Doctor’s Notes

What If Car Insurance Was Like Health Insurance?

Preface:

Healthcare insurance has evolved very differently than home or car insurance, with benefits typically paid for by the employer. The consumer who is ultimately paying ironically has little control and no free market exists to drive innovation, increase choices, increase quality, and reduce costs. Because employer-based care has been around for generations, we take it for granted. But what if car insurance was also paid for by the employer? It sounds ridiculous, but it is no more ridiculous than having our healthcare paid by our employers. The following is a scenario of what it might look like in an alternate reality with employer-based car insurance.

Struggling to see the rainy traffic ahead, Michelle realized that her wiper blades needed to be changed. This was not going to be easy.

She recalled last summer when she had a leaking tire. After weeks of back and forth with her insurance company they finally agree to allow for a new tire at a location that they approved. But because of her high deductible, she had to pay the entire $1800 bill out of pocket. She thought it unfair that she paid the whole cost but she was unable to choose where to get the tire replaced. And why did a tire cost so much anyway? It just didn’t make sense. In fact, each experience dealing with her car insurance had been expensive, stressful, and time consuming — and here she was again.

When she got home, she made an appointment to get the wiper blades evaluated. At the appointment, the mechanic agreed that the blades should be replaced and faxed an order. Eventually, she received a letter in response from the insurance company. As she read it, she became angry because she knew that insurance companies always denied the first request as a matter of protocol. They explained that based on the age of her wiper blades, she was not due for a replacement for another 6 months. If she really needed them now, she would have to see a wiper blade specialist, but even then, the claim might be denied.

Irritated, she thought again about switching to another company. But all companies were the same! Weeks later, Michelle took another day off work and met the wiper blade specialist. Like the mechanic before, the blade specialist agreed that the wiper blades need to be replaced. As Michelle sat in the shop, the wiper specialist argued with her insurance company until finally the pre-approval was granted! She was deeply relieved but felt bad because the specialist did not get paid for his time

on the phone. He was only paid for his 15 minute time appointment and had gone the extra mile out of the kindness of his heart.

Now she just had to choose a place and be done. It was confusing because her insurance company had negotiated different rates with each of the 3 approved car centers. The rates also varied based on her specific plan as well as other factors such as her copay rate and the deductible she had already paid that year. In fact, it was so confusing that Michelle did not know which center was actually the cheapest.

She eventually chose the auto center closest to her home and set up an appointment. The busy auto center did not seem to care much about the level of service they provided, but no bother, the new wiper blades were finally on! There had been no choice of styles or quality – just a single model that was approved by her insurance company. Her deductible had not been met, so she paid the $125 out of pocket like usual. And again, the priced seemed surprisingly high for just wiper blades.

As Michelle drove home, there was a light rain which was wiped clear by the new wiper blades. Yay! But then she saw a new warning light on the dashboard — “service engine soon”.

Crisis in Healthcare

 

As a nation, we agree on one thing (and probably just one thing) regardless of our political affiliation, race, religion, gender, sexual orientation, and age.  Our healthcare system is broken.  It is complex, expensive, and unsustainable. The United States spends about 18% of its GDP on healthcare which is nearly twice as much as the average for other developed nations, but with no corresponding benefit of improved outcomes to justify the expense. The enormous cost of Medicare and Medicaid is a major contributor to our national deficit. Moreover, since most of the financial burden is shouldered by the US companies that provide healthcare benefits to their employees, the ever increasing costs serve as crippling detriment to our global competitiveness and put our nation at risk.

How did it come to this?

There are many random forces throughout history that have the guided the evolution of our current system of healthcare insurance and the delivery of health services.  While most other sectors of our economy evolved with the free market at work, rewarding lower costs and innovations, the healthcare sector diverged, guided by forces that have done just the opposite.  Over time, they have have mal-aligned incentives, removed the direct consumer to provider relationship, and eliminated price transparency, leaving us with a system where free market capitalism cannot operate.

Before WWII, health insurance was paid by Americans out of pocket, just like home insurance and auto insurance are today. And like the other insurance industries, the healthcare coverage was only for expensive items such as major surgeries and hospitalizations which the average American could not afford. All other small dollar services were paid out of pocket and a market naturally existed to provide them at a reasonable cost.

