It’s been called the biggest scam after car insurance. It’s expensive, you might never use it, and you end up paying for someone else’s bad decisions.
It’s health insurance. The bane of all employers and the holy grail of employees. Everyone wants it, no one wants to pay for it, everyone agrees the system is a mess, and no one has any good ideas on how to fix it.
The problem is, it’s all a matter of perspective. There are four parties involved: There is the patient, the payer (usually an employer), the insurer, and the medical services provider.
There are two primary types of health insurance: Health Maintenance Organizations, (HMOs) and the Preferred Provider Organization (PPO). HMOs are closed systems that only allow a patient to see a doctor that is provided by the HMO.
HMOs are frequently less expensive, and they generally have no, or nominal co-pays. Kaiser Permanente Group is an example of an HMO, the cost for appointments is $10 or $15. The reason they can do this is that they keep their costs down. Their doctors are on salary, and their facilities are owned, which allows them to maximize their return on their investment in the buildings.
PPOs let a patient see any doctor they want, and the insurance company will pay the bill, in varying degrees. It is called “Preferred Provider,” because the doctors and labs that are part of the network are “preferred” and consequently are paid a higher reimbursement rate than those doctors who are not. This is valuable to the patient because it lowers his co-pays, that amount the doctor is looking to the patient to provide. Patients with PPOs have an annual deductible — the amount of out-of-pocket money the patient must pay for his medical care.
Deductibles vary in amount from as little as $250 up to $2,000. In theory, their purpose is to ensure that a patient does not abuse the system. If a patient has to pay for some out of pocket expenses, they are less likely to run to the doctor for every little ache and pain. The problem is that those patients who are most likely to abuse their medical insurance get a low deductible and pay a slightly higher monthly premium, versus those patients who are not likely to abuse the doctor and get a high deductible and a lower monthly premium.
Of the three or four parties involved, the patient is clearly the party that wants to maximize the services provided, and covered by an insurance carrier. They want to pay their premiums, pay their deductible and then get as many services and procedures as possible in the next year, before they have to pay a new deductible. This is rational thinking on their part.
The payer, who is usually an employer, is always looking for ways to provide a benefit to an employee while minimizing the costs to their bottom line. The employer would much prefer to pay for an HMO which is cheaper — but allows them to say they offer a health plan — than offer the more expensive PPO type of insurance. This too, is rational thinking.
The problem here is access to care. HMOs tend to make it more difficult to get care because that is their way of limiting costs and abuses by patients.
The PPO insurer wants to collect as much money as possible in the form of premiums and pay out as little as possible in claims. The difference between what they collect and what they pay is their profit. It is certainly understandable that they would therefore want to pay claims slowly, deny as many as possible, and limit their costs.
Then there is the doctor, nurse, hospital, or laboratory. They are stuck in the middle between the insurers who are constantly putting pressure on them to limit costs on procedures and treatments, and the patients who always want another test done. The medical professionals are in the most difficult position because they must decide what treatments are truly necessary, and which can wait or be avoided.
As a patient, we want to pay as little as possible in our premiums. But what we must remember is that the costs of treatment are spread across all the insureds. So while an individual may not have actually used his insurance, if the group upon which his coverage is based has used the insurance, the overall costs of the group must be spread out, and that is what causes increases in premiums.
Medical care in our society is like a good news/bad news joke. The good news is that we have more capabilities to cure disease, prevent death, and improve life expectancies and the quality of life. The bad news is that this is all very expensive in terms of the research that is required to find the answers, the required manufacturing to provide and distribute the answers, and those costs must be spread out among all those who have insurance.
The more that we know about how to save life, the more it costs us as a society. The better we become at improving medical care also means we have more people living longer, who are the ones most likely to require greater medical care.
For example, I was speaking the other day with a man who was upset that his insurance premiums had doubled to more than $400 a month. It turned out that his wife had undergone a radical mastectomy. He estimated that she received $250,000 worth of medical care. At $200 a month, it would take 1,250 months to pay back the care she received. That is 104 years. Even at $400 a month it is 625 months of premiums or 52 years, assuming she never sees a doctor again.
Health insurance is definitely expensive, but when you look at it from a different angle, it makes more sense. (David Pisarra is a business development lawyer in the Santa Monica firm of Pisarra & Grist. He welcomes your questions and comments. He or (310) 664-9969).
Originally published in the Santa Monica Daily Press print edition on September 21, 2004. Read the original PDF.