Insurance Conflict of Interest   5/94

Health insurance has been around for several generations. My twelve year old Britannica describes major health insurance as coverage without specific limitations, with a maximum per person, a deductible amount, and a percentage deductible amount called co-insurance under which the insured usually pays 20% of each medical bill above the deductible amount.

If that definition were still valid we would not have a health care dilemma today. The cost of insurance would be reasonable. The cost of hospital care would be considerably less than what it is today.

Health Insurance Problems

The above source also lists a number of inherent problems or abuses. It states health insurance has a particularly important condition related to renewability. The insurer may refuse to renew coverage for a subsequent year, or at a higher premium rate because of claim experience with specific disease exclusions. It also notes that health insurance lends itself to over utilization, and escalates rising medical care costs because of increased ability to pay. Insurance makes it easier to pass on rising hospital costs. Group health insurance has corrected only some of these problems. If you lose your group plan or become unemployed, one has a rueful awakening.

What went wrong? Someone else, usually our employer, paid the premium. Our employers, who may be good at making cars, had no idea as to what they were purchasing. In fact our largest car manufacturing company announced an extra $22 billion deficit in 1992 in order to put aside funds for future health insurance premiums. This translates into $800 added to the price of each new car, in addition to the $700 cost of current health insurance per car.

Insurance Supports Excessive Charges

During the past decade home oxygen was coming into its own as routine therapy for respiratory failure. A number of oxygen supply companies offered as much as $50,000 for a pseudo-directorship if we would give them 85% of our home care oxygen business. They were dismayed when we declined. It is incomprehensible to most of us physicians that insurance reimbursement can be so lucrative to those that provide a service that ordering one treatment modality directed to one oxygen company could give us an extra $50,000.

What Is Insurable?

We need to get back to basics. What is insurance designed to cover? We obtain car insurance to provide for the unexpected damage to our vehicle, to other property in driving that vehicle, injury to us in the process, or loss of it's use as in a collision or theft. We can not buy insurance to cover basic maintenance such as oil changes, brakes, or even tires.

The process of aging cannot be insured. In this country we have Medicare, paid by taxes to cover us during our old age or after long-term disability. We have Medicaid to cover those less fortunate.

We (and 35 million working Americans without insurance) need health insurance to cover us for the hundred or so catastrophes that may occur such as heart attacks, strokes, cancer, etc. Office visits are no more insurable than car service calls are insurable. If we can't get a patient to pay for his office visit, then we have not done as good a job in pointing out the value of preventive maintenance of our bodies as the car salesman in pointing out the need for basic car care.

Hospital Cost Benefit Analysis & Control

The only way patients will see the value of a product is by being made aware of the cost of the test or treatment at the time of service and the benefit to be derived from it and to be financially responsible to some degree.

Dr. James P. Weaver of Durham, N.C. reports a case of ruptured abdominal aneurysm in a 70 year old male who amazingly made it not only to the ICU, and two months in the ICU, but also survived a 3 and 1/2 month hospitalization. He had lost so much weight, that his dentures didn't fit. Dr. Weaver advised him to see a dentist. The dentist said he could help and it would cost $75. The patient was angry about the exorbitant cost and refused to spend $75 of his own money after spending $275,000 of "other people's money" for the best technology that nine consultants felt that his insurance company should buy.

We have found in our discussions with patients that a 10% co-payment for the hospital charges provides the best possible patient monitoring of his own costs during a hospital admissions to the absolute shortest stay and smallest bill. This seems to be the case also in wealthy patients who seem to be more concerned about costs even though they can well afford them. In our example above the patient's attitude would be one of cooperation and cost control. In view of the 400% variations in hospital charges, the above hospital bill could possibly have been one half since the patient would want to decrease his/her 10% portion.

Out Patient Hospital, ER, or Surgicenter Cost Control

Hospital ER charges are now averaging over $600. Over-utilization for non-emergencies continues to be a significant healthcare cost factor. Anecdotal information suggests that a 20% co-payment on hospital outpatient, emergency room and surgicenter charges essentially eliminates all unnecessary minor surgery, endoscopy, and emergency room visits.

