Monday, May 27, 2013

Health Insurance vs. Auto Insurance

Experts keep discovering problems I pointed out months ago.  It shows the need for more critical thinking.

In February I wrote about the disparity in procedure costs by location.  In April and October of last year  I cited the need for a menu of sorts to display medical costs to promote competition by not keeping patients in the dark.  On May 8 the federal Centers for Medicare and Medicaid Services released a report highlighting the same issues.  “The report shows a joint replacement in Ada, Okla., could cost $5,300 compared with $223,000 in Monterey Park, Calif., a suburb of Los Angeles.”  Calls are coming for those very menus.  The report also pointed out, that uninsured people are the ones who usually pay the highest prices due to their lack of negotiating power.  The system is flawed.

The major problem, the design of the system, has not yet been addressed.  It arises from patient isolation.  Insurance companies deal with employers and providers.  We are left out of those discussions and become involved only when told how much we owe.  Discrepancies at that point become your headache, not that of your employer, the government or your doctor.  No one can make this ill-designed system fair and affordable, because affordability depends on cost control, and fairness doesn’t ask us to subsidize irresponsible behavior.  The current system misses on both points.  

As it is today, the payer is looking to reduce costs by simply paying less.  One example is the Medicare reductions in payments to providers.  Another is that as states develop their Affordable Care Act plans, some are allowing insurers to charge patients “a hefty share of the cost for expensive medications used to treat cancer, multiple sclerosis, rheumatoid arthritis and other life-altering chronic diseases.”  An example many are familiar with is the transfer of costs from employer to employee.  Cost are shifted rather than controlled and no one is held accountable for abuses within the system due to poor management or poor consumer choices.

One suggestion for an alternative design looks to auto insurance for some answers.  You purchase and hold the insurance.  Although a repair facility might bill the insurance company directly, you deal them on all claims.  Drivers have the opportunity to change insurance companies at any time, which keeps them more competitive, forcing them to work to keep overall costs down.  You can also make better choices because people who work on your car are required by law to give an estimate and get your permission before doing initial work or any extra work that comes up.

Second, auto insurance is behavior-driven.  Although the safest drivers do, to some extent, subsidize the rest; bad drivers generally pay more.  At least one company has a program offering special rates to drivers who are willing to have their driving monitored by a computer plugged into the car.  Another offers rebates for accident-free driving.  Likewise, to make health insurance affordable to all, healthy people must subsidize the seriously ill, but there is little recognition (other than a penalty applied to smokers) of behavioral contributions.  Is it fair to be forced to contribute to the recovery of the guy who got drunk and drove his ATV into a tree, the cost of a high-blood-pressure patient who refused to change his diet or the bills of the elderly widow who sees the doctor weekly primarily as a social outlet?  Many health issues are unavoidable, but some others are long-term consequences of faulty behavior.  What if some portion of health insurance premium reflected diet, lifestyle, bad choices and risky habits or hobbies?

If an outside entity – employer or government – wanted to assist with such insurance, they could provide a set subsidy, same for everyone.  Cost above that would fall on the insured and would be dependent on habits and behavior.  How that is measured and how intrusive it would be are open questions, but I suggest that such a system would be superior to the one we have now.

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