Common Sense Prescription for Health Care Reform

To be successful, real health care reform has to look at and address all the cost factors that are a part of the health care equation. This evaluation needs to include all cost areas that affect health insurance premiums that are necessary to cover insured medical expenses. One simply cannot achieve any meaningful goal by focusing on a few areas without addressing all pieces of the problem. For example, squeezing everything you could out of the health insurance companies, without looking at what drives their costs, would produce results that are hardly noticeable.

How did we get here? Government is already a significant part of the problem. Over the last 10 years or so, state governments have established rules, rating restrictions, and mandated benefits, often making it more difficult for insurance companies to do business in their states. This has driven some insurance companies out of their states and caused premiums to increase, resulting in less competition (not more), and an increase in the number of uninsured. Special interest groups and special programs that should have been set up as separate health care programs are behind many of the mandates.

Mandates are all too often a convenient way around going to the voters with yet another tax increase. Now, the federal government is weighing in with the same short-sighted approach and not addressing the whole problem. Instead they are currently focused on replacing it with your worst nightmare.

Hang on for the ride. Let’s start with those caught in the crossfire between their insured clients and the providers of health care, the insurance companies. There are approximately 1300 insurance companies in the United States. The majority of these are small regional companies covering a few counties, a whole state or a few states. There are very few large national companies that offer products in most or all states. Prices for medical care are often set by doctor groups and hospitals operating in a given geographical area.

This is the very reason allowing insurance companies to sell across state lines would probably do more harm than good. Most of these companies do not have the resources to handle switching from local to national players. You would end up with a few larger companies, less competition not more, and fewer choices. You would also inherit the geographic problem that plagues Medicare. People in populous, high medical cost states like Florida and California would get a break and people in states like Utah and Oregon would end up paying more for their insurance.

The size of an insurance company has little to do with negotiating reduced rates with providers who have formed associations to preserve their bargaining power. The overall average profit for all insurance companies last year was about two percent, and many insurance companies are not for-profit to start with. Executive salaries are not exceptionally large compared to other industries. The math is quite simple. If they don’t keep their premiums competitive, they lose members to the other guy.

There are, however, some insurance companies that practice bad behavior such as excessive rescinding of coverage for reasons that go beyond fraud and misrepresentation. Bad practices need to be addressed even though they are not really part of the cost picture. The greatest potential for cost savings is the excessive administration requirements they impose on medical providers. These requirements include requests for medical records (often required to determine whether to issue a policy or not or what rating level to use), pre-authorization requests, and claim processing.

Standardized forms and procedures should be developed by the insurance industry to simplify processing and reduce costs. Guidelines should also be established to prevent the excessive use of pre-authorization requirements. This would help to reduce administration costs throughout the whole system, but would have the greatest impact on the many small doctor practices.

I think government programs like Medicare and Medicaid thrive on the paper they create. They are an even greater factor in causing high administration costs for providers than the insurance companies. Wouldn’t it be wonderful if, when government looks to reform the health care system, they cleaned up their own house rather than blaming somebody else. They should conduct an efficiency study showing how they adversely affect provider costs and then determine what systems can be implemented to reduce these costs while still accomplishing their desired goals.

The government often over-regulates with the intent of protecting people. Quite often this adversely affects the good players, thereby increasing inefficiencies in the system, while not accomplishing desired objectives as bad players continue to try to outsmart the system or just ignore the rules. We can only dream, based on our experience with the IRS.

Excessive Emergency Room utilization increases costs while degrading capabilities in handling true emergencies. Several factors contribute to this overutilization and it is not just those without health insurance who abuse the system. Some people think their non-emergency is a real emergency. Some people just didn’t want to take time off from work during the day, some wait too long to seek care through normal channels. Some people just can’t make an appointment to see their own doctor soon enough because he is already too busy. Most of these people in this category of users, who have health insurance, simply have no idea how much it costs since the insurance company pays most of the bill.

Fortunately, this may be one of the easiest problems to address. Simply have two levels of emergency room care: a true emergency or a situation where a prudent person might reasonably expect it to be a true emergency and a non-emergency situation as determined by the doctor on duty. If the Emergency Room copay for emergency care was $100 and that for non-emergency care was $500, it wouldn’t take people too long to figure out that they had better schedule that doctor appointment sooner. This is just an example. Similar payment methods designed to discourage bad behavior would work as well.

