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#7 CLAIM: Insurance companies help control costs by managing healthcare efficiently.

FALSE

We’ve already discussed how making it harder or more expensive for people to access health care means they delay getting the care they need and their overall costs of treatment grow. But was this always the case? Have insurance companies always been a gatekeeper standing between a person and his doctor?

Traditionally, insurance companies arose as a way to help people pay their health care costs. By pooling everyone’s risk and contributions, sick and healthy, insurers could afford to cover the folks that needed medical treatment. Typically they were “indemnity” or fee-for-service: they would reimburse providers or patients based on the cost of the treatment at the time it was received.

Employer pays: In World War II (see 1942 in our History of Health Care), the US shifted to insuring people through their employers, who shouldered most of the cost of providing health care benefits. As costs rose, insurance prices rose, and now employers are reaching the point where they can no longer afford to pay for health insurance for employees and still be competitive in the global economy.

SIDEBAR: Managed Care Enrollment Over Time
YEAR % of those with insurance in Managed Care % of Managed Care = HMO % of Managed Care = PPO
1980 3 100 0
1986 14 93 7
1991 33 52 48
1998 86 35 65*
2004 95 23 77*
* may also include EPO, POS, and other more limited managed care type plans.

HMO’s created: Many blamed rising costs on the fee-for-service system, which they felt failed to prevent doctors from providing unnecessary services or not keeping a limit on their costs. In the 1970s, to control this, managed care was created: insurance plans would limit rising health care costs by limiting patient access to doctor networks and certain treatment options. HMOs argue that restricting beneficiaries’ choices would provide more cost-effective care. HMOs, which had the most strict limitations on doctor and treatment options, were a favorite choice of employers in the attempt to keep down costs. HMOs did not work.

PPO’s created: By 1991, PPOs (Preferred Provider Organizations) had grown in popularity due to their offering more flexibility for patients and more service-based reimbursements to doctors (instead of through an advance scheduled fee per patient), similar to how fee-for-service originally worked. In the next 15 years, managed care would dominate the market.

Insurance companies are an efficient way to keep health care costs down. = FALSE

It may not matter how an insurance company operates – HMO, PPO or what have you – their very existence means inflated health costs.

Insurance companies set premiums at a price that will cover the cost of an average person’s health care expenses. The healthier the enrollee is, the less an insurer will have to pay out in health treatment for that individual, the more profit they will make: premium – payout = profit.

There are 4 ways that insurance companies can boost profits:

  • Screen for the sick and charge them more or limit their coverage (which costs money in overhead)
  • Deny more claims (costs money in overhead)
  • Raise copays and deductibles
  • Push more costs onto employers and hospitals

The only way to absolutely cut costs is to not cover sick people at all. Increasingly this is becoming more common in the individual (as opposed to employer) market where those with preexisting conditions or a seeming likelihood to become ill are denied coverage.

In 2006, health insurance companies made $57.5 billion in profit, up from $20.8 billion in 2002.

Clearly this industry is doing something right. But for whom?

BOTTOM LINE

“Managed care,” which now makes up the majority of health insurance policies, means that a third party – health insurers – are managing the health care you receive. Because insurers are mainly driven by trying to limit costs to make a profit, each procedure and service has to be approved and submitted for reimbursement, and those that are denied may be denied solely on the basis of limiting cost.

This leads to a health system in which health care providers are recognized only for the concrete things they provide, not for the health outcomes they achieve. The more tests a doctor orders, the more procedures she performs, the more money a doctor makes. The more patients a doctor sees – the less time spent per patient! – the more a doctor makes.

Now fortunately, most (if not all) doctors go into medicine because they want to help people. But they work in a system in which they’re not trusted – insurance companies second-guess every treatment and drug prescribed because ultimately the insurer will be billed for it. Hospitals and physician practices must employ people whose sole job it is to deal with insurers and processing claims denials.

Over time, insurers have been granted the ability to determine what kind of medical care people get by controlling who pays and how much. The goal of maximizing profit has overtaken the goal of maximizing health. This is true even of the “non-profits” like Blue Cross and Blue Shield of North Carolina, the state’s largest insurer, which in 2007 reported profits of $190 million– enough to award their CEO a salary of $3.1 million.