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Can Health Insurance be competitive?

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  • Can Health Insurance be competitive?

    Hopefully not diving headfirst into shallow water here, but I'm curious what smart and number-savvy health-care professionals think about this:

    As I see it, the core problem with suggesting that free market forces could streamline health care insurance is that the insurance company stands to gain far more by avoiding adverse selection than by any other improvement(s) in efficiency.

    My assumptions:

    1) a significant minority of patients account for the lion's share of health care expenses (whether 5/50, 20/80 or some other similar %), and

    2) there are probabilistic approaches to assess (at least some) of those who are more likely to be in that costly minority

    That being the case, the "rational" insurance company would be best served to put every resource at its disposal into directing the sick toward the competition (and/or attracting the healthiest).

    Health care insurance competition therefore evolves into a giant game of "hot potato".



  • #2
    The core problem is suggesting a free market solution for an obviously not free market problem. This is really just risk pooling and negotiation ability on the largest scale ever, and it any best solution will always lead to the same path...the largest entity possible, aka a monopoly would have both the best ability to pool risk more fairly and negotiate better prices. Which is why most developed countries have some sort of national involvement, its an obvious solution to the obvious problem you pointed out quite correctly.

    Health insurance isnt really insurance in the traditional sense either, most people use it a bit every year and some dont while others do massively. Its really too big of a mess to assume competition can fix, and to think competition would do anything other than give some companies terrible risk pools and others great ones. That would lead to everything we have already seen, bankruptcies, mergers, etc...until you're one massive monopoly all over again. In 2015 it seemed every insurer was trying to merge to decrease costs.

    The trouble with realizing all this is you see its just politics and marketing getting in the way of a better system. Then there are those in redundant unnecessary positions that dont want to see their gravy train gone either.



    • #3
      Yes the idea that "free markets" will somehow solve the healthcare "system" is purely politician soundbyte nonsense, IMO

      Gonna be an interesting few years at least..


      • #4
        My office manager has a quote on the wall (from one of her seminars) that reads something like:  "patients want what retail provides: predictability, accessibility, affordability, convenience" (or something like that, doing this from memory...).  While I do think some "free market style" attention to customer service is sorely needed in many (most?) medical offices, IMO health care is fundamentally different than most other goods/services where free market forces work effectively.

        As a physician, I just don't much like the end-game of the "obvious solution" that Zaphod may be referencing above...

        Gonna be an interesting few years at least..
        Click to expand...

        Yep, that's what has rekindled my interest in digging into this debate..



        • #5
          Health insurance can absolutely be competitive.  A simple anecdote I heard once helps to explain the problem with health insurance as we have it today:


          A hospital wants to make asthmatic kids healthier, prevent admissions, etc. so they build an outpatient asthma clinic.  As time goes on their population does indeed get healthier - less admissions for exacerbation, etc.  But the hospital now realizes it's losing money because they aren't billing for the more expensive admissions.  Who captured the value here?  The insurers - because they're still collecting the premiums and paying out less.  This is the exact opposite of what should be happening.


          The solution to this - and this is by no means perfect - is that larger organizations need to control regions of medical care in each state.  And the key is that they need to bring in risk by offering their own health insurance product.  Some ACOs are moving in this direction and some already have.  The current ACO model is a failed one.  The reason the ACO cost sharing model is a failed one is because the ACO will fail to capture value on the margin.  Take the situation to perpetuity - if ACOs became increasingly operationally efficient they will see costs go down, but only in smaller degrees each year.  Each year there is less and less marginal improvement that they can create and get less and less cost sharing returns.  Eventually they get no cost sharing.  It's a failed model.

          Now imagine if that operationally efficient ACO decided to incorporate an insurer to their system (United for example, or actuaries/underwriters otherwise) to create an insurance product for those covered lives.  Once that number of necessary covered lives is met you then immediately start competing on value.  The government can serve one main purpose here - to make sure that appropriate health metrics are on full display to the consumer (adjusted for patient factors) and that there is price transparency.  Some of that the market will take care of.  If you see lower premiums at institution X and they have the same success rates, guess who is going to get the business?  The higher premium ACO has no choice but to get efficient - fast.

