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Broke and Broken: Healthcare in America 2017
This the first of a two part series of essays on health care in America.
Several years ago, my wife’s grandfather, in his mid-80s and on Medicare, was sent to a major university medical center in Connecticut by his primary care physician to have outpatient surgery on a lazy eye that, in his advanced age, had closed and completely obstructed his vision. The stay lasted no longer than an hour and a half. Lucky for him, the surgeon on call was a resident getting his cosmetic surgery certificate and he did a wonderful job. A year later, the poor old guy was being harassed by several collection agencies seeking payment for the hospital, the anesthesiologist, and the surgeon. Upon seeing the invoice from the hospital, Blue Cross of Connecticut, Medicare’s local agent, saw the surgeon’s credentials and rejected all related coverage. The bills the collectors were calling on totaled more than $8,000. I got involved, obtained an affidavit from his primary care doctor stating that the surgery was not elective. I explained that the surgeon doing the procedure was simply a resident at the hospital, not yet a certified cosmetic surgeon. Someone selected the wrong code when describing him. After several appeals, Blue Cross finally accepted the claim. Medicare paid less than $1,700 total to all parties, but still a huge sum for a 15-minute surgery and a little over an hour in recovery while the anesthesia wore off.
More recently my wife went to a nationally famous clinic in Scottsdale for an hour long vocal assessment (she has lost her upper register) completed by a voice therapist. This included a 10-minute visit from an EMT. The price? $2,200 and rejected by our insurance as the clinic was considered an out-of-network provider. The procedure (a picture of her vocal cords taken by a special camera) was listed as a “surgery.” In any case, we have had to front the money and pay the bill. We now have to go to battle for reimbursement ourselves. By the way, my wife belongs to two different health plans, one, from her work as a teacher, which is “free”; she is also covered under my family plan provided by my employer and me. Neither policy will touch this bill from this highly touted clinic.
A few years ago, I was diagnosed with appendicitis. This common issue required arthroscopic surgery and a three-day hospital stay. My follow-up visit with the surgeon a week later was a group affair. Several other folks had the same procedure within a few days of my surgery and the surgeon, ever efficient, scheduled group follow-up sessions (no doubt a requirement on his part dictated by the carrier payment networks to which he contracted.) We all had appendectomies. And I doubt any of us were charged anything like the same amount for the same care. My insurance, a very large employer plan, was likely pretty cheap from the surgeon’s perspective, but nothing close to cheap when compared to Medicare. A common small business group policy would provide the surgeon a slightly higher amount as part of a more generic plan offering. The poor indemnity policy owner (these have been all but eliminated from the market with Obamacare) would have to rely on his insurer to negotiate a reasonable reimbursement. And the uninsured patients would be faced with a massive and unreasonable bill, which they would likely skip paying altogether, to be hounded by credit agencies until they either negotiated a settlement and paid, or simply sought relief in bankruptcy.
Our health care financing and payment system is a mess.
Yet it is undeniable: The United States has the best health care available anywhere. Our facilities are the envy of the world. In every market we have extremely talented and dedicated doctors, nurses, and technicians who perform incredible work. Access to cutting edge surgery, therapies and even experimental procedures is available at a minimum in every major metropolitan area. Incredible progress has been made in nearly every aspect of care; we tackle chronic disease with vigor and provide respectful palliative care when intervention no longer helps. We do almost everything right when it comes to caring for the injured, sick and aged — except for the money part. We have really made a hash of that; this finance problem threatens continued progress in health care, perhaps even threatens the entire health care delivery system itself.
The modern concept of health insurance, or prepaid health care, is said to originate in California of all places, to the depression-era practices of the local Blue Cross (affiliated hospitals) and Blue Shield (affiliated doctors) which jointly offered a menu of a-la-carte health care services to any residents who were willing to enter into a monthly prepayment plan. Prepaid funds could be exchanged in the future for a limited list of common health care services at discounted prices. Other states took the cue and similar Blue Cross/Blue Shield plans evolved in many states. Participating health care facilities and doctors needed a safe cash flow and this was a way to provide it.
