Sunday, August 16, 2009

Health Care and the Incentive System

Fair warning: If you're sick of hearing about the health care debate, skip this post.

So like most everyone else, I want health care reform and I'm not seeing the public discussion covering the issues I think need to be aired. I have been a business consultant among other things, and I believe that the origin of our health care problem is that we don't have a system that rewards the right results.

HEALTH CARE INCENTIVES, PART 1 Health Insurance Companies 8/16/09

We are watching the PGA golf tournament, and I just saw a commercial in IBM's "Let's Build a Smarter Planet" campaign about their work to link up medical data. This would allow a person’s entire medical history to be accessed by an emergency medical provider. It would reduce the cost of lawsuits involving medical records, which is a ton of lawsuits. (It would also eliminate suits by plaintiffs who currently try to hide aspects of their medical history).

At a higher level, it would allow people who study public health to draw conclusions about large and small populations by slicing and dicing health profiles based on any measured variable. Certainly some cause-and-effect relationships are known, but some are just conjectures. This kind of deep study could replace supposition with real facts about who is at risk for what long before symptoms manifest.

How can this information be used? Under the current system, insurance companies are rewarded for using diagnostic tools to deny coverage to people for the things they are most likely to get. And I’m not the only one who realizes this. Cancer runs strong in the women in my husband’s family. Young relatives in his family are afraid to get tested for cancer susceptibility not because they are afraid to find out they have the gene but because they are afraid they will become uninsurable.

Earlier this morning, on Meet the Press, Sen. Tom Coburn MD (R-OK) said we don’t need a public option, we need to open up competition among insurance companies. The above is just one reason why that would not work. I’m not sure that profit incentive is even appropriate in a health care environment, but I am sure that it’s not working in its current form.

In addition to denying coverage, insurance companies also make money by dragging out disability benefit payments hoping that claimants will recover, give up, or miss a deadline and forfeit benefits. You don’t have to go far to find stories of people who waited two and three years (people I know) to start collecting benefits.

And why shouldn’t insurance companies delay? Once payments begin, companies pay back benefits with no interest, which means they earn interest on payments for as long as they can keep from paying. They do not risk punitive damages for denying benefits. There is no downside to the company for delaying; it would practically amount to corporate irresponsibility not to delay.

It's not too much to ask that everyone in the health care chain of care have the same incentive: to improve our health, now and in the future.


The most rational of the people who object to a public health care option agree that the current health care system is broken but argue that the government can’t afford to pay for an alternative. Under the private insurance option, the parties are the doctor, patient, and insurance company. The fundamental flaw in the cost argument is assuming that the government’s overhead will be as much as the insurance company’s. The government can operate with far less overhead, plus it is not looking to make profits. The health insurance industry makes over 30 cents profit on every dollar of premium. That’s a huge cost that the government doesn’t have. How could it not do more for less?

Doctors: People perceive that doctors make too much money and that reducing reimbursements is the way to cut costs. I am not a doctor, but I research statistics about doctors’ finances and post to a doctor chat board. Here’s what I learned:

· Doctors today come out of school with over $200,000 in debt –more if they specialize. Before they see one patient or get a roof over their heads, they have the equivalent of a mortgage to pay off.

· They graduate at a later age, so they have fewer years to build a nest egg.

· If they buy into a private practice, they add around $400,000 to $500,000 in debt—again, some more, some less.

· Even among dentists, who don’t have the reimbursement problems physicians do, more than 90% see their lifestyle drop in retirement. This suggests that they didn’t save enough and invest well before retirement. In fairness, they’re not poor. However, the corollary is that they spent too much before retirement. So yes, you may see doctors living the good life, but many of them can’t afford it.

· The doctors I know that are doing very well have active practices during the week plus they are giving continuing education seminars on weekends. They work hard.

Personally, I want doctors to earn a lot of money. I want clinical medicine to attract the best practitioners available, and I want public health care that is competitive with the private sector. Do you think if we take some of that 30+ cents on the dollar and use it to boost paltry public reimbursements that we can achieve that? I think we can.

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