          The key here is operational efficiency.  If ACOs are not run efficiently in this model their costs will be way too high.  Multiple estimates show that we waste about 30% of healthcare dollars in efficiency losses.  If ACOs think outside the box and do things like work with the communities they serve to improve healthy activities, embed specialists in primary care so patients aren't transferred through the system inefficiently, etc. then they'll be ready.  But the end product is one of transparency, efficiency and competition on value.  There's no reason this *can't* happen, as it is happening already on a limited basis.  Profits go back into the ACO to then create those asthma clinics and make people healthier.  And guess who keeps THOSE savings?  Not the insurers, who are largely value extractors.  It goes to the ACO and ultimately creates value for the patient.  If it doesn't, the patient speaks with their feet.  That's how a market based system should work.


          • #6

            My office manager has a quote on the wall (from one of her seminars) that reads something like:  “patients want what retail provides: predictability, accessibility, affordability, convenience” (or something like that, doing this from memory…).  While I do think some “free market style” attention to customer service is sorely needed in many (most?) medical offices, IMO health care is fundamentally different than most other goods/services where free market forces work effectively.

            As a physician, I just don’t much like the end-game of the “obvious solution” that Zaphod may be referencing above…

            Gonna be an interesting few years at least.. 
            Click to expand…

            Yep, that’s what has rekindled my interest in digging into this debate..

            Click to expand...

            Its the obvious end game though when looking at all the factors and constraints. Partly the reason I chose plastic surgery in the first place, much more resistant to such an endgame and indeed wholly outside of it. It truly is a free market, pts dont need me at all and compare on price with everyone else and only come to me if it works with everything they considered (usually not the right stuff tbh). That is competitive, but its also truly free in that its 100% elective and 100% cash.


            • #7
              Very interesting topic and one I've thought a lot about. I think the current setting absolutely sets up weeding out expensive patients as the easiest route to profitability. I struggle to come up with a system that can eliminate this as long as for profit insurance is part of the system. Even if insurers weren't able to drop patients once enrolled, they could still provide terrible service to induce expensive patients to quit them.

              A top-to-bottom integrated ACO could align the interests of insurance providers with health providers, but it still would not necessarily be aligned with patients' interests. HMO/ACO setups encourage providers to do less of everything, but what happens when a patient would benefit from Harvoni at $1100/day to cure their Hep C? It would only be cost effective if the patient stays in the ACO for years and years to reap the benefits of not becoming cirrhotic.

              Bottom line, there isn't a solution that will please everybody.


              • #8
                I'm not as well-versed on this subject as others, but seeing large hospitals buying out small hospitals and practices, it almost feels like we're moving towards a system where each city/state is represented by a handful of hospital organizations.  I can imagine a system where patients choose which hospital (and associated clinics, etc.) they want to be part of, paying the hospital directly and eliminating the middle-man insurance company, basically like Kaiser.  In this setup, I'd imagine competition being more likely, where hospitals compete for patients with prices, quality, services, etc., as well as competing for doctors with salary, benefits, etc.


                • #9
                  It can only be competitive when it goes back to being actual insurance and not simply some sort of health plan.  When the customer is forced to pay for everyone else's preexisting conditions, the cost of the product is too high.

                  There is no free-market solution because the market is not free here.  It can be made more competitive than it is, but it will never be a true free enterprise model until there is substantial deregulation.  The only way for that to happen is for the government to somehow pick up the tab for all of the preexisting condition patients.

                  I would love to be able to pick up a catastrophic coverage plan.  As it is, that's all I have anyway since the deductibles are so high that I'll never get any benefit.


                  • #10

                    Health insurance can absolutely be competitive. A simple anecdote I heard once helps to explain the problem with health insurance as we have it today:
                    Click to expand...

                    Just a couple of points to consider:

                    1) My original point was trying to focus on just the health insurance aspect - I'm wondering if health care insurance is best considered a natural monopoly. I don't know if there's any real-world example of "pure" health care insurance because companies evolve the way you describe and get involved in the actual delivery (or oversight) of care as that's where there is an opportunity to have an impact (as in your asthma example).

                    2) So let's assume we have your super-operationally efficient, vertically integrated ACO -we'll call it SOE-ACO. How much money can SOE-ACO really save compared to shifting a few of the renal dialysis patients, COPD'rs, diabetics etc etc to join the competition's ACO?