Employer-provided health insurance and prepaid health care can be tracked to WWII wage controls. Workers were in short supply in the war years, so in an attempt to stop rampant inflation and employee poaching, the FDR administration passed several laws attempting to control wages and prices nationally. These laws led to labor disputes, stoppages (even though unlawful), and convenient unionization. Employers found ways to enhance compensation and circumvent “wage controls” by sharing in the payment of FICA and providing other benefits, like prepaid health care, health and other insurances, sick pay, vacation pay, etc. These “benefits” were often a part of collective bargaining agreements but they were also adopted by most large non-union shops for certain key classes of employees. The IRS never codified these non-cash benefits as “exempt” from tax but rather ignored them. Until they were actually codified into law many years later, the official IRS position was that these benefits were actually “wages” but the agency never went so far as to force their inclusion in taxable income. By 1960, tax exempt health care benefits were cemented into American worker compensation.
Some employer health insurance products were true “insurance,” that is, they provided reimbursement for certain specific costs. We refer to these kinds of policies today as indemnity policies. Most policies today have an “indemnity” feature which provides limited reimbursement for “out of network” providers. Other health insurance products followed the original Blue Cross/Blue Shield model of prepaid health care within a limited network of doctors and hospitals. This model advanced beyond simple prepaid credit to a limited menu of services established contractually. The costs of actual care would be shared by the consumer, whose “share” of cost would be determined annually (deductibles) and by transaction (co-pays.) Care cost was also limited by setting an overall policy limit.
In many respects technology played a major role in the evolution of these “network based” health insurance models. The industry has settled on a relatively common thesaurus of billable service units, much of which follows the original Blue Cross/Blue Shield list of authorized procedures. Medicare further helped define the standardization of billable health care units. Automated and highly sophisticated hospital accounting systems have since been designed around capturing these varying and sometimes arcane billable units, applying the many different menus of pricing agreements by carrier networks with which they subscribe, and billing the carriers at these agreed upon rates for the associated care. This allows a doctor or facility to enter a myriad of networks and arcane pricing arrangements with relative ease. These systems are also equipped to bill for carriers for “indemnity” under policies at “standard” rates. The consumer is simply billed for any shortfall from these carrier payments which may include application of deductibles, units rejected by the insurer and the uninsured portion of indemnity reimbursements.
Before the federal Affordable Care Act (ACA), the regulation of health care plans, as a form of insurance, evolved largely under the purvey of the various state departments of insurance or similar local regulatory agencies. States began prescribing what kinds of risks required coverage, what coverage could be excluded and some states even dictated minimum across the board coverages. The idea of a legal standard policy emerged in some states. This made it difficult for smaller carriers to compete on the national stage. Policies had to be tailored to fit every state requirement and regulation. So instead, the health insurance marketplace evolved state by state, each state a unique situation of itself.
What insurers did recognize however, was their ability to negotiate price and participation agreements with facilities and doctors all across the country. Since the insurance carriers were paying for the largest share of our health care delivery system (excluding Medicare and Medicaid), it was in their best interest to obtain payment agreements from as many providers and facilities as possible. The reasoning was sound. First, it fixed their cost exposure. Second, a larger and more robust the network gave them the leverage needed to meet the needs of large employer sponsored plans. They could then rely on technology to sort out the various state coverage and exclusion requirements and market a single solution to the biggest and most lucrative group policy providers: large employers.
Most private health insurance still originates in employer subsidized, tax exempt marketplace. It makes sense that insurance conventions, like deductibles and total out of pocket maximums (essentially deductibles applied on coverage for more than one insured; that is families) would evolve and find their way into employer provided health care. Deductibles are ways to shift the most likely cost away from the insurer and are common in the property and casualty insurance world. They can significantly lower underwriting risk, hence the insured company’s policy cost. The trade-off is that the policyholder (the insured company) pays the deductible and takes on that initial risk. When applied to employer subsidized health care, deductibles lower policy cost however the deductible risk itself is transferred not to the employer, but to the employee. In an environment of rising premiums it only makes sense that employers will fall on this device to retain coverage and avert or minimize an increase in their portion of premiums. Employees have no say in this negotiation and must rely on the beneficence of an employer in these decisions.