Office Cost Control by Patient Responsibility

Because of the lucrative insurance re-imbursement, the number of oxygen companies grew about ten-fold in one community. Physicians, as well as others, may be unable to do cost-containment. The patients, who ultimately pay directly through premiums or indirectly through taxes, may be the only ones to really contain costs. Mr. JS, a 65 year old male with COPD had congestive cardiomyopathy (LVEF 25%) and respiratory failure (PO2 up to 48 at time of discharge). The home oxygen bill was about $600 a month for a concentrator and portable system he did not use since he refused to take oxygen to work. His 20% medicare portion was $120. He felt this was exorbitant and found an oxygen company that would provide the oxygen at $150 a month, only $30 more than his co-pay and that would save Medicare $450 a month.

It looks like my 12 year old Britannica is right. Health insurance does escalate medical costs. I don't think many of us appreciated the magnitude of that exorbitant increase. And most people would not have the public or taxpayer's interest at heart like my patient mentioned above by eliminating 75% of the oxygen costs by increasing his own costs by $30.

Health Care Cost Containment, the 90/80/50 Plan

From observations in asking patients what it would have taken to reconsider the option used, it appears that a co-payment of 10% of the hospital negotiated fee, 20% of the outpatient surgery/ER fee, and 50% of the outpatient office/laboratory fee would bring about a 30-40% reduction in health care costs and contain the costs in the future.

There is evidence that some companies with employee/patient involvement have reduced their health expenditures by 30%. Hence, the 30-40% figure is a very conservative estimate. Obviously 100 million patients looking at their statements will be more effective at reducing their costs than one million reviewers paid by insurance companies or tax dollars.

Insurance Company Conflict

There are two divisions to an insurance company. The division that markets the policies and extols all the benefits (covered consults, office calls, to hospital care and laboratory testing) and the division that handles the claims for these services. The insurance company is unable to be realistic with their sales force. Without the initial sale, there would be no claims to service or company in existence. So what is the answer to the dilemma?

National Health Care Policy

There are numerous companies selling health insurance and each company has a multiplicity of plans. The patient is totally confused in a highly sophisticated field and may be unable to make an informed intelligent decision.

One debate that is currently taking place in Washington is what benefit the employer should be allowed to pay tax free. The tax code may be the resolution to the conflict.

If the premium for a health insurance plan to cover the 90/80/50 benefit level is the only amount allowed to be deducted, then it would soon become standard practice for all employers to offer coverage for the 90/80/50 plan. Full coverage would be unpopular because it would cost at least twice as much and would be taxable. Most people would feel they could make better use of the additional funds.

The reported premium for a healthy single person by one Blue Shield plan is $90 per month, and this still covers some preventive care. Hence, it would seem that a premium of $85 per employee, $85 for spouse, and $45 for each child, would cost a family of four $260. This would make insurance affordable to most employers.

To make this plan portable, employees should be able to continue the same plan on termination and it should also be tax deductible to him as it was to his employer. And the taxpayer's cost is zero dollars and zero cents.

The vast majority of the 35 million Americans without insurance are only briefly out of work. To assure them coverage during the month or three they are between jobs, the insurance commission would decree that the grace period will be increased from one month to three month to allow catch up of premiums when re-employed.

The above numbers are approximations at best. However, they are more accurate than any government projections so far. The Medicare costs had a 500+% increase in reported premiums the very first year from President Johnson's promise of $1 per month. The renal dialysis program in 1972 had a 400% increase in cost over that projected and continued at a 400% increase over the 5 year projections in 1977.

It would make sense to implement a 90/80/50 plan, tax deductible to our patients or employer, that would be to our patient's benefit, costs no tax dollars, would not increase the budget deficit, would not increase the national debt, and reduce health care costs at least 25% to about 12% of our GDP with no additional expensive bureaucracy. Our country's survival and our children's freedom may depend on it.