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Reply Wed 2 Sep, 2009 06:20 am
I have a question that I would like to get the opinions of people in health care professions to provide an answer to. I know Aedes is in the health profession, and if anyone else wants to chime in, it would be welcome. Mostly though, I was wondering if anyone knew of a site or forum that I could post this to. Thanks ahead of time.

Ok, my central question is this:

Why is private health insurance insufficient in controlling or unable to control the costs of health care?

I have heard many times that the main problem with health care costs is with the "pay for service" style way in which providers are paid. This seems perfectly reasonable, as there becomes a disconnect between the costs of health care and the benefits of wellness and preventative care is neglected. Both of these symptoms are plainly observable.

The problem I have with this, though, is that most consumers of health care funnel their payments through insurance companies and do not particularly "pay for service" (even if there may be deductibles and copays). What's more, insurance companies also have an interest in cheap preventative care. My company actually saves money in the long run by offering company wide Gold's Gym memberships, for example, because it makes the insurance cheaper.

So, it seems that the central problems with our healthcare should be directly combatted by health insurance companies, but they are not. Why?
 
kennethamy
 
Reply Wed 2 Sep, 2009 06:31 am
@Mr Fight the Power,
Mr. Fight the Power;87584 wrote:
I have a question that I would like to get the opinions of people in health care professions to provide an answer to. I know Aedes is in the health profession, and if anyone else wants to chime in, it would be welcome. Mostly though, I was wondering if anyone knew of a site or forum that I could post this to. Thanks ahead of time.

Ok, my central question is this:

Why is private health insurance insufficient in controlling or unable to control the costs of health care?

I have heard many times that the main problem with health care costs is with the "pay for service" style way in which providers are paid. This seems perfectly reasonable, as there becomes a disconnect between the costs of health care and the benefits of wellness and preventative care is neglected. Both of these symptoms are plainly observable.

The problem I have with this, though, is that most consumers of health care funnel their payments through insurance companies and do not particularly "pay for service" (even if there may be deductibles and copays). What's more, insurance companies also have an interest in cheap preventative care. My company actually saves money in the long run by offering company wide Gold's Gym memberships, for example, because it makes the insurance cheaper.

So, it seems that the central problems with our healthcare should be directly combatted by health insurance companies, but they are not. Why?


How American Health Care Killed My Father - The Atlantic (September 2009)
 
Aedes
 
Reply Wed 2 Sep, 2009 06:38 am
@Mr Fight the Power,
Mr. Fight the Power;87584 wrote:
Why is private health insurance insufficient in controlling or unable to control the costs of health care?
Because insurance companies are not interested in controlling the costs of health care. They're interested in making actuarial decisions that lead to profit. Sure, preventive care is cheaper than hospital care, but even cheaper than that is insuring people who don't get sick, and refusing coverage based on indication rather than cost. I had an insurance company refuse to cover the hospitalization of a patient who needed an amputation for an ischemic leg, until I could finally talk to a medical director and get them to come and review the record.

Furthermore, insurance companies have only so much leverage. Hospitals generally operate on the very edge of fiscal stability (and often at a loss that is made up by endowments). When insurance companies decide to play tough and start covering services at rates so low that hospitals can't even make back their operating costs, generally the hospital will refuse to honor that insurance company anymore -- and this is a position no insurance company wants to be in, because local business and HR departments are not going to be too thrilled about offering this insurance to their employees, and the insurance company will lose subscribers.
 
Krumple
 
Reply Wed 2 Sep, 2009 06:48 am
@Mr Fight the Power,
My personal opinion is that the whole medical industry lacks a competitive market. The reason there is even medical insurance is because the medical costs are so high. The reason they are high is because it lacks options.

It is not that medical equipment is expensive to produce or so delicate that it is expensive to maintain. None of that. The reason the equipment is so expensive is because of government restrictions and for technicians to repair the equipment need to be certified. In other words the industry is heavily regulated and choked by all these unnecessary restrictions.

