Health Insurance Costs Perhaps it is simply that we all need a few good villains in our life, and with the Cold War firmly over we must look closer to home to find our bad guys. Or perhaps it is simply that there is a great deal of villainy in society, that in fact society is nothing more than an evolutionary process of ever-more sophisticated forms of villainy.

Either explanation might do to explain the rise of the health maintenance organization as a pervasive element of American society as a primary reason that the quality of health care continues to decline even as health care costs continue to rise in this country. This paper examines the relationship between HMOs and other forms of health insurance and the rising cost of American healthcare, using the area of organ donation as a means of illustrating the complexities of the issue and the ways in which both patient and doctors (but especially patients) are harmed by the current system.

With an eye always on the bottom line, HMOs are often seen as the villain by both patients, who may find themselves severely limited in their choice of physician as well as stymied in seeking coverage for a variety of medical procedures, as well as by doctors, who frequently find themselves caught in an ethical bind between their Hippocratic Oath and their desire to provide the best care they can for their patients and the desire of their HMO overlords to wring every possible dollar into the coffers of their shareholders. Of course, this picture is slightly darker than the reality at all times, but the fact is that under the current system (in which HMOs are the primary form of health insurance), providers are not reimbursed for the services that they bill for but are instead paid what the insurer considers to be "reasonable and customary" charges that may not in fact be reasonable (because they do not keep up with inflation or with local economic conditions or because they do not include the most medically appropriate coverage in some cases) and may only be "customary" because they are what the HMOs and other insurers customarily pay.

Historical Background

HMOs are a relatively new institution, and it is useful before focusing on their current power in American culture to examine their historical antecedents. HMOs are in fact simply one form of health insurance, which is itself a relatively new cultural institution. At their most basic, health insurance policies reimburse patients (or those individuals or institutions who provide patients directly with medical services for the costs of their medical care. Under traditional health insurance plans, such as under the basic coverage offered by a company like Blue Cross and Blue Shield, medical services, including hospitalization, are generally free to the users up to a certain limit (for instance, 21 days in the hospital), and all of the doctors and other medical personnel as well as the institutions such as hospitals and labs agree in advance to accept a certain fee for each service or overall rate schedule, which is renegotiated from time to reflect changes in the costs of providing health care.

Under such basic plans, the health insurance company also covers the costs for a number of additional benefits to the patient (or directly to the health-care provider). These an include laboratory tests performed at a hospital, X-rays, and the use of anesthesia in the operating room, and drugs and medications. IN many cases, such plans are accompanied by a supplementary major medical plan that - for the payment of additional premiums on the part of the patient, cover the cost of any or at least most medical procedures that the basic policy does not cover.

Another traditional form of health insurance is the comprehensisive major medical policy. Under such policies (now relatively rare), all prescribed medical expenditures wherever they take place (hospital, clinic, doctor's office). This type of policy - whether issued by a large insurance companies like Blue Cross and Blue Shield or by a general commercial insurance company - usually requires each patient to pay an initial fee in full (the policy's deductible) in addition to a set percentage of any amount on every procedure; this percentage is called the coinsurance rate. Usually, an upper limit is set on a patient's total out-of-pocket expenses for a given year, but this amount may be extremely high (perhaps $250,000).

Policies will sometimes have internal limits that are referred to as indemnity limits. A policy might, for example, pay no more than $20 for each office visit or no more...

A similar form of payment is the copayment; this is more common with HMOs and requires the patient to pay a set amount (for example, $10 for each office visit), and the insurance policy pays the entire remaining fee.
The above described insurance plans cover the services of doctors and medical personnel and institutions (such as hospitals or labs) that bill on a fee-for-service basis. These must be contrasted to the ways in which HMOs bill. For members of an HMO, in return for a monthly premium, the HMO agrees to provide all necessary medical services to those who are covered. In other words, the HMO is both health insurer and the indirect provider of health-care.

Numerous studies have shown that the amount of medical care people consume varies with the out-of-pocket price they have to pay. For example:

Rand Corporation study found that people who had access to free care spent about 50% more than those who had to pay 95% of the bills out-of-pocket (up to a maximum of $1,000).

People who had free care were about 25% more likely to see a physician and 33% more likely to enter a hospital.

Despite these differences in consumption, there were no apparent differences between the two groups in health outcomes (http://www.ncpa.org/studies/s168/s168b.html).

This structure tends to lead to higher insurance costs, as can be see in the following graphic:

Membership in HMOs has been growing rapidly over the past generation, which means that their influence on the way that medicine is practiced in this country has also grown dramatically and the limits placed on reimbursement to health-care providers by HMOs has had the effect (ironic and certainly unintended) of increasing health-care costs as direct health-care providers try to find ways to be compensated for the work that they actually do.

There are both economic and health costs for the ways in which HMOs reimburse medical-care providers:

It would be a mistake to believe that employers ultimately pay this bill, however. Health insurance is a fringe benefit which substitutes for wages in the total employee compensation package. The more costly health insurance becomes, the smaller the remaining funds available for wage and salary increases. The ultimate victims of waste in the medical marketplace are employees. This is one reason why take-home pay has been relatively stagnant over the past two decades, even though total compensation has been rising (http://www.ncpa.org/studies/s168/s168a.html#b1).

Organ Donation as an Example

We can look to the area of organ donation as a way of understanding in a more concrete fashion the ways in which the ways that health insurers (and especially HMOs) work actually drives up costs.

The topic of organ donation is a complex one for health professionals and patients alike for a number of reasons for at least two separate reasons. The first of these is simply the personal dynamics of the situation: In most cases one person must die for another to live. Even as nurses and doctors are eager to see a sick person receive the organ that he or she needs to live or prosper, they realize the terrible cost to another individual and his or her family. The other reason that the topic is complicated is that it is at the heart of the current debate over the rising costs of health care and the potential inequalities that may result, with the wealthy receiving better care than the poor, an issue with ramifications not just for the practice of medicine but for society in general. In the area of organ donation, all of the problems (to both patients and families) of the current ways in which healthcare is funded in terms of both rising costs, denied benefits and lower compensation for health-care workers can be seen.

Before looking more carefully at the issues involved in funding and managing organ donation we should provide ourselves with an overview on how important organ donation and transplants are in human terms as a reminder that these procedures are among the most vital performed in medicine today. The following summary of the issue comes from the American Medical Association:

The lack of organ donors is a national medical crisis. The cure has nothing to do with money or legislation. It has everything to do with people - staring with you. Every week 76 people die waiting for an organ or tissue transplant. As of October 1998, 59,000 people in the United States were on the national waiting list for a life-saving organ…