This post was written by Niko Karvounis and Maggie Mahar
At a health care forum held last year in Las Vegas, then-presidential candidate Hillary Clinton declared that she was intent on "taking money away from people who make out really well right now” in order to fund health care reform. When asked exactly which fat cats she was referring to, Clinton responded: “well, let’s start with the insurance companies.”
Clinton’s sentiment—that private insurers are making out like bandits while our health care system crumbles—is part of the received wisdom these days, especially amongst progressives who believe that for-profit health insurance doesn’t add much value to our health care system. But the reality is that in recent years, private insurers haven’t been doing so well financially.
Consider United Health Care (UHC), the nation’s biggest private insurer. Joe Paduda of Managed Care Matters reports that UHC will be cutting 4,000 jobs as part of a restructuring plan that includes eliminating Uniprise, one of its major brands. Since last fall, UHC stock has plummeted from $53 to $22 a share. WellPoint, another huge private insurer, has watched its stock drop from $82 a share in 2007 to $49 a share in June.
As Robert Laszewski wrote on the Health Care Policy and Marketplace Review in April, “Wall Street finally seems to be figuring out that the health insurance business is, and has been for years, on a long walk off a short pier. What’s sustainable about a business whose costs have continually exploded at 2-3 times the growth rate of the rest of the economy or the wage rate? Just where did Wall Street think this business was headed all those years the sector has been the darling of Wall Street?”
While the insurers’ premiums have been skyrocketing, so have health
care costs: the prices of everything, from a pill to the screw that
holds your artificial knee in place, have been rising. Most physician’s
fees haven’t been increasing, but the volume of services that doctors
provide has—and so have hospital bills. Insurers, like the rest of us,
have been running hard to keep up.
Worst of all, as employers bow out of the health benefits business,
insurers are losing customers. “Perhaps most telling was the recent
comment by one analyst in the Wall Street Journal,” Laszewski
noted. " ‘What we’re seeing is a market that’s gotten so mature and
beyond its customer[s] that people can literally no longer afford to
buy the product,’ said Sheryl Skolnick, an analyst with CRT Capital
Group. ‘The number of uninsured is growing faster than any player in
the game, and it’s getting bigger.’”
Part of the problem is that Wall Street investors have unrealistic
expectations: they continue to expect double-digit growth from
insurers. Another issue is that insurers can no longer keeping ahead
of rising medical costs by raising premiums 1 percent more than rising
prices. Premiums are just too high already.
Finally, insurers know that, next year, they’re almost certain to lose
the bonus that Medicare has been paying those who offer Medicare
Advantage (MA). As Maggie explained
last week, customers are beginning to realize that MA isn’t quite the
bargain they thought it was. Complaints are mounting—and last week’s
vote on the Medicare bill made it clear that legislators are tired of
paying insurers 13 percent to 17 percent more than Medicare would spend
if it was providing the coverage directly.
But don’t pity the insurers: the financial woes of the for-profit
insurance industry are actually an indication that, as many of us
suspect, many insurers haven’t been delivering high-quality health
care. Writing about UHC’s prospects, Padua observes:
“this is not a company that invests in medical management – despite its
trove of data, analytical expertise, participation in NCQA
accreditation and in house capabilities, UHC has always been about
managing reimbursement, not care. Their latest move to increase
premiums is the way United has always reacted to bad financial results.
And it may work for a while, but over the long term the winners in the
health plan business will be those who actually understand how to
manage care.”
And United doesn’t.
Less is More
“Managed care” is, to many, a nasty phrase.
But the truth is that the insurer who understands that “managing care”
means making sure that customers get the high-quality care they need,
when they need it, will save money. When it comes to health care, low
cost and high quality go hand-in-hand.
At the same time, “managing care” means avoiding ineffective care. As we’ve noted on HealthBeat in the past,
wasteful spending on unnecessary procedures and over-treatment produces
unhealthy patients: it increase the time they spend in hospitals where
they can pick up antibiotic-resistant infections; it exposes them to
the risks and side-effects that come with all treatments; and it
subjects them to multiple physicians, a situation which invites
miscommunication and costly medical confusion.
Enlightened self-interest would suggest that insurance companies should
be turning to cutting-edge medical research to decide how to better
structure their coverage. They should be pushing for best practice
guidelines to develop more consistent care. They should combat waste.