If there were more options, the cost would have to drop if the market were allowed to be competitive. Competitive markets are great for consumers, yet companies do not like competitive markets because they can't reap large profits.

The medical industry has been overran with lobbyists and has long since done away with a medical option that would be affordable to even the poorest. But this is not how the government has everyone duped. They say MORE restriction and MORE government intervention is the key to the success of health care. I say it will only shift the problem into another area but no problems are being fixed.

To put it in medical terms. The system is bleeding from a massive wound, yet the government is calling for a transfusion instead of tourniquet.

 
Aedes
 
Reply Wed 2 Sep, 2009 06:56 am
@Krumple,
Krumple;87597 wrote:
It is not that medical equipment is expensive to produce or so delicate that it is expensive to maintain.
Aside from the fact that this isn't the main cause of high healthcare costs, yes it is expensive to produce and maintain.

Krumple;87597 wrote:
The reason the equipment is so expensive is because of government restrictions and for technicians to repair the equipment need to be certified.
Which government agency certifies people to repair Siemens CT scanners, Nikon microscopes, and Vitek automated microbiology systems? I sure don't want the GE technician repairing a Siemens machine or vice versa. Repairs of proprietary equipment are made by the manufacturer. The manufacturer needs their equipment to meet certain standards to maintain FDA approval. In nearly all cases there is competition between different companies for the same modality of equipment -- even WoundVac now has a competitor.
 
Mr Fight the Power
 
Reply Wed 2 Sep, 2009 07:55 am
@Aedes,
Aedes;87593 wrote:
Because insurance companies are not interested in controlling the costs of health care. They're interested in making actuarial decisions that lead to profit. Sure, preventive care is cheaper than hospital care, but even cheaper than that is insuring people who don't get sick, and refusing coverage based on indication rather than cost. I had an insurance company refuse to cover the hospitalization of a patient who needed an amputation for an ischemic leg, until I could finally talk to a medical director and get them to come and review the record.


These two goals are not mutually exclusive. Health insurance companies would likely attempt to refuse coverage any chance they can, but it makes no sense to say that they wouldn't attempt to control the costs of health care as well and limit the costs of the coverage they do provide. The incentive would still be there.

You have also raised another question: Presumably providers and insurance customers would check an insurance company's ability to refuse coverage. Do you see it being the case that insurance have too much leverage in refusing important coverage, leaving customers without proper healthcare? What causes do you see for this?

Quote:
Furthermore, insurance companies have only so much leverage. Hospitals generally operate on the very edge of fiscal stability (and often at a loss that is made up by endowments). When insurance companies decide to play tough and start covering services at rates so low that hospitals can't even make back their operating costs, generally the hospital will refuse to honor that insurance company anymore -- and this is a position no insurance company wants to be in, because local business and HR departments are not going to be too thrilled about offering this insurance to their employees, and the insurance company will lose subscribers.


This is to be expected. I always figured insurance companies would reach a floor.

This is the core of the question. The market should, without inherent inefficiencies, reach a clearing level where the costs of providing healthcare should approximate the costs of providing it.

This obviously isn't happening, and this tells me that some group in the process is not allowed appropriate bargaining ability.
 
Aedes
 
Reply Wed 2 Sep, 2009 08:03 am
@Mr Fight the Power,
Mr. Fight the Power;87628 wrote:
These two goals are not mutually exclusive. Health insurance companies would likely attempt to refuse coverage any chance they can, but it makes no sense to say that they wouldn't attempt to control the costs of health care as well and limit the costs of the coverage they do provide. The incentive would still be there.
I think that insurance companies hope that health care controls costs on its own. Insurance tends to prefer covering generic rather than brand name drugs, for instance -- my mom was recently changed from Crestor to simvastatin (generic Zocor) because it's a lot cheaper and the insurance coverage was better (and co-pay lower). Insurance is usually quite willing to pay for outpatient IV medications, because it's a lot cheaper than keeping someone in the hospital.