The first major factor to undermine free market capitalism was the introduction of employer provided health insurance which began during WWII. This historical accident was born from a deal between the US government and labor groups as a compromise to avert a strike.  In the deal, an income tax exemption and freedom from wage controls by the government were granted to employers contingent that the employers provide health benefits to their employees. The companies would enjoy a 100% tax deduction on the health care expenses. Notably, this tax deduction was not granted to individuals who bought their own insurance which created a strong financial incentive for Americans to abandon the self pay model and seek healthcare from employers. Employers were able to use leverage from providing these benefits to attract and retain employees.  This was a seismic shift that decoupled the employees concern for the cost of healthcare and set the United States on an irreversible course to our present situation. As the individual plans were replaced by employer provided plans, the cost healthcare became out of sight and out of mind to the very individuals receiving the service.  To the workers, healthcare expenses were now irrelevant. Now, they were the concern of the companies who paid the bills and negotiated the rates with insurance companies. For the end user employees, there was no longer an incentive to shop for the lowest price or search out the most attractive service and the free market in healthcare collapsed.

After the war, attempts to end the tax break were made by the executive branch, but it was too late. The employer provided health industry had grown large and powerful. Also, employees and labor groups alike preferred the new paradigm. By the 1960s and 70s, the vast majority of Americans received their health insurance through their employers and the associated tax incentives became an integral part of our healthcare ecosystem.

Another major force that has ballooned the cost of healthcare while simultaneously stifling innovation is the broad use of insurance across all price points.  Unlike the auto or home insurance industries, the third party providers of healthcare extend their reach into nearly every corner of healthcare delivery, whether it be a major surgery for $100,000 or a $5 generic antibiotic.  As stated above, pre WWII, health insurance only covered those expensive items that individuals could not afford. The more affordable health expenditures were left to the market and free enterprise was able to work its magic.  Now, in order to fill an inexpensive prescription, Americans typically use their insurance companies as intermediaries rather than just buying directly from the pharmacy. That is like filing a claim with a car insurance company to get an oil change. Using the middleman insurance company for every small thing in this way adds complexity and bureaucracy at every turn while simultaneously reducing the options available. Since the rates are privately negotiated between the insurance company and providers, they are a closely guarded secret. That is because an insurance company, aware that a competitor has a lower rate, will demand the same. In our 3rd party payment system, price transparency and thus free enterprise, is forbidden.

What does the lack of innovation look like?

Along the way, our 3rd party payer and employer funded insurance models have eliminated price transparency, removed self advocacy, and hobbled innovation.  Insurance plans must precertify or pre approve goods and services to verify that they are deemed necessary and to ensure there is contract in place on which to base the pricing. Therefore, there is no array of options from which to choose, such as spectrum from low cost and low quality to high cost and high quality.  There is one option. High cost and high quality. Any additional quality provided above the standard is not rewarded with higher payments from the insurance company. Moreover, the intrinsic bureaucracy in the insurance industry makes changes of any kind very difficult. There is no driving pressure for innovation at all. Just the reverse. In a consumer driven free market, in stark contrast, service providers are incentivised to constantly innovate or die. Experiments take place continuously across the nation with the few surviving innovations spreading outwards and adapting to ever changing markets. Over time, the innovations evolve the systems in ways that no one could possibly predict and are the things that truly make our country great.

Are there other problems?

There are numerous other important factors contributing to the ills of the US healthcare system. Some of these include our litigious society which places strong incentives on physicians to order imaging studies and lab tests to protect themselves from lawsuits. Also, physicians that are employed by hospital systems are strongly encouraged or even mandated to order much higher cost lab tests, imaging studies, and procedures from their own systems which may cost 4 times more than an identical service performed by a non hospital competitor. Hospitals, though, must to resort to such tactics as much needed revenue sources in order to survive. One of many reasons is that hospital ERs must provide care to the indigent who visit the ER and absorb the significant legal and financial burdens. In return, the government granted price advantages to hospitals, paying them more than they would to an outpatient facility offering an identical service..  Moreover, state governments have created anti competition laws referred to as certificate of need (CON) laws that cripple or altogether eliminate competition and allow hospitals to create high priced monopolies in some markets. The “free” care provided through the ER is many times more expensive than it should be and ultimately increases the cost of healthcare for everyone.  Hindering competition and paying high prices to hospital based providers is a poor, indirect solution to the difficult problem of making care available to those who cannot afford it.

Is there any hope?

The power of market capitalism power to drive innovation and reduce costs has been the key to our success in most systems outside of healthcare. To have great affordable healthcare and stay competitive as a nation, we need a system with incentivised, educated consumers in an open market with price transparency.  This can only happen when individuals, not employers, pay for their health insurance just like they pay for their own car insurance and home insurance – and just like they pay for their own televisions and food. Companies will be free of the strange burden of providing benefits to employees, allowing them to focus on those things that are vital to their success.  At the same time, individuals will no longer be locked in.  They will be free to move between jobs without losing coverage and will have greater control over their healthcare. With empowered individuals and choices, a market will be free to develop. This critical shift will be possible if the tax deductions for healthcare coverage are granted to individuals, not just to corporations, or if they are stopped altogether.