They should be loudly speaking up in favor of greater
comparative-effectiveness and cost-effectiveness research so they can
choose to cover treatments that work best. In short, insurance
companies should be fighting for the same principles of quality in
health care that the rest of us want. And they should think like the
best doctors do, using medical science as their guide to making smart
treatment decisions.
But as Joe Paduda so nicely put
it, most of today’s for-profit insurance companies don’t manage care,
they just manage reimbursement. They don’t think like doctors—but like
accountants. Instead of assessing their business from the perspective
of medical research —looking at which treatments work best, for whom,
and under what conditions—they work backwards from their balance
sheets. And it’s this mindset that is undermining the industry.
A Cautionary Tale
To understand what is going on, it’s helpful to consider the history of
HMOs in the U.S. As originally conceived by pediatric neurologist Paul
Ellwood and the “Jackson Hole Group” in the 1960s, HMOs were all about
managing care in the truest sense: actively regulating and coordinating
medical services to ensure the best marriage of health outcomes and
cost.
Here’s how Ellwood’s HMOs worked: patients enrolled in a plan that
provided access to doctors and hospitals in a specific network of
providers. Providers receive a fixed payment, per patient served, per
month, for a particular set of services (this is called capitation).
Their goal: to keep these patients well. (This is why they were called
“Health Maintenance Organizations,” or HMOs.)
In return, doctors have the security of knowing that they will always
have customers. These referrals will come from the primary care
physicians in the network, who serves as “gatekeepers,” recommending a
visit to a specialist when a patient needs it.
The idea here is to build the high-quality/low-cost truism into the very machinery of health care plans.
First, because patients need referrals to see a specialist, and
provider payments are fixed, much unnecessary spending can be
curtailed. We know that “fee for service” payment provides perverse
incentives to “do more.” By contrast, fixed payments encourage more
efficient medicine: since doctors are getting one lump sum, regardless
of what they do, they are not encouraged incentive to undertake
unnecessary, labor-intensive, high-cost procedures. Instead, they are
motivated to stop sickness before it starts. The emphasis is on
preventive care—which in the long run, is less costly for everyone and
less time-consuming for the health care provider.
Finally, while many patients object to going through a “gatekeeping”
primary care doctor to get a referral to a specialist, this is all part
of making sure that “the right patient gets the right care at the right
time.” More than two decades of work
by Dartmouth’s medical researchers have shown us that when patients see
more specialists, outcomes are not better; often they are worse.
Last, but certainly not least, Ellwood envisioned HMOs as non-profit
organizations subjected to strict quality reviews (with these reviews
based on medical research). In Ellwood’s mind, plans would compete with
each other on quality, not price. The cost-consciousness of managed
care is balanced with an emphasis on outcomes.
Ellwood’s original model for HMOs is “managed care” in the sense that
Paduda talks about: it tries to encourage smart, efficient, and
financially sustainable medicine, all in the interest of patients.
Yet today, the phrase “managed care” has been besmirched. Conventional
wisdom has it that HMOs are among the most heinous villains in the
health care field. Yet in theory, HMOs are a perfect marriage of
cost-consciousness and quality. So what went wrong? One word: profit
Enter the Profit-Motive
As Ellwood lamented in an interview with Time
magazine in 2001, ultimately HMO’s have focused on “competition on
price alone,” instead of quality. The management of care has become a
game of accounting, rather than an exercise in strategic medicine.
It wasn’t always this way. The first HMOs adhered closely to Ellwood’s vision. As George Anders notes in his 1996 book, Health Against Wealth: HMOs and the Breakdown of Medical Trust,
almost all of the HMOs through the 1960s and 1970s were non-profit, and
“they approached their goals of providing affordable medical care and
promoting wellness with an almost missionary-like zeal.” The welfare of
the patients came first, as “ninety percent of the premiums they
collected—and often more—went for patient care.”
By the 1980s, Ellwood’s managed care model had gained a lot of momentum. One 1986 Health Affairs article
noted that between 1980 and 1984, the percent of insured households
enrolled in an HMO increased by one-third. The percentage of corporate
employers offering health plans where at least 10 percent of their
employees had joined HMOs almost doubled over this period, from 26
percent and 45 percent.
Yet as the HMO industry grew, Ellwood’s vision of patient-centered,
cost-effective care receded into the background. Quality in health care
is hard to measure (so hard, in fact, that a frustrated Ellwood
eventually founded a non-profit to push for more clarity and
accountability in health outcomes). Sadly, as the market expanded,
size—not quality—became the major metric for success. Bigger HMOs could
offer a wider network of providers—and consumers like having a broad
choice of doctors and hospitals.
