I don’t understand why those who believe health reform is socialism don’t have faith in the free market’s ability to control costs and deliver quality.
Here’s why I’m confused.
Several large health insurers have decided its time to get serious about managing costs; they’re introducing plans with limited provider networks and either no coverage for out of network providers or high deductibles and co-insurance/copays.
The plans, introduced by United Healthcare, Aetna, Wellpoint and others, are currently only available in a few markets as the healthplans test market receptivity.
Kudos to these insurers for finally getting serious about managing cost. While they are concerned about the potential for a repeat of the consumer backlash seen in the nineties, I’m betting the consumer backlash will be minimal.
The political backlash is a whole different story; more on that in a minute.
Most employees are all too aware of the rising cost of benefits; they have seen their premium contributions increase dramatically as the benefits plan has slimmed down. While some aren’t going to be happy if they have to pay more to see their favorite doc or go to the nearest hospital, their anger will be tempered by the knowledge that they are better off than many of their neighbors who have no insurance at all.
That wasn’t the case in the early nineties. Since 1993, the number of people without insurance has increased almost 20% to 52 million from 43.9 million.
Just as the benefits landscape has changed, so has the political. We’re already starting to hear some politicians complain that employers’ changes are evidence that ‘ObamaCare’ isn’t working as advertised, that the President’s promise that reform would allow you to keep your current plan wasn’t true.
These critics probably know their argument is specious at best. The reform legislation was specifically designed to allow employers to maintain control over their plans, the thinking being the free market will develop solutions to the cost and coverage problem.
And that’s precisely what is beginning to happen, albeit slowly and in baby steps. Health plans have realized that risk selection isn’t the path to success, quality and cost of care and more effective member health management is.
There’s a bit of hypocrisy, or perhaps more kindly, ignorance among those who criticized ‘Obamacare’ for its ‘socialist’ leanings and now fault reform for benefit plan changes implemented by employers seeking market answers to rising costs.
The cost control steps included in the reform legislation are weak, scarce, and small; stronger cost controls were discarded in order to get the bill past lobbyists and their friends in the Senate (and to a lesser extent, the House). As a result, we’re left with a bill that – de facto – relies on private insurers and employers to develop tools and methods to control cost.
Critics can’t have it both ways. Either decry the bill for its weak cost controls and governmental ‘takeover’ of health care, or slam it for forcing employers to change plans to control costs because the bill doesn’t do enough.
Trying to both results in one argument refuting the other.
Jul
19
Joe,
While this is an interesting revival of a previously attempted model, I am wondering if it wlll have wide-spread appeal. Insurers implemented similar models in the ’90s when reimbursements to the limited number of”chosen” providers were higher,only to find themsleves “held hostage” by vigorous contract negotiations with certain mega-groups of providers who had assumed new power by virtue of network elimination of potential competitors. The chosen providers wre also economically incentivised to intensify self-referral since they controlled the patient. Also, the 15% savings to the employer or the insured patient seems meager, when the consumer senses that he is experiencing a form of rationing by virtue of diminished provider numbers and subsequentlonger waits for sometimes abbreviated medical services or less than high quality self referral tests. It would be revolutionary if the Insurers would actually base reimbursements on criteria related to accreditation and other quality standards,which could be potentially achieved by a given provider,rather than the usual choices related to physician group size or local group politics.
Joe, There are increased administtrative costs due to lack of health care industry standardization in claims processing. If Insurers would increase claims processing and provider payment accuracy, some studies estimate that millions to billionsof unnecessary administrative costs could be saved annually.
Hi Joe,
I’ve posted a response to your post here:
http://www.avikroy.org/2010/07/health-wonk-review-review-those.html
Joan,
Private insurance error rates run 3-5%, financial errors, those that would require additional payment or asking money back run under 2% for almost any claims payor. Total cost of actual claims processing isn’t more then a couple billion. Unless there was a magical way to process claims without any labor cost at all there is not any substantial money to be saved on administration.
In fact if they were to reduce labor cost and move to a more medicare like processing method they would save some money on administration but lose 10 times as much to fraud and abuse.
What is not standard about an 837? Or the HCFA 1500 and UB 92? What is non standard is providers who refuse to use these and instead use their own custom forms. If all providers were forced to use EDI that would save a fortune with absolutely no negative side effects.
If providers would train their staff and learn to bill better that also would save much more then any payor improvements.
Avik – read a bit on your blog. re one of your posts on interstate sale of insurance, it appears you aren’t familiar with provider contracting issues, don’t understand how share impacts contracting and more specifically reimbursement negotiating, and haven’t thought thru the issue at any depth. to think that insurance rates are due to mandates and dismiss provider costs is deeply naive.
re my original contention re right wing hypocrisy, your comment is not germane. I repeat – some on the right are assaulting the President for the free market’s attempt to control cost. You missed my point entirely.
If you want to engage do your homework and think before you type.
” some on the right are assaulting the President for the free market’s attempt to control cost.”
How is it a free market when both federal and state governments dictate who can sell, what they sell, who they sell to, and almost every otheer aspect of the business.
Nate – that’s simple – within the bounds set, companies are (finally) getting serious about controlling costs. Every market has bounds – that’s obvious. If there weren’t controls on collusion, price-fixing, and monopolistic behavior, there wouldn’t be any ‘choice’ at all.
To quote Adam Smith in The Wealth of Nations, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
There’s no question insurers are trying different measures to control cost, in an effort to better deliver ‘value’ to buyers. You can engage in the academic, and pointless, argument about whether there is any such thing as a ‘free market’ and what the pros and cons would be, but that’s just that – academic and pointless.
I would disagree about what you claim is pointless and academic. There are very real examples of how this non free market heavily regulted industry stifles cost savings. Specifically the bill passed doesn’t do anything to force employers to control cost it does the exact opposite, it prevents them from beinging innovative and controlling cost. I’ll give a specific example that refutes the argument your making.
In the past 2-3 years employers are refinding the benefit of self funding. There has been a tremendous movement from employers buying low deductible plans to purchasing high deductible plans then self funding back down to the low deductible. They reduce their premium 40-50% and lower overall cost 10-20%. This is one of the few changes employers can make that has no impact on employees, they keep the same benefits they had before. Obama’s bill did two things;
1. Any employer not already doing this cannot buy a high deductible plan and start doing this going forward without losing their grandfathered status and being subject to future regulation that would not allow them to offer it after 2014 anyways.
2. 2014 does not allow employers in the exchange to buy any deductible over $2000 unless it is for workers under 30.
These provisions didn’t do anything to help lower cost, they are regulations that drastically increase cost and prevent the exact free market efficiencies you claim will come about.
The bill is full of these stifling regulations and those are what people are complaining about.
“As a result, we’re left with a bill that – de facto – relies on private insurers and employers to develop tools and methods to control cost. “
This bill does not rely on the market to create tools and methods it actively seeks to prevent them from doing just that. The grandfather regulations as written are a ball and chain meant to kill private insurance not free it.