Question

Discuss whether it is possible for an insurance company to benefit if the medical care it provides costs more than the premiums paid in by the consumers of medical insurance?

Answer 1

The health insurance system in the United States is broken, and business is paying the price. Employers’ insurance premiums reached an estimated $450 billion in 2000, and then shot up again, at three times the rate of inflation, in 2001. With managed-care cost controls collapsing, patient-protection legislation promising to set off a round of expensive lawsuits, and costly genomic technologies on the horizon, the price of insurance is almost certain to continue its upward spiral in the years ahead. And what do companies get for their massive expenditures? A lot of unhappy employees. Workers fret about the quality of the care they receive, the burden of out-of-pocket expenses, and gaps in coverage for long-term care, prescriptions, and catastrophic illnesses. For business, health care has become a lose-lose proposition: You pay way too much, and you get way too little.

It wasn’t supposed to be like this. About 20 years ago, managed care was widely viewed as the silver bullet that would curb cost increases while ensuring patients good and convenient treatment. But managed care has been a bust. The original HMO models—vertically integrated systems for managing care or those that use gatekeepers to impose stringent controls on care—were resisted by patients and physicians. In response, the managed care organizations began relaxing their controls, allowing patients more freedom to see specialists and out-of-network doctors. Costs began to climb again, yet patients and providers continued to feel constrained. Now, no one’s happy—not the insurers, not the patients, not the doctors and nurses, not the hospitals, and certainly not the companies that are footing the bill.

The situation is dire, but there is a way out of the mess—and the key lies with the business community. If companies are willing to embrace a new model of health coverage—one that places control over costs and care directly in the hands of employees—the competitive forces that spur productivity and innovation in consumer markets can be loosed upon the inefficient, tradition-bound health care system. Rather than imposing a top-down solution, as managed care vainly tried to do, consumer-driven health care would work from the bottom up, enabling providers and patients jointly to create better, cheaper ways to deliver care.

In the existing system, insurers determine the price they will pay to providers for every discrete “episode” of care. This prevents providers from creating bundles of related services. The resulting fragmentation of care has dire consequences for victims of chronic diseases, who can’t get the integrated care they need, and dramatically increases the costs of the health care system. Consider this: When Duke University’s hospital system created an integrated program for treating congestive heart failure, it saved $8,000 per patient in one year through decreased admission rates and shorter lengths of stay. Costs fell as care improved. Unfortunately, the current payment system penalized Duke for improving quality by reducing the compensation its hospital received: As the number of episodes for which the hospital received payment fell, so did its revenue. Further stifling innovation is insurers’ policy of paying the same prices to or compelling the same discounts from all providers; when excellent providers receive the same kind of payment as inferior ones, the incentive for quality and efficiency is diminished. A cornerstone of a consumer-driven system is the ability of providers to set their own prices not just for individual episodes but for integrated programs of care.