Meanwhile, non-profit HMOs were hitting a ceiling in terms of
expansion. They couldn’t amass the capital necessary to become huge,
because, as Anders notes, the plans “couldn’t issue stock and sometimes
had trouble arranging bank loans.” Their solution? Become for-profit
corporations and make stock available to the public to create and
expandable base of shareholders.
President Reagan also had a hand in the shift to for-profit HMOs in the
early 1980s. The HMO Act of 1973 had made federal grants and loans
widely available to non-profit operations. This is one reason why, in
1981, 88 percent of all HMOs were non-profits. But in the early 1980s,
Washington cut off the stream of federal funding—and eliminated a major
incentive for non-profit status.
Thus, for-profit insurers took over the HMO industry. In the 1970s,
notes Anders, there were “30-odd HMOs, almost all not-for-profit.” By
1997, there were “well over 600, more than three-quarters of them
investor-owned.” HMOs became big business.
With the advent of share-holder HMOs came a change in priorities. As
Anders puts it, “once managed-care companies started entering the
for-profit arena, the financial world’s values started seeping in.”
Securities analysts and big investors refused to support plans that
spent "too much" on members, leaving "too little" for shareholders.
“Before long,” says Anders, “HMO bosses regarded boosting stock prices
as a major priority.” And that meant maximizing financial gains to
ensure a sound investment.
Unfortunately, Wall Street isn’t savvy when it comes to medicine. The
delivery of care that Ellwood labored so intensively to coordinate was
reduced to a line item in a budget and a sunk cost. Increasingly,
patient care was viewed as the least desirable of expenses, because it
never found its way back to the company. HMOs shifted expenditures away
from patients and toward business operations like marketing,
administrative overhead, and salaries—expenses that are understood by
Wall Street as a cost of doing business.
In an indication of how the profit-driven mindset took over managed
care, the percent of premiums that insurers actually paid out for
patient care was re-christened the “medical-loss ratio.”
Reimbursements for medical care were regarded as an undesirable
financial loss, regardless of whether the care was necessary or
unnecessary, life-saving or totally ineffective. Insurers were not
getting smart about health care delivery.
According to Anders, in the late 1970s leading nonprofit HMOs spent
about 94 percent of premiums on members’ medical treatments; by the
late 1990s, leading HMO companies were spending less than 70 percent of
their earnings on patients. Plans began rolling back coverage based
solely on cost—as opposed to cost-effectiveness—and refused to cover
expensive procedures like certain cancer treatments. Preserving the
bottom line became a mission divorced from any interest in medical
necessity: in one blog post, Paduda notes
that insurance giant WellPoint actively canceled coverage for seriously
ill people if they actually sought care, and the company HealthNet
“paid bonuses based on executive’s success in canceling individual
policies” for people with high claims.
The clumsy stinginess of private insurers has not escaped the public
eye—and it’s helped to fuel the belief that “managing care” equals
refusing people treatments they need. As recently as 2004, 61 percent
of Americans were worried that their health plan was more concerned with saving money than providing the best treatment.
As a result of the backlash, HMOs have moved away from Ellwood’s
capitated model. Too many people worried that when doctors were paid a
lump sum to keep a patient well, they might skimp on care.
And in fact, some for-profit HMOs did encourage doctors to “do less.”
But at the same time, many doctors realized that it was in their
long-term interest to do everything necessary to keep the patient well,
both because they wanted the best for their patients, and because they
realized that, if the patient became sick, this would mean more work
without additional pay.
Nevertheless, patients suspected that if a doctor wasn’t paid
fee-for-service, they would be short-changed. “Capitated care” began to
disappear. People said it “just didn’t work.” Here the last of
Ellwood’s bulwarks against high-cost, low-quality care crumbled. Now
too many HMOs offer the worst of both worlds, focused on reducing care
even as they adhere to a payment system that encourages high-volume,
wasteful treatments.
Getting it Wrong
“It didn’t have to be this way,” lamented Ellwood in a 2001 interview
with Time Magazine. HMOs could have kept their non-profit status. They
could have looked to medicine and science as a guide in refining their
coverage policies. But they didn’t—and now they’re paying the price.
With no effort to truly regulate and audit the value and coordination
of care delivery, pay-outs on benefits have spiraled. A 2006 analysis
by Price Waterhouse Coopers found that between 1993 and 2003,
expenditures on health benefits grew at an annual rate of 7.2 percent.