Then we have those without health insurance, using the Emergency Room as their primary source of medical care. They can be divided into four groups: those who can afford to buy health insurance, but have chosen not to; those that can’t afford to, qualify for an existing government program, but haven’t applied for coverage; those who truly need help in the form of subsidies, but don’t qualify currently; and those people in this country illegally. The way to address those who can afford to buy health insurance but have chosen not to, is to treat health insurance like auto insurance and require a person to have a minimum basic level of coverage. I will discuss how to make that coverage available later on.

The next two groups fall into the category of Charity Care. How do you reach those people who qualify for an existing government program, but haven’t applied for coverage? This is a tough one, but community groups, insurance agents and state program personnel could be working together to help solve this problem. Some people simply don’t realize they qualify for assistance and some refuse to accept any kind of government assistance because of personal pride.

The ones left over who need help are those people who fall through the cracks. This is the third group. They don’t qualify for existing programs, but simply don’t make enough money to buy health insurance on their own. They should be encouraged to purchase individual policies through normal marketing channels with government subsidizing most or part of the premium based on income level. This accomplishes two things. It helps their self esteem because they have a role to play and they become educated about how insurance works. They usually develop a better sense of the cost of care and use their health care more wisely than someone who is just given free care. I will not address the fourth group, a group created by government inaction.

In order to accomplish these health insurance goals, affordable guaranteed issue coverage must be made available over and above the programs already in place. The best way to accomplish this is to combine an approach already used by an existing government program and one good concept proposed in HR 3200. Simply combine the concept behind the current Medicare Supplement program and the concept of a Basic, Plus and Premier plan described in HR 3200 and you have a win-win solution.

The federal government needs to design three standardized guarantee issue health plans without all the state mandated benefits. I have good ideas on what those designs should look like, but will not go into those details here. The low-benefit Basic plan would be the minimum requirement for those who can afford to pay, but don’t. The full benefit Premier plan would be an ideal fit for those individuals who need full or partial assistance. The medium benefit Plus plan provides a middle-of-the-road option, since these plans would also be available to anyone as an additional choice over other still available private plans.

Like Medicare Supplements, these plans would be offered by private insurance companies in each state. For safety’s sake, each state should be required to have at least one insurance company, within their jurisdiction, offer these plans. This, however, has not been a problem for Medicare Supplements as plenty of choice in companies is prevalent. There is no need to be concerned about competitive pricing if the Medicare Supplement market is any example. Competition for market share is already intense.

Of all the ideas discussed, the best way to pay for this would be to eliminate employer tax breaks for insurance, union and non-union alike. Employers should give everybody a raise to purchase their own insurance, or chose to continue to offer group coverage without a tax break. This is the best way to insure wise shoppers for health insurance and wise users of health care services. Government designed guarantee issues policies would be available to purchase.

The next big area to tackle is fraud, abuse and waste. This is more of a problem with government health care programs than it is with private insurance companies. Private insurance companies do a pretty good job of policing this area, with most having established their own fraud departments. Fraud, waste and abuse are prevalent in the Medicare and Medicaid programs. Government’s answer is often more regulation when it should be more inspection and enforcement. Regulations usually make it more expensive to do business without necessarily accomplishing the intended goals.

The greatest opportunity to reduce costs is in the area of tort reform. Any attempt at health care reform that does not address this issue is disingenuous. Malpractice Medicine is the name given by doctors to their need to perform unnecessary additional tests just to protect them in the case of a lawsuit. Frivolous lawsuits are a tremendous burden on the whole health care system affecting the premiums everyone pays. Reform in this area would allow for treating more people rather than running more tests that are usually unnecessary under normal good practice guidelines. Texas already has a working model for tort reform, providing limits for good practice while allowing the targeting of the really bad players. I will let Texas Tort Reform speak for itself. Reduced legal exposure also reduces liability insurance premiums.

Wait, I forgot somebody. What about the trial lawyers. Some of the sharper forward thinking ones have probably already figured this out. Under HR 3200, with government set and significantly reduced payments to medical providers, doctors would not be the same lucrative targets for lawsuits as they are today or would still be under the reform ideas discussed here. I even wonder if there would be any grounds for a lawsuit, assuming they follow the government recommended best practices for medical care prescription medications. Whose fault is that?

All these reforms taken together will lower the cost of health care for everyone, allow the current health insurance marketplace to continue existence, and would give the medical community time to grow to meet increasing demand.

This site authored by John – The Insurance Agent