Recently, this blog discussed the potential for a disconnect in medicine. In Transparency for Efficacy (June 2019), there is a discussion of the exceptional inflation that has existed in American medicine for decades. Several years ago in Medical Costs, Fee Schedules, Disparate Reimbursement, and Medical Tourism (June 2015), I suggested that "information can be a powerful tool." There is evidence that medical costs are different in various jurisdictions, and perhaps there will be better consumerism in American medicine?
One great obstacle to that has been access to information. Perhaps as the tools described in Transparency evolve, the consumer will become better postured to make economic choices about medical care. Certainly today, with those tools in their current forms, sophisticated entities like health insurance companies are already either in or near the position to make fact-based economic choices regarding consumption.
Generally, our consumption choices are somewhat rudimentary. When we shop, we see various items that attract us for whatever reason, and we consider the cost of those products against our perceived benefit. We make a (hopefully) informed decision between one product or another. These will be based in part on our perceptions of the quality of products we have experienced, the influences of Madison Avenue, and price. Too often we are fooled on the price element, with hidden fees, with dissimilar product volumes (not pricing per ounce by per can perhaps), and with gimmicks that attract us to a perceived "deal."
But, with medical care, price may not be a determinant for many consumers. Price, that is, of the care or procedure which we are contemplating having. The cost of our health insurance is another issue altogether, one for another day (a hint, it is rising also). Some perceive that the cost of insurance has received too much attention in recent years and that more attention on the cost of and access to medical care deserves commensurate focus.
According to the Centers for Disease Control, about 30.1 million Americans lack health insurance. That is about 9% of the 329,023,436 people in this country. So, it is fair to say that most people have health insurance. That product pays most of the bills for the medical care those people consume. However, there are deductibles and co-pays, see below.
We purchase insurance to mitigate risk. The idea of the product is that many people pay a premium for coverage, and some percentage of us suffer losses. To some degree, consumers may be inclined to forego such a purchase unless they appreciate some significant risk. Thus, people who live on high ground may be disinclined to buy flood insurance. This tendency in some insurance situations has been labeled "adverse selection," although that term has broader definitions as well.
It is notable that our cost/benefit analyses, discussed above, limit our consumption. I neither eat caviar, drive a Bugatti, nor vacation annually in Fiji. It is the cost of some products that drive our consumption decisions. And, the same is likely true for medical care. If the health insurance company is paying the bill, perhaps the cost is not part of the consumer's consideration.
Of course, that could be influenced generally by the "co-pay" or a "deductible." A "co-pay" is a share of the cost of care that the patient pays. Thus when a patient with a "co-pay" visits a doctor, there would be an out-of-pocket expense for the patient. A "deductible" is usually more of an annual policy-period consideration. A "deductible" is an aggregate or total amount a patient must pay before the health insurance pays anything. And, there are some health insurance programs that have a limit on which they will pay, a "maximum benefit" for a particular year or even for the patient's lifetime. Thus, when that cap is reached the patient is paying for everything thereafter.
So, a patient may be concerned about limiting immediate costs ("co-pay"), limiting annual costs ("deductible"), or limiting annual or lifetime costs ("maximum benefit"). The financial impact of each on the patient may influence decisions about consuming medical services. One might forego a trip to the doctor to save a $35.00 co-pay. Or, a patient who has fulfilled her/his annual deductible might go to the doctor for something relatively superficial "because it is free." Sometimes, the amount of these consumer costs is different if the provider/facility has an agreement with the health insurer, that is they are "in network." That caveat also may affect consumer choices as to which providers or facilities are utilized.
Despite these "participation" costs to the consumer, the truth is that the majority of medical costs for those with insurance are paid by the insurance carrier. Thus, there is a "disconnect" between the consumption and the payment. If someone else were paying the bill, I would certainly drive that Bugatti. And, if someone were paying the tickets, I might drive it less cautiously than otherwise (top speed of some said to be 267 mph - Pensacola to Tallahassee in less than an hour!).
The Daily Business Review ("DBR") reported recently on a Florida plan to encourage economic analysis in the consumption of medical care. The program affects only state employees and their families, and is called a "shared savings plan." But, under a new law signed by Governor DeSantis this year, other health insurers are encouraged to "begin offering similar options." The expenditures can be significant; Florida spends about $2.6 billion annually for the medical care of current and former state employees.
The state program encourages these consumers to "shop around" for care. The benefits accrue to the state, which would save money if a savvy consumer chose a provider or facility that charges less for some service or care. The benefit to the shopper/patient though is that she/he receives "a portion of the savings." However, The DBR says that the state program has shown "less than robust performance," which may merely be because consumers have not learned of the program as yet. In touting the potential for the program, the Governor used an important term that is also prominent above: "transparency."
This type of arrangement begins to address the disconnect. That there is a detriment or cost ("co-pay" or "deductible") begins to address the disconnect. Those may steer consumption to "preferred providers" and may discourage some visits or procedures. But, this new innovation of "shared savings" goes a step further. This assists the patient, who has decided to consume, to find a competitive provider. This rewards the patient with savings, for effecting savings for the health insurer, in this instance the state itself.
The healthcare market has thrived on both the inaccessibility of information and the disconnect effectuated between the service consumer (us) and the payer (insurance companies). As the market adjusts to encourage us to be better consumers, it is probable that the free market will lead to decreased medical costs. And, if the cost of medical care is competitive and decreases, that will benefit all who consume services whether she/he has health insurance or not.