Premiums grew at essentially the same exact rate, 7.3 percent, meaning
that insurers are barely able to keep up with the rising cost of
providing health care.
The race to become giant for-profit, publicly-held corporations has
also brought on new expenses. The bigger the business, the bigger the
operational costs. According to the Kaiser Family Foundation, private
insurer administrative costs per person covered rose
from $85 in 1986 to $421 in 2003—a five-fold increase, and the
fastest-rising component of health expenditures. When insurers became
mega-corporations they took on a new set of financial burdens investing
more and more in marketing, advertising and lobbying. And to lure Big
Name CEOs to their Big Name Corporations, they began paying
multi-million dollar salaries
With so much money sloshing around, HMO insiders faced a new temptation
to cook the books. UHC, for example, currently has to pay a fine of
$895 million to settle a lawsuit stemming from the company’s stock
option manipulation. This sort of funny business—and the huge costs,
both financially and in terms of wasted time and inefficiency—wasn’t
part of Ellwood’s vision of a non-profit HMO industry.
Another unforeseen by-product of the corporate takeover of HMOS has
been that, as insurers got bigger, they gobbled up their competitors.
Today the private insurance market is highly consolidated. Paduda reports
that, according to a 2006 American Medical Association study, “one
health insurer has at least 30% market share in virtually all of the
nation’s major markets…[and] in 56% of the markets studie[d by the
AMA], one health plan has over 50% market share.” Further, “in one of
five markets, a single health plan controls over 70% of the market.
In this context, there’s little incentive for insurers to compete in
any real, meaningful sense—especially on quality. The market is mature;
they can only tweak the margins, adjusting their costs. For folks who
judge health care at the end of Excel spreadsheets, this means hacking
away at spending on patient care, that most undesirable of expenses.
Yet as we’ve established, the haphazard reduction of care is no way to
manage costs in health care.
As a result, today insurance companies seem stuck in an enormous
hamster wheel: unable to make the profits investors expect, without
incentives to truly innovate, and unwilling to think beyond Wall
Street’s very short-term view of success.
Little wonder then, that the resulting expensive, inefficient health insurance is becoming too much for employers to bear. According
to the Economic Policy Institute, “6.4 million fewer workers had
employer-provided health insurance in 2006 than in 2000.” Because
insurers have failed to rein in costs (by not thinking about how they
can truly “manage care”) employers are not getting a bang for their
buck—and they know it. So they’re opting out of the whole thing.
That’s bad news for workers, yes; but also for insurance companies.
Their skewed priorities and inefficiencies are scaring away business.
But it’s important to note that the screw-ups of private insurers
aren’t a condemnation of Ellwood’s original HMO model. As Ellwood said
in 2001, it doesn’t have to be this way. In fact, “managed care”—as
Ellwood presented it, and not as HMOs perverted it—is a great idea.
Indeed, Ellwood’s managed care is, in all likelihood, the future of
health care in America. It’s what most of us realize we need:
effective, evidence-based medicine. But after the debacle of HMOs,
we’ll no doubt have to find a new name for it.
Perhaps the next installment will offer some ideas about what is to be done.
I think the example of property insurance can be a guide. Now that there have been a succession of multi-billion dollar natural disasters insurers are pulling out of the markets. There have been only minimal attempts at things like making homes hurricane resistant, and the few steps have usually been spearheaded by local authority’s revising building codes.
I think Florida now has some sort of state run insurance pool as a result. If this pattern holds true for health care as well, then we may see more states doing the kind of things Massachusetts has done.
The problem is that this patchwork system is suboptimal. It may be OK for storms, but a single state won’t be able to control the other side of the market – the excessive charges by drug and medical equipment suppliers.
By the way, if being big is a handicap why is it that firms are continually seeking to merge with competitors? Wasn’t Anheuser Busch already a near monopoly in the US? I’m afraid that international capitalism is like cancer, it just keeps growing even when it will end up killing its host.
Robert,
I would like to pass on a few interesting facts that I recently learned about Florida since you brought up storm damage. According to St. Joe Real Estate, owner of over 700,000 acres in the Florida Panhandle, fully 80% of Florida’s population lives within 10 miles of the coast, and, if you exclude the city of Orlando, 90% live within 10 miles of the coast. Moreover, for a long time, Florida has steadily tightened its building code to make new buildings more hurricane resistant, especially to wind damage. As for the state run property insurance pool, most observers expect it to be a significant drain on the state’s taxpayers because the premiums charged are virtually certain to be insufficient to cover the cost of future storm damage. A better solution in this case would be to restrict development in the most hurricane prone areas and to not pay to rebuild a home destroyed by a hurricane or flood more than one time.
