in exchange for the ability to treat Spangle patients.
But reimbursement doesn't fully fix it. You also need limits on what services can be charged. Otherwise, the treatment for Bonus Eruptus will consist of 1000 injections, each of which billed at the reasonable rate of $50 per. We'll be back to the "all worldly possessions" problem unless Spangle reserves the right not to pay for unnecessary treatments.
If Spangle sounds like what we would call a health insurer, that's not by accident! Indeed, this is how the health insurance market developed way back before WWII, and it's why the insurers were, for a very long time, organized as mutuals. At the beginning, they were nothing more than patient advocates that also pooled money to socialize expenses. They were the good guys! Really, they were.
3. So what went wrong? Why do people hate their insurers? Well, first, we need a bit more accurate terminology. Spangle didn't start life as an insurer -- not exactly. There wasn't a whole lot of insurance required in those days, because there wasn't all that much medical care. What patients needed was a centralized payer -- and indeed, that's exactly what Spangle became.
Then Employers got involved. Possibly the worst thing to happen to American health care, at least in the long run, was the special tax treatment provided for employer-paid health benefits. There were good reasons to get employers involved, to some degree. One major problem in any insurance market is self-selection. If insurance is priced at the average amount needed for the insurer to remain solvent, it will be too expensive for some people -- i.e. healthy people who have little risk and thus don't want to pay a lot for insurance. So they will opt out, leaving a smaller, sicker pool of patients seeking insurance. But now some of the people who were willing to pay the old rates are not willing to pay the new rates required by the sicker population. Iterate many times and you get the insurance death spiral, where insurance keeps getting increasingly expensive until it disappears.
The advantage of employer-sponsored health insurance is that employers can deliver large numbers of patients all at once. IIRC, the original health insurance models tended to be negotiated as part of union contracts, and they didn't require patient contributions or co-pays or anything like that. You worked at GM, you got your medical bills paid for. The health payer now gets a mix of healthy and unhealthy employees (esp. when you include family coverage), which reduces its risk, and it has a captive market that it can rely on to keep delivering the patients needed to keep the risk pool manageable.
But the problem with employer sponsored health insurance is familiar to us all: the employer is the buyer but not the user. And the employer doesn't necessarily care very much if patients occasionally get frustrated by the payment setup. After all, most employees are not patients most of the time. And non-patient employees will tend to value more compensation than a better experience in a service they don't use. Also, the no-copay system created very high costs. So co-pays and deductibles started to be imposed.
4. The modern "health insurance" company was born from this arrangement. Our company Spangle had policies that weren't aggressive in paying for care; mostly it just reviewed bills to make sure there weren't any utterly ridiculous charges or treatments. But then a competitor pitches employers on a new approach: being more restrictive in the treatments paid for, and how much they are paid, and thus halve what employers had to pay. It's not hard to see how this is going to work out -- Spangle can't survive unless it also starts clamping down on claims. Everyone has to be like United Health, because otherwise United Health will take their business.
Employers turned Blue Cross/ Blue Shield from a well-liked mutual another faceless corporate villain. But there were no alternatives, because nobody else could deliver huge batches of patients with a high risk diversification. Individual markets were dysfunctional for reasons sketched out above. There's also the potential for government to get involved; we can deal with that in another post or another thread.
5. Anyway, once Blue Cross/Blue Shield stopped being a mutual, and instead became a corporation . . . well, we know how this story ends. Profits and shareholders and all that. But even though the payers are now hated, they still perform an important function. Reimbursement rates and prior approvals are generally good things for patients. Sometimes we hate them, but without them, medical care would be even more expensive than it is now.
And that matters because otherwise we do stupid things like . . . get pissed off at payers who try to limit payments to anesthesiologists. That Anthem policy that has come under fire? That was good for patients! It was bad for some of the most overpaid doctors in the world. And somehow, those doctors managed to enlist populist anger at insurers to protect their bottom line. Hey liberals, you were had! Wake the fuck up! Hey Chris Murphy, BMW dealers all across the country thank you for helping to crush that Anthem policy -- you've helped ensure that their best customers continue to rake in the money and thus continue to buy luxury vehicles.
A big insurer backed off its plan to pay less for anesthesia. That’s bad.
What the fight between Anthem and anesthesiologists was really about.
www.vox.com
Now, in fairness, this type of policy change would have been terrible a decade and a half ago. That's because of the way doctors fought back against health payers once they stopped being mutuals: balance billing. When the payers were mutuals and looking out for their members, balance billing was (IIRC) typically prohibited by the reimbursement contracts. But once they became corporations mainly catering to employers . . . . they stopped caring, because their incentives were skewed. The employers would much rather pay $75 per doctor visit, with the doctor having the ability to charge the patient an extra $50, than to pay $90 per visit. Only a handful of patient/employees would suffer, and again most of the workers would enjoy higher pay. Companies that didn't permit balance billing would lose all their business, and again it's easy to see where this is going.
But balance billing is now illegal. And without balance billing, the risks of policies like Anthem's are not borne by patients at all.
6. THUS, IN CONCLUSION:
Health insurers used to be patient advocates. They still perform economic functions that overwhelmingly favor patients. Without third-party payers, health care would be way more expensive than it is now. BUT over time, the insurers became captured by THEIR payers, and they morphed from good guys into some of the more reviled companies anywhere.
BTW, and this is really worth another post if not another thread: these problems are endemic to paying for health care. If we were to go to Medicare For All, we'd have to do a better job of grappling with these issues than Medicare does. Otherwise, costs will grow out of control. And then, I imagine, people might not like Medicare as much as they do now. It's tricky.