Copays evolved differently. They likely first appeared as maximum prescription costs in some policies. The first time I saw copays in routine physician care was in the early HMOs. HMOs were an innovation popular in the 1980s where folks paid a monthly fee for “free” care with a very limited number of affiliated physicians and facilities. Care was not really free. Every visit required a nominal cash payment to the enrolled physician. Within the HMO, doctors were paid a monthly per patient fee for each enrolled patient in their care. A portion of the total collected premiums was also paid to the enrolled facilities providing care beyond a simple doctor’s visit. HMOs became quite popular in some states but many eventually folded, unable to deal with out of network care requirements or otherwise unable to meet state insurance department mandates and regulations. Their descendants are today’s PPOs and similar programs.
Nonetheless, whether it was the HMO or the minimum prescription charge that initiated the copay gimmick in health care finance, it remains as yet another factor that employers can manipulate when negotiating annual plan terms to lay yet more of the rising cost of care on unwitting employees and to defray the subsidized employer portion of health insurance costs in an environment of high health care inflation.
Routine health care services are generally delivered by a multitude of independent venues, but mainly by outpatient clinics or by private doctors at their owned clinics. More substantial inpatient care is provided through not-for-profit hospitals and hospital groups, though the for-profit care option has been growing in importance in the marketplace. The point is, there are many independent healthcare providers in most markets. However, when it comes to health care insurance/finance, just a few large national insurers provide (including Blue Cross/Blue Shield which is actually a consortium of separate, non-affiliated not-for-profit state entities) fill this part of the health care equation (again, excluding government Medicare.)
Perhaps the most interesting dynamic in the health care delivery market is not just a lack of pricing transparency, but a complete blackout with respect to actual service pricing. Under most plans (other than copays) doctors and hospitals accept the myriad of a-la-carte pricing menus within the various carrier plans to which they subscribe. Patients know little or nothing of these payment arrangements; they are transacted completely in the background long after the care was delivered. These details are only relevant and obvious when a transaction falls under an indemnity portion of a policy (out of network) or the care falls under the “major medical” portion of a policy where deductible limits apply or when a provider asks for payment of all fees when services are rendered.
Most of the time providers bill the insurer first and any residual not covered by the insurer is billed to the patient long after the delivery of services. Even with network discounted pricing, in these days of higher and higher deductibles and out of network co-insurance (the % born by the insured) these bills can be shockingly large (like my wife’s $2200 bill for a vocal assessment I mentioned earlier.) If a patient has no insurance or if the procedure is not “covered” under a plan, providers can simply make up their own prices. And they do. Recently, in Chandler, Arizona a woman was charged in excess of $50,000 for several doses of scorpion anti-venom treatment. The actual anti-venom serum was developed and is made in Mexico where it is quite common and a dose costs under $100, however, in the arcane US market, only one importer has an FDA license to sell this drug, which, after moving through the distribution chain, resulted in the charge above. (No, I am not making this up.) It wasn’t until this became a front page news story that the hospital backed off and charged less, yet still, the final bill was in the low five figures
What are the first things that you are required to do when you arrive at a health facility? If you do not require immediate, life saving treatment, the first question you are asked, of course, is “do you have insurance?” Next you must provide both proof of identity and an insurance card. And then, before you are asked what your medical problem is, you are asked to sign a contract to wit: irrespective of your insurance coverage, will you agree to pay for whatever services you receive at whatever price this provider decides to charge you? Refuse to sign at your own peril. The inference is, if you do not sign, the provider can and will refuse care. If you are incapacitated but your wife arrives with you, she will be asked to sign on your behalf.
By law doctors and hospitals are required to help patients with life threatening problems who arrive at their doorstep, but the level of care they are required to perform is limited. They may just stabilize a patient who is then transferred to a more charitable hospital with a more beneficent policy. Nonetheless, no matter whether a facility is not-for-profit charitable venture or part of a health care group listed on the New York Stock Exchange, they will ask you to pledge everything you have or ever will have to pay for whatever they do, effective or not, at any price that they decide to charge. I cannot tell you how crazy that is.
If you arrive at a hospital emergency room incapacitated by illness or injury, anything you are required to sign to receive care is signed under duress and cannot be enforced in a court of law. But that fact will not stop the provider from getting that very important signature. And even if you don’t sign, you are still legally obligated to pay for the services rendered on your behalf, however, only if those services are both necessary and helpful. And yes, the charges must be reasonable.
Another factor affecting health care cost and payment is the federal government’s disparate treatment of insurance cost. Many states follow the federal government’s lead here. Federal tax code does not consider employer health insurance subsidies to be income for tax purposes. On the other hand a taxpayer who must pay for his own insurance may receive subsidy for his premiums if he qualifies because of low income, but otherwise, his health insurance premiums are not deductible. The tax treatment of the cost of health insurance favors the employer subsidized plan. This is illogical and inconsistent, but yet, true, and it is in great part why employer provided insurance dominates the health insurance landscape. Even companies who provide no subsidy at all are doing their employees a favor by providing a group plan. However, so long as all decisions regarding offerings, premiums, deductibles, copays and insured risks are made by employers, the actual consumers, the employees, have no say. They cannot exercise any reasoned scrutiny in evaluating value when considering health services, other than whether an issue is so severe they must roll the dice and seek care. Those decisions are irrelevant to the employer’s single priority, keeping their cost down.
The ACA to some degree tried to insert itself into the mix here, providing a three tiered policy structure meant to simplify and classify choices of requirements and coverage, requiring some specific coverages and removing policy limitations. However, the ACA also dictated what might be unnecessary coverage for many people and limited coverage it deemed “Cadillac”, placing fines on folks with plans with what was deemed to be excess coverage. Such social engineering in policy design comes with its own issues and unintended consequences. It also forced insurers to provide coverage irrespective of pre-existing conditions, that is it virtually eliminated the notion of underwriting, that is evaluating risk, when deciding whether or not to provide and how to price insurance
All these powerful, but disparate forces have formed the health care and health insurance/finance landscape that we now must attempt to correct. Though health care delivery comes through a multitude of delivery systems, there seems to be little to no real competition within those systems to force operating efficiency and innovation. Just a few insurance carriers engage in massive price fixing schemes, schemes that in any other industry would be criminal, to manage their risk, maintain their market presence and premium flow. This, when coupled with Medicare, results in a virtual oligopoly with respect to pricing and service delivery. Costly torts have also forced doctors and carriers to require extraordinary and often unnecessary care to avert any possible legal action. Disparate state insurance boards and commissions have created a confusion of different state mandates and policy requirements limiting competition for premiums to the largest established players. The tax code, ACA, Cobra and other federal laws and regulations provide additional regulatory confusion as well as a component of social engineering to the health markets. Finally, the evolution to a unit of service based model of revenue recognition, as pioneered in the first Blue Cross/Blue Shield cooperative venture in California during the depression and refined to niggardly precision by Medicare and Medicaid, has resulted in general market distortions, groupings of reimbursable tasks always billed together, a proliferation of unnecessary defensive medical treatments and a host of other questionable billing practices that border on outright fraud.
A reasonable person, if required to approve and pay for any service, would certainly question just how my wife could generate $2200 in fees in less than 60 minutes, or how her grandfather could incur $8000 in fees in an hour and a half. And a reasonable person would wonder just how a bill for services could be reduced from $8000 to $1700 without complaint, or why the Federal government should treat premiums paid by an employer differently than those paid by an individual. A reasonable person might wonder just how the federal government can virtually dictate the cost of care for millions of the most needy consumers in a free market economy or why a patient would be forced to sign a “I will pay whatever” agreement to obtain care.
There are some largely self-inflicted problems here and things must change.
Next week: where should we go from here?
Published in General
TL:haven’t read it all.
but: I hear this problem about Mayo more than enough: “they are soooo wonderful and did all these tests. . . are so thorough.. .” Then you get the bill.
Not in any hospital in the US I’ve ever seen. The first person you see is supposed to be a nurse or provider who asks the compliant, gets vitals and determines the correct triage category. If you are emergent ( Chest Pain, Stroke, unstable vitals, etc) they take you straight back. IF your complaint is less urgent, only then can they send you to register.
I’ve worked in Emergency Medicine for 30 years. On the vast majority of my patients I have no idea what their insurance status is.
So, friend of mine was seeing a patient in the ER at our community hospital. Pretty routine problem, serious but doable at the facility. Patient has Medicaid. Family demands transfer to Duke University Hospital about 3 hours away, stating and I quote, “Doctor we want the best, money is no object”.
As Rob Long would say “you need some skin in the game.”
I have seen some sites claim that insurance rates have risen less under the ACA than the previous 5 or 10 year period. have you seen any research on the matter that verifies or contradicts this claim?
Great post Doug. What a mess. I have been on Medicare for more than six years and am shocked by the difference between what is billed and what is paid. The problem is that doctors are refusing to treat Medicare patients and the number that are quitting practice. FYI , if you threaten to pay $1 a month until a bill is paid they will negotiate, usually by at least 50%.
I exaggerate, of course. In emergency, triage comes first so that those with life threatening problems can be treated immediately. If you are not expedited, then comes the paperwork. If you go to any other clinic, the paperwork comes first along with the usual “what’s wrong” handout and health history checklist.
I did not mention the name of the clinic.
There is no good way to measure this as deductibles and copays have risen dramatically. Premiums are only one component of the insureds cost, and a decreasing portion.
Bookmarked, DK, BBL…
There is also the reality that a larger and larger portion of the total cost is prescription drugs, usually prescribed for long term maintenance care. You can’t insure against a known expense. Not if it’s really insurance.
Yet another great point!
Seems pretty obvious to me.
Then doesn’t that make the current consensus in favor of mandatory coverage of pre-existing conditions unworkable?
In terms of the meaning of insurance, yes, it definitely does. Insurance is about mitigation of a risk that is unknown for an individual, but calculable on a group basis. For a pre-existing condition, the risk is 100%. So unless the premium is greater than the total benefit (to allow for administration costs), it doesn’t work.
This goes to the basic misunderstanding on the part of most people, including Barack Obama, of the difference between health insurance and health care. People with pre-existing conditions don’t need insurance, they need health care, which will likely be paid for through charity.
Excellent post, Doug. It’s hard to take a complicated subject like this and make it understandable in a short form. Look forward to next installment.
In addition to the good points raised by Doug, always check when you see this claim on rates made what the starting date they are using. Rates rose quite quickly in the years prior to 2006 and then increases slowed. That is, the rate of increases began to slow down before passage of the ACA.
Yep.
If an insurer must take on all risk, then they should be allowed some leeway in underwriting and setting premiums. If we take people with chronic or inherited conditions out of the market and deal with them separately, we still have the scofflaws who wait until they have a problem before they seek coverage. It is that point where they should bear a penalty in the form of a high premium for an extended period, as a disincentive for skipping the system and avoiding contribution.
I try to avoid ER care for the merely urgent, but sometimes that’s proved impossible (can’t find nearby urgent care, or urgent care sends me on to ER just in case). Except for asthma attacks, where I’ve been in obvious distress, the vitals check has always waited until after the paperwork has been completed. I’m not complaining – except for asthma, the problem has never been something where checking my vitals was, ah, vital. But I understand why Doug wrote what he wrote.
Thanks for this post, Doug. I’m facing some medical-bill madness of my own right now. Got frustrated enough to punch a wall over it, and managed, to my surprise, to punch through the plaster. Shouldn’t’ve done that – usually all that gets hurt from a fool move like that is your hand, but now I’ve made another mess to fix – on top of the cuckoo medical billing :-)
Doug, You have done an excellent job of summarizing the utter incomprehensibility of the American healthcare reimbursement “system.” I look forward to hearing how you will propose to fix it. I have a few observations:
1. Nobody designs a system like this. It evolved over 70+ years, as a long agglomeration of decisions and responses; insurance company does X, doctors respond with Y, government intervenes with Z regulation, repeat and stir hundreds of thousands of times, with uncountable localized variations.
2. No single human, company or agency understands all of this. However, numerous participants have figured out how to play profitably within the interstices of all this complexity. While these entities are fine with any new regulatory complications (which, they’re sure, they will also figure out how to manipulate), they will lobby hard against any real simplifications or transparency.
3. On the other hand it is easy to see, and even sympathize with, those who look at this mess and conclude that a single payer system is the only answer.
4. Therefore, those of us who want to devise a market-driven system with more individual responsibility will have to fight players on both ends of the political spectrum.
I haven’t read all of the original post.
I have employee provided health insurance that I haven’t had to use all that much.
I have had one operation as an adult, gall bladder removal. In this case, I was warned that I could end up paying for the procedure if I didn’t get pre-approval.
And that’s what I see missing from what little I read of your posting. In the cases you outlined, the insurance company wasn’t asked first.
Regarding the high price of the procedures, I definitely agree that our convoluted “insurance” system has altered the market.
But from what I’ve read, you can approach medical providers, explain you’re paying out of pocket, and make deals for better pricing.
You don’t have to be helpless. You can take things into your own hands.
Nice article Doug. Unlike Kozak, us outpatient primary care docs know everyone’s plan and have to jump through hoop after hoop after hoop. The process is becoming harder and it’s wearing me down. I enjoy practicing medicine but the rest of it can go to hell.
I’m old enough to remember when if you had a serious pre-existing condition like diabetes you could still get coverage, but you had to pay for everything related to that pre-existing condition out of your own paycheck. So my question is how can we go back to that cruel world after living in this fantasy world for the past few years? Don’t pre-existing conditions have to be covered now?
I recently spent two months in limbo because I did ask my insurance company first – at least I did everything in the patient’s to ask them, and the rest was up to the company and the relevant doctor’s office – and I never got an answer.
Now, maybe the insurance company was just doing its job by not answering me, because my reaction to getting no answer either way was to re-negotiate my treatment plan entirely at the next doctor’s appointment. Nonetheless, it resulted in about a month-and-a-half of increased misery that could have been ameliorated much sooner by just getting an answer one way or another.
There seems to be a superstition among some doctors and patients that the best way to winkle the insurance company into extending special coverage is to act first, ask permission later. Maybe now I understand why.
If you haven’t read Steven Brill’s article in Time magazine ” Bitter Pill: Why Medical Bills Are Killing Us”, you really should. It is an eye opener. Unfortunately it is behind the paywall now. He has anecdotes of situations like Doug’s and family members. As far as I can tell, the ACA didn’t solve any of the problems he describes, and may have made some of them, like increasing hospital consolidation, worse. He does use the phony “62% of all bankruptcies are medical bankruptcies” stat that Senator Warren invented ( Meghan McArdle has debunked this several times).
Thank you Doug for the history of the evolution of insurance – very interesting.
The “or” is somewhat misleading.
That’s just direct employment by hospitals. Another increasing trend is physicians working for large groups. My own primary care doc was one of the owners of a multi-physician group practice for many years. The group then sold to a regional company that owns many medical practices. He is leaving that for a newer company which he hears has better systems so that doctors can spend more time with patients. As of 2014,
And the trend away from private practice is accelerating.
Great post, Doug. Eagerly awaiting part 2.
There’s an underlying theme that your post doesn’t explicitly state: almost all of the problems you describe predate Obamacare. As Dr. Rich points out, the true inefficiencies at the heart of our system evolved over 70 years to provide the Gordian knot which underpins the whole thing.
Obamacare didn’t really reform our system as much as it added an extra layer on top to try to solve many of the problems created over the previous half century. But all of the political focus on Obamacare over the last 7 years has distracted our collective attention away from the fact that our biggest healthcare problems already existed.
As a result, there seems to be very little political will to dig down into the problems of the pre-Obamacare system (employer-based group healthcare, Medicare payment structures, etc.). Repealing Obamacare without reforming those original sins will not solve any problems, it will just add a few minutes onto the clock before our healthcare system inevitably implodes.
This argument – which always pops up on these threads – that “this isn’t really insurance” is a semantic waste of time.
Of course providing for people with pre-existing conditions isn’t “insurance”. But in the end, nobody cares what it’s called, they care about what services they’re provided and who pays.
If we keep throwing the argument that “what you want is not insurance” to the left, at some point they’ll just respond “Fine, then don’t call it insurance. Call it coverage. Call it health care. Call it Ishmael. I don’t care what you call it, just have someone else pay for it!”
But from the beginning, don’t they insure against the risk of needing the maintenance meds?
I have no idea how an insurance company can do the actuarials on that, since, many times, once a client starts, the maintenance expense is compounded in perpetuity.