Maggie and Niko,
While I admit to having a strong free market bias as you well know, I think your demonization of profit and the for profit insurers misses the mark in this case. I would like to make several points.
First, I’ve said before that I think capitation (or at least bundled pricing for expensive surgical procedures) is the way to go over the longer term if we want to encourage doctors and hospitals to provide good, sound evidence based care. However, profit doesn’t exist in Medicare’s business model, but it hasn’t embraced capitation or HMO’s either. Why not? Perhaps they can’t get hospital systems or even very large physician practices to agree to fixed payments because they don’t think they can estimate their costs with sufficient accuracy to make the model work. Moreover, lots of people don’t like the idea of having to make an appointment with a PCP which could be a couple of weeks in the future just to get a referral to see a specialist who then may not be available for four or five weeks or more beyond that. They would much prefer to just see the specialist as soon as possible if they have a good idea of what the issue is that needs to be addressed. For some conditions, like suspected cancer or a serious heart issue, time is of the essence, at least in the patient’s mind.
Second, you keep emphasizing that for profit insurers are focused on trying to please Wall Street and investors’ unrealistic earnings expectations. I say again that any business, to be successful, needs to please customers first. In the case of health insurance, the customer is most often the employer, not the patient. The employer usually cares about price first, second and third. When UnitedHealth Group acquired PacifiCare in late 2005, it did a poor job of integrating it into the parent company and customer service suffered as a result. Since then, it has lost approximately 25% of its commercial members. You don’t need to look any further to see that customer service matters regardless of what Wall Street wants.
Third, between 35% and 40% of the health insurance market is still controlled by non-profit insurers – mainly the Blues other than Wellpoint’s 14 Blues licensees, along with Kaiser, Harvard Pilgrim, Medica, Health Partners some others. In the huge California market for example, the main for profit competitors are PacifiCare (part of UnitedHealth Group), Anthem Blue Cross (part of Wellpoint) and Health Net. The big non profits are Kaiser and Blue Shield of California. In Minnesota, there are no for profit competitors at all by law even though, ironically, UnitedHealth is headquartered in the state. In Massachusetts, a very expensive state for healthcare, the market on both the insurance side and the provider side is overwhelming dominated by non-profits. Indeed, on the provider side, Partners, which owns both Massachusetts General and Brigham and Women’s Hospital is paid about 20% more than its Academic Medical Center competitors in town, not because its outcomes and quality are better but because of its enormous market power.
In many of the markets where one insurer has a dominant market share, that insurer is a non-profit entity. Since they don’t have stockholders to please and presumably have a mission that is focused on serving its communities and providing high quality insurance coverage for a competitive price, for profit insurers need to be able to compete effectively in order to stay in business.
I’ve said before that Medicare drives payment policy in the U.S. healthcare system. The private companies can’t stray too far from what Medicare does without creating too much friction with doctors and hospitals. To them, it’s just not worth it. Yet, Medicare was not even able to push through competitive bidding for durable medical equipment and other standard products when lobbyists for beneficiaries of the status quo objected. I’ll bet the private insurers, both for profit and not for profit, pay less than Medicare does for these products. I also suspect they pay out a lot less money to dead doctors and have much better analytics to minimize fraud. Medicare skimps on oversight because its culture is so focused on minimizing administrative costs.
Barry:
The guiding principle in the US is that people should be “free” to do as they wish. Your idea of not permitting construction in dangerous areas would never be accepted (or only after repeated disasters).
If we extend your idea then we shouldn’t be allowing development in much of the Southwest which is rapidly running out of water. The same goes for the exurbs which will become unsustainable as gas prices rise.
The trick is to use some central planning, but without the heavy-handedness that has characterized the Soviet and Chinese societies.
I don’t know how to achieve this balance, but I think having a truly functional democratic government would go a long way. The soviet system had no feedback mechanism from the people and was, therefore, unresponsive.
I think a similar thing would work with health care. Our present problems are due to broken democratic institutions. The cure for imperfect democracy is more democracy, not less.
Robert,
While I agree that people should have the “freedom” to do as they wish when spending their own money, if I behave in a way that constantly costs society money, that’s a different matter. If I live in an area that often floods, for example, and I buy heavily subsidized federal flood insurance to protect my property, in effect, taxpayers are picking up most of the tab to frequently rebuild my house. There have been areas in the Midwest where entire towns have been relocated to higher ground rather than pay to keep rebuilding them in the flood zone.