Mr. Fight the Power;87628 wrote:
Do you see it being the case that insurance have too much leverage in refusing important coverage, leaving customers without proper healthcare? What causes do you see for this?
Well, I'd say that it's extremely rare that insurance refuses to cover something that you can truly justify medically. Medicine is more complicated than that, though, for instance sometimes it's really hard to get patients out of the hospital because of their social situation, but you're not really providing hospital-level care.


Quote:
This is the core of the question. The market should, without inherent inefficiencies, reach a clearing level where the costs of providing healthcare should approximate the costs of providing it.

This obviously isn't happening, and this tells me that some group in the process is not allowed appropriate bargaining ability.
I think what it comes down to is that there is simply no other economic model that healthcare fits, and intuition just never seems to work unfortunately.
 
Mr Fight the Power
 
Reply Wed 2 Sep, 2009 08:05 am
@Mr Fight the Power,
Most people who discuss such issues with me probably think that I have drank the free-market kool-aid.

I do, however, believe that the market could experience failures (with healthcare, because of the massive capital investment necessary, being a industry that could experience inefficiencies), and that some solution might be necessary.

I also combine my free-market leanings with the belief that people aren't such competitive rational beings and can come to good cooperative solutions without an iron fist to enforce it.

---------- Post added 09-02-2009 at 10:26 AM ----------

Aedes;87633 wrote:
I think that insurance companies hope that health care controls costs on its own. Insurance tends to prefer covering generic rather than brand name drugs, for instance -- my mom was recently changed from Crestor to simvastatin (generic Zocor) because it's a lot cheaper and the insurance coverage was better (and co-pay lower). Insurance is usually quite willing to pay for outpatient IV medications, because it's a lot cheaper than keeping someone in the hospital.

Well, I'd say that it's extremely rare that insurance refuses to cover something that you can truly justify medically. Medicine is more complicated than that, though, for instance sometimes it's really hard to get patients out of the hospital because of their social situation, but you're not really providing hospital-level care.

I think what it comes down to is that there is simply no other economic model that healthcare fits, and intuition just never seems to work unfortunately.


I will certainly admit that healthcare is extremely difficult to analyze economically. Economics assumes rationality, but healthcare, probably more than any other industry besides protection, tugs on our heartstrings. We simply don't behave ultra-rationally when it comes to health.

Economic trends will still apply generally, however, and we can assume there is some rhyme and reason to healthcare provision and costs.
 
Aedes
 
Reply Wed 2 Sep, 2009 09:09 am
@Mr Fight the Power,
There are many unique aspects of medicine that make conventional economics not really apply. Firstly, the consumers (patients) are not primarily motivated by value vs cost considerations, they generally want whatever will give them the best outcomes. They're also generally uninformed purchasers, i.e. they are not qualified to critically evaluate their choices or even what a realistic outcome is.

Next, the sellers of services are not primarily or entirely motivated by profit, and the people who ARE motivated by profit are not really the ones making clinical decisions. I personally believe that WAY too many CT scans get ordered in emergency rooms, but this is primarily motivated by ER staff's clinical fear of a bad outcome, concern for medical liability, and lack of patient follow up (in other words they can't as easily say why don't you call me tomorrow and if it still hurts we'll do the scan then). So CYA medicine is more of a motivator than profit, and this is extremely hard to control without GOOD clinical research (including comparative effectiveness and cost effectiveness, which are in my mind by far the most valuable proposals in the reform plan). Part of what I'm getting at here is that doctors are not entirely informed either, because the existence of a test or a treatment doesn't automatically mean it SHOULD be used.

And these are but two aspects and variables amid many others (like that patients are removed from the true costs of their care, and that ethics would dictate that someone's personal ability to pay should not affect what kind of care they are offered -- it's not like buying a car or a TV).
 
 

 
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