By Robert Nelson, MD
Our health insurance-based third-party payer protocols have pernicious and nefarious economic consequences on the cost of medical care; and in many ways has diminished access due to regulatory complexities that accompany these interventions.
The undeniable result continues to be a rampant increase in healthcare prices, which is catalyzed by the economic distortions of the 3rd party payer effect and perpetuated by the price-obscuring distortions of the CPT billing cycle.
We have taken the concept of insurance, designed to pay out rare higher-priced claims on unpredictable events, and turned it into a product whose design promotes an incentive for everyone to use it as often as possible.
Insurance is sustainable only when the financial risks of individually rare events are spread over a large population. When it also becomes a funding source for anticipated and affordable events, combined with a perverse incentive to utilize it to the margin, the result is the creation of a perpetual payout fund.
The costs of sustaining this model are never satisfied, being squeezed by patients who are chasing the benefits and providers who chase the billing codes to achieve maximal reimbursement.
As evidence for the negative consequence of misusing insurance as a pass-through system for virtually every healthcare expense (accelerated by passage of the ACA), we can examine the employer-sponsored group market premiums.
From 2007 – 2017 the average premium for family coverage increased by 55% and employee contribution rate as a share of premium cost increased by 74% over the same 10-year period; while median household income went up by only 3%.
To add financial injury to insult, the percentage of employees with an out-of-pocket maximum of greater than $3,000 doubled, going from 30% to 60% of employees.
“Eighty-one percent of covered workers have a general annual deductible for single coverage that must be met before most services are paid for by the plan. Among covered workers with a general annual deductible, the average deductible amount for single coverage is $1,505.” ~KFF.org
Between 2012 – 2017, the percentage of covered workers with a general annual deductible of $1,000 or more for single coverage has grown substantially, increasing from 34% in 2012 to 51% in 2017. Thirty-seven percent of covered workers in small firms are in a plan with a deductible of at least $2,000, compared to 15% for covered workers in large firms.
In the ACA individual market insurance exchanges, single coverage premiums (unsubsidized) increased by 62% and family coverage premiums increased by 75% just since implementation of ObamaCare!
Our third-party payer system has created a dependency trap! The same financial tool we rely on to pay our healthcare providers also contributes to runaway costs; making us more dependent on it for access. This guarantees that Healthcare will cost significantly more than the sum of its individual parts, and will continue to escalate faster than our ability to pay for it.
The costs associated with health plan premiums (aka insurance) have become a surrogate for health-care costs.
Now let that sink in!
In what other market does the cost of an insurance product act as substitute for the aggregate cost of the product or services that it insures?
Now apply a similar scenario to the auto insurance market. It doesn’t take much imagination to extrapolate how that would play out. But if you want some help visualizing the scenario, here’s a brief vignette. https://lnkd.in/eUGeCKv
Self-insured employer health plans are in a unique position to break out of this dependency paradox.
By contracting with a Direct Primary Care practice and re-routing subsequent encounters away from the more expensive insurance-based protocols, Self-insured employers can utilize creative plan designs to cut costs and improve employee satisfaction.
Data from the Qliance experience, and supported by other self-insured employer’s experiences, utilization of efficient primary care via the DPC model reduces unnecessary downstream care by approximately 50%, with the resultant aggregate cost savings of nearly 20%.
The caveat being, as we double the number of primary care visits combined with longer visits to adequately address problems, the need for emergent visits, ER visits and specialty intervention drop significantly.
A similar level of savings for direct-pay lab tests was noted in data published in 2014 by CMT journal comparing lab fees charged to a Direct Pay practice by the lab vs. the CPT billed charges by the lab (assuming patient had no coverage or had not met their deductible). For five common blood tests the savings was 89% by not using insurance, with lab billed charges of approximately $782 compared to a direct pay cost of $80. Plum Health, a direct primary care practice in Detroit, shows similarly impressive lab test savings of 87% on six common blood tests; $811 vs $106.
Many Self-insured companies are beginning to discover the value and savings in this approach, while breaking free of the coverage trap and the myth that health insurance equates to health care; and the realization that so-called “access” to inflated pricing and the phony discounts used to fleece the buyer is no longer a conversation they are willing to have.
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But we can’t lose sight of the economic reality that individuals always pay the cost of benefits, either directly or indirectly. And linking benefits to employment has been a colossal policy mistake and the genesis of job-lock and our 3rd-party payer system, which has been the source of runaway costs for 50 years. As the graph illustrates, insurance (3rd party payer) is now a near surrogate for total healthcare costs!
FACT: Every dollar of tax-favored benefits paid by our employer reduces our take-home pay.
Getting first dollar decisions in hands of consumers will also be deflationary and spur competition; and essential to the goal of eventual portability & ownership of benefits. To do otherwise, with too much focus on a new & improved generation of employer-sponsored healthcare plans, will lead us right back to where we started.
