Some of the stuff that I learned about the health insurance business during a month at Harvard Medical School (earlier this year)…
Forcing people to get a second opinion prior to surgery was a “a stupid idea” and did not change costs or outcomes. [I don’t understand why. “Christopher had 323 doctor visits and 13 major surgeries. Here’s why his mom was arrested” (Fort Worth Star-Telegram) is an unfortunate story about a healthy child enduring a lot of medical torture. Wouldn’t he have had a lot fewer surgeries (maybe none?) if second opinions had been required? The media blames the mom, but could this even have happened in a country where doctors are on fixed salaries rather than being paid fee-for-service? And how much could have happened with a two-opinion system?]
The normal profit margin for health insurance is 1-2 percent (except for ACA/Obamacare, where the expectation is to lose money so it makes sense to withdraw). The Holy Grail for health insurers is to find an unregulated corner of the health care market in which high growth and high profit margins can be obtained.
Customers on the ACA/Obamacare exchanges are much more likely to go to the Emergency Room (“ED”), which represents a disaster for an insurer. (There are some differences in ER/ED usage due to age and gender ID. This article says “about 20 percent of women said they went to the ER, compared with 16 percent of men”. Young people are more likely to go as well, presumably because they can’t be bothered to put down their videogames for the hours of phone calls that it would take to find a non-ER solution.)
Insurance companies have limited outcome/health data. They know if a customer was readmitted to a hospital, but in a world where consumers are chased with surveys they never call up or email members to ask “How is your health?”
Much of “health insurance” is actually “healthcare billing administration.” The headline “health insurer” is not taking any risk. They are just negotiating rates with providers, haggling over bills, etc., on behalf of the real party at risk: your employer. If you’re upset because “the insurance company doesn’t cover X” it is actually your employer who decided that X wouldn’t be covered.
Employers (“plan sponsors”) start out wanting to cover everything. Then they find out what their generosity will cost and change their minds. In-vitro fertilization (IVF) is a good example. The employers are initially thrilled to help add more children to Spaceship Earth. Then they find out that 30% of IVF births are multiple, that the risk of prematurity is higher with multiple births, and that an average triplet birth is a $300,000 event compared to $11,000 when one baby emerges. IVF generates 1.6% of US births, but 16% of all twins and 38% of all triplets.
(Which plan sponsors are so stuffed full of cash that they don’t care about these costs? Universities and the U.S. military’s TRICARE.)
Why are premature babies so expensive? A NICU bed averages $3,000 per day on average (times 3 with triplets!). Advances in technology enable extremely premature infants to survive.
[There are new ethical questions to go with the new tech. For example, it is legal to abort a pregnancy up to 24 weeks of gestation in Massachusetts, but some of these would have been viable babies if born. Massachusetts also says it is legal to abort a child after that if it will harm the mother’s mental health. But what is more harmful to mental health than having a kid around? (see also: abortions sold for cash in Massachusetts)]
Enormous sums could be saved if patients could be moved around a little. There is at least a 2:1 ratio in cost of knee replacements, with the same quality, between higher cost and lower cost geographical areas. IVF is $25,000 in New York City; it is $7,000 in Baltimore (two and half hours away by AMTRAK Acela).
Enormous sums could be saved if patients could be redirected away from hospitals. The inefficiency of hospitals is truly staggering. In what other industry does buying the same service from a bigger enterprise cost 10X as much? Getting a shot or a pill at a hospital could cost 10X what it costs at an urgent care center such as a CVS clinic. But if you go to a big Petsmart you don’t pay 10X for dog grooming compared to what a local one-groomer shop would charge. The insurance companies spend a lot of time thinking about how to keep patients away from the ER/ED, but maybe it would be worth looking at why stepping through the front door of a hospital costs $1,000.