Regarding your reference to not allowing people to live in the Southwest because of a shortage of water, it’s not the same. It’s possible to price water to largely reflect the cost of delivering it to where it’s needed without it being cost prohibitive. Moreover, towns can and often do restrict water usage for purposes like lawn watering. Water supply limits would be factored in to decisions made by local zoning boards to allow or not allow new development as well as to control the density of such development.
Housing in the exurbs does require more gasoline to get to work and do normal errands. Here again, however, market mechanisms resolve the problem. The cost of gasoline is not subsidized directly. If we decide to get serious about reducing oil consumption, the obvious solution is to tax it much more heavily as they do in Europe, though such a change would have to be phased in over a number of years to give people some time to adjust their behavior and lifestyle.
Barry,
I have no simple answer to the primary care provider as the specialist gatekeeper. The idea of a “medical home” is a good one, but not always practical. When my mother was terminally ill in the mid-seventies, I had a durable power of attorney, but we worked out an agreement where I would have full chart access (I was several hundred miles away), including chart access via the phone.
While I did get deeply into the treatment planning, I’m not convinced that a surrogate always has to have detailed medical access. Assume you are the surrogate for a friend that’s been in an auto accident far from home. When completing a durable power of attorney, do get the names of all the patient’s community specialists and send then copies of the DPOA and probably a HIPAA Privacy Rule consent.
Then, if the patient in Los Angeles is being considered for back surgery, you can make sure that the Californian surgeon does contact the regular orthopedist, neurosurgeon, neurologist, etc. in New York.
When I was in a HMO and my PCP couldn’t get approval for me to see the specialist she recommended, I was able to fight the system. In one case, I found a clinical research program that would take me. In the other case, I called the HMO office, asked for risk management, and explained to them how not bringing in the right specialist was increasing their risk exposue. That was a mostly financial, not medical argument.
As to self-referral to specialists, that’s a touch call. I like the way Dr. Gabe Mirkin tests someone for self-referral: “what kind of specialist would you see if you suddenly lost the outside vision of both eyes?” He says the the most common wrong answer is an opthalmologist, while what is being described is a neurological or neurosurgical emergency.
There are times where I have insisted on NOT going to a specialist. With a recent medication choice, I may have one or two conditions for which a certain drug was appropriate. For one of those conditions, some extensive testing, of a type that I don’t consider all that reliable, would “document the disease”.
I explained the situation to the PCP, told him that I had cleared the drug safety with the appropriate cardiologist, and suggested that since there was no test for the second condition anyway, why didn’t we go ahead and try the drug, with appropriate safety monitoring? If it helped, then I had one or the other condition. The clinician that suggested the specialized testing forgot that it really wouldn’t change a treatment decision.
Off topic a bit, but amusing. On Medscape, there’s a heart disease risk calculator, primarily intended for nurses. At first, it refused to compute the risk, saying my total cholesterol (128) was too low for its system. 130 was the minimum it would accept, and seemed very happy with my HDL of 41. I’m still laughing on being considered impossibly healthy (I’m not).
Barry:
The difference between you and me is that I don’t see any evidence of a “free” market outside of some fairly trivial cases (perhaps buying music downloads or the like).
What I do see is that there is a claim of a free market, but that it is highly distorted. Allowing gas prices to rise (or raising them via taxation) to a level where people will move away from the exurbs isn’t politically viable.
Similarly raising the cost of water hasn’t worked because the developers and agricultural interests have overpowered those of long-range ecological prudence. Markets are supposed to help allocate scarce resources in an optimal fashion, they can’t cope with the situation where the absolute quantity is insufficient.
There are areas in the Southwest where the water table has dropped 100 feet in the last 50 years, it’s an invisible tax on the future. This externality is not priced into the model.
Markets can’t do this, it requires government regulation. You persist in believing in a utopia which doesn’t exist, has never existed and never will. You need to find solutions which match reality, not the dreams of Milton Friedman.
MedBlog Power 8
7/16/2008 – 7/30/2008Next revision: 7/30/2008 (no update next week)
(Key: Rank, Blog name, Last week’s rank, Comment/Post of note)
Barry, Robert and Howard–
Thank you for your comments.
I’m on deadline right now, writing something long (that will also become available here.)
