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.
“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.
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.
“In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause—it is seen. The others unfold in succession—they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference—the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse.” Frederic Bastiat
The results of the immediate/ intended effects (the seen) and the subsequent/ unintended effects (the unseen) of U.S. healthcare policy are clearly instantiated by examining the way we use, and misuse, health insurance. Despite the ostensibly good intentions to improve access by expanding coverage for various medical services, the “ultimate consequences are fatal, and the converse.”
Our insurance-based third-party payer protocols have pernicious and nefarious economic consequences on our healthcare system. This manifests as rampant healthcare inflation catalyzed by the macroeconomic market distortions of the 3rd party payer effect and perpetuated by the microeconomic price-obscuring distortions of the billing cycle.
Stated differently, 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 for 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.
From kfforg.
“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…”
The average deductible for covered workers is higher in small firms than in large firms ($2,120 vs. $1,276) …
Over the last five years, however, 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 paradox; the same funding method that contributes to runaway costs also causes us to be 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.
Even if American doctors took a 50% pay cut and we could eliminate the spend equal to all care during last 12 months of life (retrospective knowledge of course), we would still spend more per capita on healthcare than any other country. All components of healthcare spending add to cost of care. But the overwhelming cost drivers for the U.S. healthcare system are embedded so deeply within the way we access and pay for medical services that we often overlook them, choosing instead to blame the symptoms for the disease rather than the disease for the symptoms.
Self-insured employer health plans are in a unique position to break out of this dependency paradox. As discussed in part 2 of this series, 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.
Considering that approximately 65% of 160 million employees who have insurance in the workplace are covered under a self-funded plan, representing over 100 million lives, the aggregate savings can be substantial even after accounting for membership costs.
Let’s compare traditional insurance-based coverage for primary care vs a self-funded model with DPC at the hub and count the costs.
In broad context, the large volume of data from the Qliance experience, and supported by other self-insured employer’s experiences, efficient primary care via the DPC model reduces unnecessary downstream care by approximately 50%, with the resultant cost savings. 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.
Consider that between 2002 and 2016, medical costs for a family of four in an employer-sponsored PPO plan increased 180%, with the percentage of employees facing out-of-pocket maximums of $3,000 or more have doubled! Given that household income has barely budged in real dollars since 2002, these increases are clearly not sustainable. By contrast, the auto insurance market (a real indemnity product) increased by only 17% from 2007 – 2016, while deductible offering ranges remained stable, averaging $500.
The introduction of DPC has deflated these cost escalations considerably.
In the individual market, data from several sources bears this out. CovenantMD, a Direct Primary Care practice in Lancaster, PA illustrates the potential savings based on a typical family’s utilization.
They compared the total costs incurred using a Bronze ACA plan with $6K individual/$12K family deductibles without and with a DPC membership at CovenantMD. Pairing a Bronze Plan with a DPC membership at CovenantMD resulted in an out-of-pocket savings of $7,267, even after the cost of the membership was counted. That is a 65% reduction in out-of-pocket costs!
Zenith Direct Care did a similar analysis for a typical family of five with an 80/20 plan with $3,000 deductible. They compared annual costs for this scenario with a Zenith Direct Care membership plus a Health Cost-share Plan (health-sharing member). Estimated out-of-pocket costs with the traditional insurance alone was $18,343 compared to $6,160 with the Zenith/HCS combination. A savings of 66%!
Next, let’s explore the advantages of utilizing DPC in a self-funded plan in place of insurance-based primary care by looking at lab and pharmaceuticals prices.
Core Family Practice, a DPC practice in Kennett Square, PA, compared a 90-day supply of four common primary care medications purchased through Aetna’s Mail-order supplier with the prices their members pay for same quantity. The annual cost for the Aetna mail-order came to $2,248.68 compared to only $850.80 for the same medications from Core’s generic supplier, which were dispensed in the office. That $1,397.88 savings equates to a 61% reduction in out-of-pocket costs for the married couple! They also looked at the costs of obtaining three sets of commonly ordered lab tests for the same couple. Out-of-pocket costs using their high-deductible plan (QHDHP) was $480 in lab test responsibility. The same tests drawn and paid at time of services to Core FP totaled $63.17 yielding an incredible 87% reduction.
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.
The evidence is overwhelming. With DPC at the hub of the benefits package, combined with proper utilization of insurance, Self-insured employers and employees are enjoying undeniable and significant cost savings.
Using DPC as a free-market-friendly alternative to traditional insurance-accessed primary care not only saves employers directly on coverage costs, but the model has a huge impact in reducing patients’ out-of-pocket costs incurred from laboratory tests, pharmaceuticals and imaging services.
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.
Consider the costs (of continuing the status quo) counted!
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.The savings can be substantial even after accounting for membership costs.
Imagineyou’ve just been named Healthcare Czar of the United States. Your mandate is to achieve highly effective primary care.The road-map to effective primary care includes eliminating barriers between physicians and patients, including bureaucratic inefficiencies, while simultaneously decreasing the over-all cost of primary care.
Since PPOs make their revenues off access fees with absolutely no responsibility to screen claims for accuracy and since their market value is directly tied to the number of physicians and facilities they have inside their networks, employers and their administrative payers’ demands for transparency have gone unmet over the last decade. This has led to the significant movement to eliminate PPO arrangements altogether as they not only provide no real value to the healthcare equation but in many cases promote a negative value. This is the efficient market theory at work, all elements within a market that do not add value to the overall market will eventually be eliminated.
“Just as health insurance is not health care, so too health insurance reform is not health care reform. Yet, because the ACA got so much press, and many previously uninsured individuals did secure insurance (giving us all the warm and fuzzies), the result was a nationwide misconception that affordable insurance equates with affordable health care. For many, ObamaCare is therefore viewed as a success because millions of uninsured Americans are now insured.
Yet, insurance isn’t a magical money-tree. Like a college student wielding his first credit card, a newly insured America forgets that “someone” has to pay, eventually. What you buy – with your own money, or with insurance – and how much it costs, still matters. Insurance just passes the buck – to other insureds, and to you, when the time comes to renew. It blows my mind. People are involved in car accidents, get out of their vehicle, examine the minor damage, and agree NOT TO REPORT IT TO THEIR INSURANCE, because they DON’T WANT THEIR PREMIUM TO INCREASE! People actually choose to pay for car repairs out of pocket, because they fear insurance premium increases and want to save their insurance for “when they really need it.” Yet, if we treated auto insurance the way we treat health insurance, we’d be outraged that insurance doesn’t pay for the air in my tires, or the dancing hula girl on my dashboard.”
Our Rights come from God, not government. Physician/ Patient/ Survivor/ Wife/ Mother of 4 daughters/ Small biz owner/ Limited Government/ No Socialized Medicine/ Texan/ President www.AAPSonline.org
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