                    • #11
                      If all the ACOs did this they'd just end up passing unhealthy people along to each other - zero sum game.  Just like passing the lemons with bad teachers.  Also, these ACOs wouldn't actually be right down the street from each other, unless in a city or something.  The ACO, if smart, would realize it makes more sense to invest their efforts in producing value for their patients because they are not only in control of their profits but face transparency where their results are on display for all to see.  If they somehow shift those patients to a competitor they risk the competition doing a better job and capturing that value.  Furthermore, ACOs would want to come to an agreement that they'll have certain covered services (HCV vaccine for example) to disincentivize gaming.  If not for those agreements they all stand to lose.  None of this is perfect.  I'm just saying it's possible.  Healthcare is nearly as wasteful as the government, if that's even possible.  We're wasteful because our reimbursement mechanisms don't inspire efficiency.  A top down (government-run) program is wrought with problems that I won't even get into.  I think the ACO model I describe is the most ideal market-based solution that avoids big government and has any hope of controlling costs.  One of the problems with the adverse selection issue in your original post is that while there are groups that are more expensive, it's typically random events that bring an individual into a high cost pool in any given year.  A very small percentage of Americans incur a very large amount of cost, but not necessarily every year.  So it's not necessarily wise to say "pass the hot potato" and forgo efficiency improvements.


                      • #12
                        Another issue is that currently insurance companies don't really have the incentive to invest in your long term health, because it is highly likely you will not be their customer in a year. They are incentivized to keep your short term costs low through denial, obstruction, etc.


                        • #13

                          Also, these ACOs wouldn’t actually be right down the street from each other, unless in a city or something.
                          Click to expand...

                          But in order for the patient to be able to "vote with their feet" I'd think the ACO's *WOULD* have to be right down the street from each other - otherwise where's the competition? And wouldn't that duplicate a lot of services, increasing costs?. Clearly a large city could support several ACO's, but how would this work for suburban/rural areas? And if one ACO is or becomes dominant in an area then you are right back to the absence of competition to keep the knife sharp.

                          I certainly agree with your general premise of insurance companies being a needless middle man and injecting unnecessary cost and inefficiency into the process. But to minimize the problem of adverse selection I'd think the ACO's would have to be enormous - at least state-wide or perhaps national - which would give these private corporations monopsony buying power - eg. "take it or leave it" contracts offered to physicians at Medicaid rates may be a more effective way for them to save money vs operational efficiency.


                          Question for you: Medicare is widely lauded as being extremely efficient, compared to private insurances. What's your take on that?


                          it’s typically random events that bring an individual into a high cost pool in any given year. A very small percentage of Americans incur a very large amount of cost, but not necessarily every year.
                          Click to expand...

                          I agree there is some randomness (accidents resulting in ICU stays, end of life care) , but my understanding is that chronically ill patients actually account for a large proportion of these costs (or so I learned when I worked at Kaiser), so there's more predictability to who will need more care than one might imagine. I concede that I don't know the precise data, if it even exists, that breaks down true RNG vs chronic illness - are you aware of any sources?


                          • #14
                            No doubt this model/idea is imperfect.  Indeed the ACOs would need to be large enough to have enough covered lives to make producing their own insurance safe.  Whether the ACO would be an amorphous blob of geographic control vs controlling half of a state, I don't know.  But my initial thoughts were that you wouldn't be able to just walk down the street to the next ACO in more rural areas, but if you have practiced rural medicine before it's not like there are a ton of choices either way.  An ACO controlling that rural hospital (among many others elsewhere) would have no marginal effect on the rural individual other than perhaps integrate them with larger centers in a more efficient manner (something desperately needed in rural medicine).  Anyhow, it's just a thought as to what model could overcome the current problems we have.

                            Regarding the chronically ill, I've seen the statistics broken up so many different ways.  Without a doubt, there are major chronic illnesses that we spend a ton of money on and those with those given diseases are more likely to cost more.  But it is also true that we spend a ton of money on end-of-life care, which befalls anyone regardless of chronic disease or not.  I'm sure industry groups slice and dice statistics so they can get more funding.  But to your original question of discriminating based on disease, if you had an ACO with enough diverse covered lives you wouldn't need to look at that to discriminate.

                            Regarding your question about Medicare, I would refer you to this article: