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Why Are You Paying So Much And Getting So Little From Medical Insurance? Part 2

By Michael J. Harris, MD

Medical insurance premiums have doubled in the past 3-4 years for many comprehensive health insurance plans. Businesses that provided 'employer-based' health insurance are struggling to afford this employee benefit. Drug prices are skyrocketing. Doctors are retiring early or leaving medicine for other careers due to career dissatisfaction and frustration. Why is the richest nation on Earth suffering from such a health care crisis?

In this second of three articles, I will outline the structure of a medical care system that capitalizes on free-market supply and demand forces to drive down costs while quality and value thrive. In the third and final article, I will present changes that each component of the medical care marketplace can make to evolve our present system of spiraling costs and declining value to one present below.

Eventually we will all be patients: a consumer of medical care services. Since we do not pay someone $40.00 to reimburse us for a $30.00 oil change, why pay an insurance company 20-30% more than the charges for routine care. It will always cost more for 'indirectly funded medical care' than 'directly paid for care'.

The Supply Side: Physicians, as providers of medical service, will price services based upon the value of the medical care rendered. High quality providers with excellent reputations for providing the best care in their specialty might be valued higher than a lesser quality provider in the same specialty. Medical offices employ clerical staff to answer phones, check in patients, collect for services and order tests. Nursing staff provides the hands on support for patient care and screen straightforward medical questions. The office manager ensures the efficient office function, monitors staff and provides practice management support to the physician. Notably absent is an army of billing and collection staff that typically makes up 25% of the medical office overhead. Physicians provide objective outcome measurements to the patients regarding overall treatment efficacy in their hands. The physician will use these outcome data for internal quality improvement to improve his/her treatment results and competitiveness in the medical marketplace. Overall, costs will decline under competitive market forces and quality will increase, for the same reasons.

The Demand Side: People will purchase high deductible, individual insurance that is completely portable. They will see the best physicians for their medical care dollar - value shopping. Healthy habits and preventative health habits are rewarded with reduced need for medical care. Self-abusive lifestyles such as tobacco use, excessive drinking and drug use as well as poor diet, obesity and lack of exercise will result in poorer health and more expensive medical costs. In the case of my family, a $20,000.00 deductible catastrophic insurance plan cost me $1100.00 in 2002 as compared to the $10,000.00 that my comprehensive plan was going to cost. I will save over $8000.00 in the first year alone! I put the premium difference in a conservative investment account and pay for medical bills from that medical expense savings account. I do not use the Emergency Room for unnecessary medical encounters. If I change employment, my family insurance is portable. If my family suffers a catastrophic illness, our medical costs are limited to $20,000.00. In 30 months, our savings on premiums will cover the deductible. People that cannot absorb the risk of a $20,000.00 deductible can purchase a plan with a lower deductible. After saving for several years with a $2000.00 or $5000.00 deductible plan, the deductible can be increased. As the deductible gets higher, the premium savings increase. Since we ultimately pay insurance companies for medical care consumption, great savings can be realized by paying directly for as much care as possible. In the end, consumption will decline and patient participation in their own health issues will enhance the value of medical care consumed. Personal behavior will change, the way medical care is purchased will become more efficient, and people will save money for future illness.

Less middleman, less bureaucracy, less cost: People will purchase high deductible, individual insurance Insurance companies will be handling smaller amounts of premium dollars. They will sell to individuals and be responsive to individual needs. There will be much less second-guessing by insurance clerks, because the patients will be financially involved in their care. Patients will dump plans that delay payment for services after the deductible is met. If the insurance company failed to live up to the policyholder's expectation, they would lose policyholders. The free market of potential policyholders scrutinizing the insurance industry will keep the industry honest and efficient. As the cost of insurance declines, so will the need for huge armies of claims personnel. Insurance will still cost more for those with increased risk for medical care consumption, but relative to today's overpriced market, it would be much more affordable.

Hospitals as cost centers: Hospitals and other care facilities will have to account for each item that patients are charged. With frugal and informed consumers (patients) asking questions, the administration-heavy hospital structure would get lean and value-service oriented. Outpatient surgical procedures of 30 minutes would no longer cost $3000.00 for the hospital component. Outpatient surgical centers as competition for hospitals will result in low cost, value driven service.

The pharmaceutical industry: Viagra should not cost $10.00 per pill. Pharmaceutical companies will have less Federal regulation and be more directly accountable to the public. If medications are brought to market before adequate testing, the company will loose credibility. While honest companies will thrive, careless, complacent companies will fail. The drug industry will be pricing in a real supply-demand marketplace. Instead of pricing medications based upon what the insurance industry will bear, the patients will decide whether Viagra is worth $10.00 per pill as compared to alternative management options. Marginally effective medications that are priced high will not sell. Value will determine the prices. Overall, prices will drop and competition will prevail.

Medicare and Medicaid will no longer be popular: When Medicare pays for medical care, the Federal government owns the medical records and has total control over what services are covered, for how much and for whom. Seniors, having saved over their lifetime, will critically evaluate the value of aggressive treatment options from a risk-benefit, cost-value considerations before agreeing to therapy. The patient will chose cost-efficient therapies instead of expensive options of equivalent effectiveness. If therapy for terminal illness is minimally effective and quite costly, a conservative approach of managing symptoms of terminal illness may be more attractive. Treatment of insignificant conditions will be avoided. Responsible consumption of valued services will be the rule. Abuses of the present entitlement system will be absent. Less government means fewer taxes and more money to save for useful goods and services.

What about the 40 million uninsured? Presently the average American is priced out of the insurance and medical market. In the above situation, people will be able to afford more care for less. Physicians will be able to afford to provide free care at their discretion (and possibly receive tax breaks for doing so � not presently available). The American spirit is generous and physicians enjoy helping people in need. In 2001, free care is actually illegal for physicians enrolled in the Medicare system.

The third and final article will outline the steps that can be taken to reform our medical system to the above model.

Michael J. Harris, MD is a board certified urologist who is internationally known for developing minimally invasive prostate cancer surgical techniques. He is a member of the Association of American Physicians and Surgeons (aapsonline.org) and an active lecturer on topics of prostate cancer, health care reform and cost-efficient practice management. He has been practicing urology at 1020 Sixth Street in Traverse City since 1993.