Health Insurance Costs Perhaps it Is Simply

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 than $150 for each day spent in a hospital. 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 transplant. Every day, about 55 people receive such a transplant and with it, a second chance for life. (About 80% of those who receive a donated kidney, for example, are still alive five years later.) Thousands more people, however, die each year waiting, helplessly, for a donor. And every 18 minutes, another name is added to the waiting list (www.ama.org).

The question of how to balance the real fiscal concerns of organ donation with the responsibilities of managed care (either within the context of a private health maintenance organization or within a managed public program such as Medicaid) requires a well thought-out management philosophy, one that balances the needs of patients, the skills of health-care providers and the economics of health-care; this is all too often not the case. Both public programs such as Medicare and private HMOs are currently not able to handle as gracefully as many might with the complex medical, logistical, legal and financial requirements of a national organ donation program, as we can see in this assessment of the ways in which a new Medicare program has fared:

We found, however, that hospitals and OPOs have not taken full advantage of the rule. Despite projections of a 10% increase in organ donors in the rule's first year, the increase was less than 1%. We also found that HCFA lacks data to assess how well the rule is working. We recommended that HCFA revise the Medicare conditions for coverage for OPOs to make them more accountable for implementing the donation rule, by requiring OPOs to provide hospital-specific data on referrals and organ recovery and to make hospital-specific data on donation publicly available (Biomedical Market Newsletter 2000).

The difficulties involved in organ donations - in which there are never enough organs to go around and never enough money to fund operations and follow-up treatment even when there are donations might well be expected nearly to overwhelm a publicly managed health organization. One might think that a private HMO might avoid some of these problems with the efficiency that private companies are in many cases blessed with.

However, the cost of organ donation has proven to be a significant stumbling block for private HMOs as well. The following perspective is that of a patient advocate. The general response from HMOs has been that while they would of course like to provide in all cases the gold standard of care for their clients, the cost involved makes this prohibitive. Among the complexities that HMOs engender in the transplant process is the fact that HMOs generally will pay for minimum post-operative hospitalization, a fact that alone bumps many patients from the potential rolls for an organ:

The American Association of Kidney Patients] wishes to bring to your attention the numerous complaints we continue to receive from kidney patients enrolled in HMO's. Complaints include difficulties in securing transplant services outside the HMO and the ability to choose dialysis facilities and physicians. In an effort to cut costs in a managed care environment, hospital admittance times have been shortened for transplantation. This can lead to only the healthiest patients receiving transplants because the hospital can guarantee a short patient stay (Warren 1995).

One of the continuing problems faced by those needing organ donations who rely on either HMOs or Medicare for health care is that HMOs especially are inclined to look at short-term over long-term costs of treatment. (The emphasis on short-term costs and short-term benefits is of course an endemic problem within the world of modern business and is in no way restricted to the arena of HMOs). While organ donation is of course an expensive process, in many cases the cost of ongoing care to treat failing organs or failing organ systems can be far greater than the one-time cost of organ transplantation:

Terran Warren Sims, BSN, RN, CNN, immediate past president of the American Nephrology Nurses Association on the cost of dialysis vs. transplantation: "According to one HCFA source, in terms of annualized costs, a dialysis patient dialyzing for one year has TOTAL costs of Medicare of $44,000. In the year he receives a transplant, that patient represents annualized TOTAL costs to Medicare of $88,000. However, in subsequent years as a 'functioning graft' patient, TOTAL costs to Medicare average $7,400 (Warren 1995).

Another systematic problem that enters into the picture for those patients who need organ donations and who are reliant on HMOs is the designation of certain kinds of procedures as elective (and therefore not covered) while other seemingly analogous procedures are covered, as in the case of living vs. cadaveric livers. Because such transplants are less successful, requiring more follow-up care, including a greater likelihood of an additional transplant, the overall costs of the patient's care are substantially higher because of the ways in which HMOs reimburse direct health-care providers.

But because Dunn will use part of her brother's liver if approved for surgery, the entire procedure has become more expensive; her brother's insurance company has denied coverage for the organ donation because it is "elective" (American Health Line 2001).

The problem of balancing the rights of patients to receive life-saving care with the reluctance of HMOs to cover "experimental" treatments will likely only worsen as advances into what must be seen as experimental methods become more and more important to the field of tissue and organ donation, including xenotransplantation, or the use of non-human donors (Dobson 2002).

Philosophy of Health-Care Management: Who Pays for What In many ways when we consider the issue of organ donation (which almost always dramatically increases the quality of life of an individual and often that person's life), what we are asking is: What rights do people have? When the funding comes from a source like Medicare or Medicaid, we are also asking: What can we rightfully demand of our government?

Part of how we answer these questions, and part of how we address the economic demands not only of organ donation but of 21st-century healthcare in general, lies in how we define the role of the doctor in our society as well as the role of hospital and insurer. There is currently a distinct conflict between two different culturally current definitions of the health-care providers' role in our society. On the one hand we have the definition that doctors, nurses and other health-care givers that what they do is a profession. And so, of course, in many ways it is: health-care providers receive lengthy formal education in their fields, have formal codes of ethics, join together in professional organizations to improve the practice of what they do and have all of the other marks of the professional.

However, there is another model that we must consider that is at least equally valid in terms of the actual practice of medicine today, which is that of the doctor or nurse as a businessperson or government of the agent - in both cases rationing medical resources because of economic rather than purely medical or professional concerns. This is the model that most often obtains under HMOs and tends to result not only in higher health costs (as health-care providers have to bill for an increasing number of procedures to make a reasonable amount of money) as well as a lower quality of care for the patients. It also results in a high level of stress for the doctors who are caught in a bind as well.

Physicians also act as gatekeepers, often rationing medical resources for the benefit of providers, insurers, government, or society at large. Primary care physicians in HMOS and other managed care settings play this role when they control the flow of patients to specialists, or deny marginally beneficial services to patients to promote the institutions' interests. Physicians also work for the government, certifying eligibility for disability income and insurance benefits.... In all these legitimate roles physicians are expected to act in ways that do not promote the best interests of their patients. (Rodwin, 1995, p. 245.)