Focus on Health Care

Ostensibly, the Affordable Care Act (health care reform) had several different stated and hidden goals, including but not limited to:

1. Increase the % of the populate protected by health insurance
2. Increase controls on private companies that offer health plans
3. Slow the increase of health care costs as percent of GDP

The first goal of increasing the coverage of the public by health insurance is one that would, in theory, have a positive impact on the country in general.  Currently the cost of those who utilize health care services and cannot pay for these services leads to financial ruin for those individuals involved, and ultimately write-off of those costs by those who are due payment for the services (doctors, hospitals, clinics, etc). 

Adding health care coverage for this group of people doesn't really fix the issue, though.  Those individuals without coverage either can't afford such coverage or they have chosen not to protect themselves.

For those without the financial resources to purchase insurance today, coverage is really just transferring the cost of their care from provider write-offs to premiums for insurance that will be paid by taxpayers.  The costs of care are still there - and potentially will grow as those having this new coverage will have greater access to care and may utilize more services.

For those who choose (word used here to represent a risk-benefit decision) not to obtain coverage, selecting to spend those $ elsewhere (either wisely or foolishly, depending on your personal comfort level for risk) are really just rolling the dice, and some of those individuals will have a medical event that will be catastrophic if not ruinous, while many will not.  The costs of those who have major medical expenses will often end up having those costs handled similarly to the group that could not afford health insurance. 

Coverage of the above groups can only be complete if there is a mandate of coverage, as many are actively choosing to not select coverage today.  A mandate not only ensures coverage (or a stiff penalty if a person continues to decide not to purchase) but also mitigates some of the negative selection that is attempted today.  By that, I mean the situation where someone "holds out" and "rolls the dice" by not purchasing coverage, and then only decides that they need coverage after they are sick. 

So, the Affordable Care Act attempted to deal with the two groups of uncovered individuals (those who choose and those who do not) with a mandate and through private insurance company controls.  Throughout the campaign process for the legislation, health insurance companies were continuously villanized for their decisions and policies around coverage.  Admittedly, some health insurance companies maintained unpopular positions around preexisting coverage and policy denials or cancellations.  Objectively, from a business perspective, these were mostly motivated by good business sense, not social responsibility, as the majority of large companies in the health insurance industry are in business to make money.  Obviously this was unpopular with the general public (though I hazard to say most can understand the motivations, and as stockholders would likely support such actions), so the legislation included additional controls on health insurance plans.  Mission accomplished there...

The final goal I've outlined is the kicker.  The driving force of increases in insurance premiums in the commercial coverage market is the risk associated with covering medical costs.  So, if medical costs go up, through inflation, new covered treatments, or increased utilization, then the price charged by a company to take on that risk logically increases.  So, as costs go up, so do premiums, and this has been the mantra of the health insurance industry as premiums of coverage have increased double digits for years. 

So, to impact the growth of medical costs, you have to find ways to either control the inflation of costs, control the costs associated with new covered services, or impact utilization. 

To control inflation of costs, you have to control the prices for services.  Medicare basically already does this, by simply establishing the amount that Medicare will pay for services.  There is little negotiation, and many providers are just forced to accept Medicare rates because of the purchase power wielded by Medicare.

Controlling the costs associated with new covered services is tougher.  It's politically tough to block payment for new, exciting, or potentially game changing therapies, despite the fact that they are often much more expensive than existing options and are also often relatively unproven.  People want the latest and greatest.  So, while placing exclusions on new therapies is logical, it's harder to accomplish in practice, especially if the group covered is politically active and it is a governmental program.

Finally, you can impact utilization.  Here is where the real savings can come.  First, you can set realistic requirements or safeguards to ensure that those who get certain expensive services are truly good candidates for them.  For those with commercial (private) insurance, you see this done through precertifications or preauthorizations.

But bigger than utilization controls is preventing Fraud, Waste and Abuse (FWA).   This week the FBI announced the arrest of 73 individuals in a $163 million organized Medicare fraud ring.  Likely the FBI, OIG and private insurance investigations are merely catching a small portion of the overall fraud schemes being perpetrated against payers.  The National Health Care Anti-Fraud Association estimates conservatively that 3% of annual health care spend is lost to fraud - which puts it at $68 BILLION annually.

So, in the end, much of the focus during the "sale" of the Affordable Care Act was placed on the "ill gotten" profits of insurance companies, when conservative estimates of the annual cost of fraud (true ill gotten profits) place it higher than the combined profits of the top 14 insurance companies.  Perhaps we should focus more on ensuring the proper payment of claims, and focus less on the ethics of insurance company profits.