The Health Insurance Marketplace

by Del Meyer, MD

Healthcare Costs Have Soared Out of Control for a Long Time
In the 1970s, Foundation Health Plan and others concerned about rising health care costs were somewhat successful in forming physician organizations to contract with carriers, and sometimes directly with businesses, for a reduced fee. This was in recognition that health care costs were rising much faster than the Consumer Price Index. The FHP would control or manage the fees in return for a semi-exclusive contract. This led to hospital contracts and agreements with other health care providers such as pharmacies, laboratories and x-ray facilities that managed the entire spectrum of health care costs. These FHPs enticed physicians to join by arguing that the honest, hardworking doctor would not be hurt; only those who gouged their patients would find their income reduced.

Managed Care Organizations Were Only Temporarily Successful
To compete with the FHPs, a number of insurance carriers began looking for a way to manage their payments for soaring health care costs. At a hospital staff meeting in the 1980s, an MCO representative listed the costs of the physicians on staff. The range of costs to treat ordinary medical conditions was rather dramatic. The most expensive physicians spent four times what the least expensive physicians spent on the same diagnosis. The MCOs claimed they would be able to eliminate excessive costs by averaging physician spending, which would reduce health care costs by a minimum of 25%. The MCOs were able to convince carriers that by paying the MCO to manage the care of their insureds, their percentage cost would be far less than the reduced insurance payouts.

Seeing my colleagues’ names on the presentation screen, it was apparent that the most expensive physicians would have less trouble justifying an MRI for a simple headache than the family doctor would have in obtaining an MRI for a hemorrhagic stroke. The MCOs were successful in convincing physicians, hospitals and other health care providers to join, alleging that is was ultimately in their best interest. By playing on the altruism of the health care establishment, they stemmed the double-digit rise in health care costs -- at least for a few years.

HMOs Targeting Doctors and Hospitals Were Not Patient-Sensitive Nor Market-Based
Insurance carriers have been offering a HMO product for the past several decades or so. The claims are managed and paid through an MCO. The HMO did implement a co-payment for each service, but not always a deductible. In some cases, when the co-payment no longer controlled insurance payouts, a deductible was implemented or the co-payment was increased. But, as in all fixed co-payments or fixed deductibles, when these are reached, there is no further disincentive to over-utilization and health care costs spiral.

Over-utilization required additional cost control. Health care decisions were micromanaged by requiring prior authorizations that delayed necessary emergency care. Physicians were used as pawns to make these denials, which gave the appearance that physicians were still in charge. In reality, these physicians never saw the patient and generally were not held responsible or liable for adverse events. This denial and withholding of necessary care was documented in the movie “Damaged Care,” the real-life story of an HMO physician reviewer Linda Peeno, MD. “It mattered not whether the patient lived or died, only that the costs were denied.”

From the Consultation Room
Mr. James, a 34-year-old, white, married male, developed abdominal pain. Over two days, it had localized to the right lower quadrant, known as McBurney’s point, with rebound tenderness. The diagnosis was acute appendicitis. This is generally confirmed with an abnormal white blood count and an ultrasound exam of the abdomen, eliminating the possibility of an inflamed colon diverticulum. These tests are obtained within hours. If positive, the appendix is removed as a surgical emergency, usually the same day.
However, since Mr. James had an HMO, the ultrasound had to be preauthorized. Since we deemed it an emergency, it was approved for the following day. Later the next afternoon, the report came back positive for acute appendicitis. With an HMO, prior authorization for surgery had to be obtained. Again, because it was deemed an emergency, authorization was approved for the following day. After contacting a general surgeon on the patient’s surgeon panel, arrangements were made for admission and surgery later the third day.

Can the Health Insurance Marketplace Put Patients in Charge of the Costs, Direction and Quality of Their Health Care?
We think the answers are yes, yes and yes. The insurance carrier managing the costs and medical decision-making process in the above example could have resulted in a catastrophe. The appendix could have ruptured during this three-day wait, resulting in life-threatening peritonitis. Fortunately, Mr. James’ appendix did not rupture. The excessive cost of the preauthorization process is borne by the physician already working under a 40% discount mandated by the HMO.

In a managed-care environment, the worst physicians get paid the same as the best physicians. Quality of health care continues to decrease to the level of the worst physician or surgeon. In the open marketplace environment, where the patient and/or the physician make the choice, only the best surgeons receive the referrals. Thus, quality of care always rises in a marketplace environment.

Did managed care change the trajectory of health care costs? After a decade or so of flattening costs, the spiral of health care costs continues upwards at about the same trajectory as before, having only shifted the curve to the right on a timeline. The reduction in health care costs was not really based on an open-market or patient-directed environment. Therefore, it did not control the ultimate course of health care costs. The insurance carriers that practice medicine through their HMO products managed through MCOs cause deterioration of patient care despite increasing costs.

An executive of a large insurance firm confided that it could probably pay most claims as presented, and the slight increase in costs would be far less than the cost of physician and hospital oversight. This would definitely be true with a percentage, rather than a fixed-dollar co-payment, because it keeps a patient informed, thus in control of his health care costs. This elimination of the oversight cost would then reduce the insurance cost and increase the profits, the expected result when operating in the health insurance marketplace.

In the appendicitis emergency case above, the surgery would be required because any delay could increase morbidity and mortality. If the patient were in charge, the surgery would have been done on the first day under safer circumstance, before the appendix swelled to a rupturing status. The increase in unnecessary costs would have been eliminated. A percentage co-payment restores health insurance to the marketplace environment, which in turn restores health care to the marketplace.

The open marketplace allows the patient to control costs, the direction of health care and improve the quality of care.