The second change is to use health insurance only for catastrophic events. All transactions under a given dollar amount should not be processed through insurance nor counted towards a deductible amount. Cutting the expensive bureaucracy out of so many smaller health related transactions would simplify the lives of patients and providers alike and make the catastrophic plans much more affordable.  The end users, now paying for most of the bills would only seek medical care when it is truly needed, decreasing utilization. When they did require care, they would be incentivised to shop from an evolving array of options which would become less expensive over time.

With anti competition laws and price advantages removed, all service providers would be free to compete on a level playing field. Hospitals may find it best to focus on providing high level care to those patients requiring hospitalizations and major surgeries and leave the less critical care to the smaller entities that can deliver it more efficiently.

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We need a new kind of health insurance

Health insurance has some problems as you may have noticed.  But what can be done?

First, we need to abandon the employer provided health insurance model and give the control back to the consumer.  The consumer has to care about what they are buying and have a range of options from which to choose in order to create a market.  That will drive down the cost and promote much needed innovation.

For Americans to have control over their spending, we need to have our own individual health plans like we do with car insurance and home insurance.  The employer should pay the employees to do a job and the employees should use that money to purchase their insurance.  It’s that simple. The employer based health model in our country puts a huge strain on corporations and takes control away from the consumers who are ultimately paying for it.  It maligns incentives and removes the transparency needed to create a market.

Next, health insurance should only be used for those expensive things that would otherwise break the bank for the insurance holder.  That is what insurance is for – rare catastrophic events.  Currently, every inexpensive prescription and $75 doctor visit is run through the insurance company.  This adds a bloated, inefficient middle man that drives up the cost and shifts control away from the consumer.  We need a whole new kind of insurance where medical expenses below an amount are excluded which would make them less costly.  We should only call our insurance companies if a tree falls across the living room, our car is rear ended, and we need a major surgery.  The new shingles on our homes, new tires on our cars, and our doctors visits should be our financial responsibility and not run through the insurance machine.

What are your thoughts?

Why Does an MRI Cost So Darn Much?

mri brain scan cost

by Lacie Glover / NerdWallet Jul 16, 2014

Original Article

When it comes to pricey hospital procedures, MRIs come to mind. Sure enough, according to recently released Medicare pricing data analyzed by NerdWallet Health, the average cost of an MRI in the U.S. is $2,611. Here’s what’s behind that number.

Make Room for a Big Machine

Magnetic resonance imaging machines use magnets and radio waves to produce black-and-white images of bones and organs, usually to help with a diagnosis. Only five companies make MRI machines, and each specializes in a few magnet strengths, so there is relatively little competition when it comes time for a hospital or medical center to buy one.

Machines come in a variety of sizes and powers. Their imaging power is measured in magnetic field strength units called Teslas; low-field or open MRI machines measure 0.2 to 0.3, while the strongest currently on the market are 3 Teslas. Used low-field MRI machines can be as cheap as $150,000 or as expensive as $1.2 million. For a state-of-the-art 3 Tesla MRI machine, the price tag to buy one new can reach $3 million.

The room that houses the machine, called an MRI suite, can cost hundreds of thousands more. Safety features must be built in to protect those right outside from the magnetic field. Add in patient support areas and installation costs, and a suite with just one machine can cost anywhere from $3 million to $5 million. Recouping these costs factors into your bill, but that alone does not tell the entire story.

Add in the Doctors and Hospitals

Charges for a single MRI scan vary widely across the country for reasons beyond startup costs. According to the recently released Medicare data, MRIs charges are as little as $474 or as high as $13,259, depending on where you go. (Another recent study of medical claims by Change Healthcare found that in-network prices for certain MRIs can run from $511 to $2,815.) That’s because hospitals and medical centers can charge whatever they want, and in most cases they don’t have to justify prices or even disclose them ahead of time.

Doctors can also charge whatever they want, and though the MRI facility probably sets the rates of their staff doctors, you’ll be charged separately for a radiologist to read the MRI. Additionally, your ordering physician may ask for the MRI to be done with or without contrast dye, or both. This “dye” is actually a paramagnetic liquid that responds to the machine’s magnet and helps enhance certain abnormalities on the scan that would not have otherwise been visible, common in neurological MRIs.

This means that in addition to cost of the scan, your total bill for the MRI will include the radiologist fee, the contrast dyes, and the cost of the procedure itself. Depending on the medical center, these charges may be bundled together into one charge. Bundling is one type of common error on medical bills, so always check over an itemized statement before paying for any costly medical procedure.

Read more from NerdWallet Health, a website that empowers consumers to find high quality, affordable health care, and insurance.