So I’m not able to respond right now, but
I will weigh in later.
In the meantime, I hope others will become involved in the conversation–and maybe bring it back to health insurance?
Though I have to say, I find the other areas you are talking about very interesting.
I’m assuming the part about the all out war waged by organized medicine against HMOs will be in another installment. Guess it doesn’t fit the narrative.
A commenter who calls himself / herself “tcoyote” posted the passage below on The Healthcare Blog in response to this post by Maggie. I don’t have personal knowledge of the history on this subject but it sounds reasonable to me.
“The reason why the federal government’s HMO promoters encouraged equity ownership of the plans was actually much more pragmatic than ideological. They did so because it did not want the federal government to be saddled with the responsibility for providing the industry its growth capital. A lot of them believed that what they were really doing was fostering the growth and development of Kaiser and Kaiser like prepaid groups, and that they would generate such overwhelming evidence of better value and service that employers and the government would voluntarily choose them. You could look at Ellwood and Enthoven’s ideas as a gigantic social engineering project to grow Kaiser enrollment.
Instead, these plans succumbed to bureaucratic management and substandard service, and lost control of their expenses (many were heavily unionized). As a result, they squandered their cost advantage over fee for service based insurance plans, and left the door open for managed indemnity plans and Blue Cross. Employers and patients, not corporate greed, were responsible for the shift away from the plans Ellwood favored.”
Barry–
People who post under names like “toycote”are often trolls (ideologues pushing a point of view that they don’t want to be called on.)
You don’t use a pseudonymn–which makes you much more credible. Why does he?
I am suprised that you would import his comment to this thread.
On many points, toycote is wrong.
For example, Kaiser, as I’m sure he knows, is only partially for-profit. It is largely not-for profit and behaved like a not-for-proift until it ws forced to compete with the for-prrofits.
Executives at Kaiser
told me how they were forced to offer high-deductible plans–which they believed (rightly) were negative for social policy–beccuae that was the only way to protect market share in the race with for-profits.
Much reserach shows that when for-profits begin to dominate a market, non-profits are forced to change their business practices in order to compete, in a way that hurts customers.
Barry–
Going back to your earlier comment, you write:
“lots of people don’t like the idea of having to make an appointment with a PCP which could be a couple of weeks in the future just to get a referral to see a specialist who then may not be available for four or five weeks or more beyond that. They would much prefer to just see the specialist as soon as possible if they have a good idea of what the issue is that needs to be addressed. For some conditions, like suspected cancer or a serious heart issue, time is of the essence, at least in the patient’s mind.”
As you say, the sense of urgency is often “in the patient’s mind.” Americans are impatient, but jumping over the primary care physician and seeing so many specialists hasn’t improved our health.
As teh Medicare Payment Advisory Commission’s June report opints out:
“Areas with higher rates of specialty care per person are associated with higher spending but not improved access, quality, health outcomes, or patient satisfaction (Fisher et al. 2003a, Fisher et al. 2003b, Kravet et al. 2008, Wennberg 2006). Moreover, states with more primary care physicians per capita have better health outcomes and higher scores on performance measures (Baicker and Chandra 2004, Starfield et al. 2005).”
This is why using primary care doctors as gate-keepers is a good idea. Patients who see primary care doctors more often–and fewer specialists–fare better.
Also, if you see your primary care physician first, and he refers you to a specialist, then he can follow up, have the specailist send his report to the primary care doc and collaborate your care. Otherwise, people you wind up seeing seven specialits, who each prescribe medications, and specialists rarely talk to each other.
In an emergency, a good primary care doc will see you immediately, refer you to a specialist he knows, make a phone call and get you in that day. (Alternatively, he’ll send you to the hospital.) This has been my experience, going through primary care docs on my insurance.
want to see the Medicare Payment Advisory Commission’s June 2008 report. It’s very long, but very good.
One thing MedPAC points out is that: “Areas with higher rates of specialty care per person are associated with higher spending but not improved access, quality, health outcomes, or patient satisfaction (Fisher et al. 2003a, Fisher et al. 2003b, Kravet et al. 2008, Wennberg 2006). Moreover, states with more primary care physicians per capita have better health outcomes and higher scores on performance measures (Baicker and Chandra 2004, Starfield et al. 2005).”
This is why using primary care doctors as gate-keepers is a good idea. Patients who see primary care doctors more often–and fewer specialists–fare better. (This is based on more than two decades of reseearch which adjust for age, race, overall health of the population, etc.)
