How Health Insurance Providers Make a Profit 4: Lower Quality
Posted by Chris Martin at 1/26/2008 5:19 PM 
Categories: Health policy, Health Insurance, High Deductible Health Plans
Categories: Health policy, Health Insurance, High Deductible Health Plans
In current health insurance markets it is difficult and dangerous to raise prices. We have also gone as far as we are likely to go with cost controls for some time. In this climate one of the few options remaining for Health Insurance Providers is to lower product quality. If quality costs too much to produce, lowering quality is sure to trim costs and boost profits.
But what exactly does this mean? What quick and easy changes can health insurance providers make that will provide the insurance equivalent of a toy manufacturer's lead paint? Wonks Anonymous proposes that the most popular way for insurers to lower the quality of their product has been to increase the cost share paid by the insured. The next time you want to impress an insurance wonk with your inside knowledge, just use those words.
It works like this. A health insurance policy is a promise to pay for medical care and the quality of this promise is directly related to the amount of medical care the policy will actually pay for. A policy with no copayments is higher quality than a policy with small copayments and both are better than a policy that requires the insured to spend some of his or her own money, this is called a deductible, on care before the insurer pays anything. The insurer's costs are lower and, with any luck, the insured buys the product without carefully considering the full implications.
Memo to Michael Moore: Denial of care is very HMO and very, very twentieth century. High cost shares are the future of health insurance.
As a public service Wonks Anonymous would like to list briefly some key words that indicate that a health insurance policy has some quality lowering features:
- When judging a policy you should always look for information on the maximum out of pocket. This, plus the premiums, is the greatest total amount you would have to pay in a year under the worst circumstances. If a policy does not have this, and some do not, you might do well to avoid it.
- The traditional HMO usually charges a flat fee per visit, hospital day or other encounter. This is the copayment and can be as little as $5 for a doctor visit and as high as $1,000 for a day in the hospital. There may be differential copayments for specialist care or after hours care.
- The next step down on the quality ladder is the deductible policy. The insured is required to pay some amount out of pocket for health care before the insurer pays anything. Standard policies currently set individual deductibles at $1,000 or $2,000 dollars. $8,000 is a standard family deductible. Remember that you will need to pay this amount, in addition to your insurance premiums, in order to have any of your health care paid by the insurance policy.
- One type of deductible policy, the High Deductible Health Plan/Health Savings Account is of special interest because it has received favored tax treatment for at least a decade. It might be a good idea to look into this if you are as healthy as the proverbial horse. If you do, be sure that the administrative fees for your health savings account do not exceed the interest you earn.
- If you are looking at a family policy be sure that you get an embedded deductible. If a family of four has an $8,000 deductible then the family will need to pay $8,000 before insurance kicks in. If the policy has an embedded deductible of $2,000 per member then insurance will pay for any care for each member of the family that meets the $2,000 limit.
- Note that even when the deductible is met the insurance company will probably still require copayments for services, up to the maximum out of pocket.
- The most recent innovation in the health insurance industry is coinsurance. Somehow this might sound like a good thing but what it really means is that the insured is responsible for a fixed percentage of all medical expenses, come what may. This can be combined with a deductible. That would mean that the insurance company will not pay anything until the deductible is met and will then pay only a percentage of medical costs.
Some have argued that all of these innovations discourage unnecessary use of medical care and make consumers more 'cost conscious'. Wonks Anonymous is quite skeptical of these arguments. He has never found waiting for a doctor's appointment particularly amusing, and dislikes surgery and hospitals. He also trusts his doctor not to order unneeded tests. He wonders if higher out of pocket expenditure might discourage people from seeking needed care and lead to later diagnosis of chronic conditions like diabetes and heart disease.
Wonks Anonymous is clear on one this, higher payments by the insured will probably decrease the costs borne by the insurer. They will also provide the further benefit of moving people who expect to need health care to insurance providers who offer higher quality policies. More on this next time.
Rumor has it that you were disappointed that ABXI was voted down in committee. As far as I'm concerned, there were definitely two sides to the issue on that one. The obvious "plus" was that it would have included several millions of Californians who have no insurance at present. And some supporters of the bill reasoned that, while it was not perfect, it was at least a "foot in the door."
Others opposed it because of the obvious flaw that, while it required all people/businesses to carry insurance, it did nothing to cap the cost of
that insurance. A sizeable number of the people who didn't like that bill are holding out for Sheila Kuehl's bill, AB 840.
I'd like to hear your comments on Arnie/Fabian's dead bill, the chances of eliminating insurance companies entirely, and how you feel about AB840 specifically.
Reply to this
Reply to this