Also, if you see your primary care physician first, and he refers you to a specialist, then he can follow up, have the specailist send his report to the primary adn collaborate your care. Otherwise, people wind up seeing seven specialits, who each prescribe medications, and specialists rarely talk to each other.
In an emergency, a good primary care doc will see you immediately, refer you to a specialist he knows, make a phone call and get you in that day. (Alternatively, he’ll send you to the hospital.) This has been my experience, going through primary care docs on my insurance.
Alex–
You are right– organized medicine did wage a war against HMOs.
This was in part becuase, by the late 1990s, many HMOs were paying docs 75% of what Medicare paid.
The Docs also felt HMOs were telling them how to practice medicine–which they were, by refusing the pay for certain treatments.
Somethings the HMOs were right: the treatments had never been proven to be effective. Some of these treatments hurt patients.
Sometimes the HMOs were merely trying to save money.
The problem is that for-profit businesses don’t have the standing–morally or politically–to make descisions about the nation’s healthcare.
That’s why we need a comparative effectiveness institute, where panels of unbiased (with no financial interest) doctors, medical ethicists, health care eocnomists, etc. can review research and decide what should be covered Based on Medical Evidence. .
Robert –you wrote:
“By the way, if being big is a handicap why is it that firms are continually seeking to merge with competitors? Wasn’t Anheuser Busch already a near monopoly in the US? I’m afraid that international capitalism is like cancer, it just keeps growing even when it will end up killing its host.”
Yep, you’re right. Usually these mega-mergers do not work out. (Think of AOL and Time-Warner) When people start talking about “synergy” experienced investors wince.
As you say, it just keeps growing, even when it will end up killling its host. This is what Marx called “monopoly capital.”
Barry–
You suggest that for-profit insurers want to please their customers–employers–rather than Wall Street.
You are right they do want to please employers by trying to offer lower premiums. But they also want to please Wall Street– by growing earnings. The pressure is enormous and Wall Street is not patient.
The one way to please employers and Wall Street is to spend as little as possible reimbursing patients and doctors for care so that you have more profits and can offer employers somewhat lower premiums.
The once person insurers don’t worry about–their true customers: patients.
In theory, employers worry about employee/patients getting good care. But since few employees stay with a company for 10, 15 or 20 years, employers are no longer concerned about their long-term health. They are far more concerned about spiraling premiums–which they cannot afford.
MedBlog Power 8
7/16/2008 – 7/30/2008Next revision: 7/30/2008 (no update next week)
(Key: Rank, Blog name, Last week’s rank, Comment/Post of note)
You left out Nixon’s role in the managed care debacle. Nixon signed into law a provision that requires all employers providing health benefits to include an HMO as one of the choices for employees.
Barry:
You seem to know a lot about for-profit v not-for-profit insurers.
As you probably know, in 1986 a new IRS code section was passed, 501(c)(m). In order to maintain their 501(c)(4)status, Blue Cross and other non-profits had to prove their continuing mission of community-benefit, and of operating differently from for-profit insurers, including offering products not available from for-profit insurers.
I understand from several IRS documents I have accumulated, that most of the Blues did not qualify as 501(c)(4)s after section 501(m) was passed.
Don Levit
Don–
You are absolutely right about the Blues.
While most of them continue to call themselves “for profit” they forgot about their non-profit mission (better
health for the community),
long, long ago.
When I talk about the non-profits that provided better care in the 1970s and 1980s, I’m talking about plans that in most cases, no longer exist. They were wiped out in competition with the for-profits.
Don–Sorry, Typo–
I meant to say: “While most of them continue to call themselves non-profits . . .”
MedBlog Power 8
7/16/2008 – 7/30/2008Next revision: 7/30/2008 (no update next week)
(Key: Rank, Blog name, Last week’s rank, Comment/Post of note)
Care Quality and Cost: Why Poor Quality can Cost More
Two recent posts by Niko Karvounis (see this link and this link) discuss critical issues concerning healthcare quality (care effectiveness/results) as it relates to healthcare costs.
Hi,
Thanks for the great and useful information.
Sam Orville
SEO Specialist
Callbox Inc. : http://www.callboxinc.com/
Managed Medical Services : http://www.managedmedservices.com/
By the way, if being big is a handicap why is it that firms are continually seeking to merge with competitors? Wasn’t Anheuser Busch already a near monopoly in the US? I’m afraid that international capitalism is like cancer, it just keeps growing even when it will end up killing its host.