Wednesday, September 30, 2009

America's Health Care System Explained

Sorry -- I sincerely hope this is the most boring thing I will ever write. FYI, I am capitalizing major concepts willy-nilly, just to help clarify things. I do not claim this is done consistently. Also, I'm going to keep mentioning Suboptimization: that's when a part of a whole is motivated by what benefits itself as a part, rather than what benefits the larger system as a whole. Sometimes this is mere self-defense, other times it's downright pennywise/poundfoolish.

In light of all the recent arguments about health care, I offer this background information as a public service. Once up a time, I worked in a hospital business business, preparing claims for insurance billing. Then I worked for a large corporate insurance company, processing, paying, and denying such claims. In both places, I worked with all kinds of bills, but mainly specialized in inpatient claims. And it amused me that in both places, we were entrusted to deal with bills worth hundreds of thousands of dollars, but were still nickel-and-dimed like we couldn't be trusted with a tiny pack of Post-It notes. Ain't that America?

To begin

While your medical conditions are real things that exist in the world, and the people in the doctor's office are generally decent, hard-working people doing all they can to help you, the bill you will receive is merely a pawn in a large game being continually played between the twin contenders of the Health Care System and the Insurance Industry.

Basically, the Health Care System will charge whatever they can get away with. If most of their revenue comes from insurance payments (rather than from the dreaded "Self Pay" category), then their only limiting factor is really whatever they can justify to an insurance company as medically necessary according to contractual minutiae. They have a profit-making interest in charging as much as they can per service, and in heaping on services. They will charge up to the limit of what an insurance company is willing and able (and/or legally forced) to pay for. Because they're a business, and that's their job, to generate profits.

This business strategy drives up the cost of every service at every level of the Health Care System. And if you happen to be someone who doesn't have insurance, a "poor get poorer" feedback loop kicks in. The lack of insurance implies you're underemployed and thus probably underpaid, but you are yourself responsible for paying costs that have been driven up by the ability of the richest of the rich to pay for them.

The Insurance Industry, on the other hand, will cover as little as they can get away with. Because they are also a business, and that's their job, to generate profits. Their money comes in from their subscribers, and they lose money every time they pay a claim. The fewer claims they can pay, and at the lowest possible percentage, the better it is for them. This means that the people who do have Insurance are definitely better off than people who don't, but it's doesn't mean they're on easy streeet here. Their medical bills are actually being paid by companies that have a vested interest in not paying the bills. Which means that a person can have insurance and feel absolutely secure that they're covered, and suddenly discover that the company is refusing to pay.

So, the game in a nutshell is: on one side, the Health Care System is trying to get as much as it can from the Insurance Industry. The Insurance Industry is trying to give as little as it can to the Health Care System.

Because their primary revenue is coming from Insurance companies, the Health Care System can easily price itself out of what an individual can pay. Those companies are large profit-making entities with big pockets. In addition, because their primary revenue is coming from either government funded or Employer groups, who can pool their resources, Insurance can easily price itself out of what an individual can pay. When dealing with either the Health Care System or the Insurance Industry, the Individual is not profitable enough to be a primary concern.

Important disclaimer: This is not in any way to imply that the people who work for Health Care Providers and Insurance Companies are evil, greedy people. My own personal experience is clearly that they are not. In a hospital business office, the front-line staff are mainly trying to show your Insurance Company that the medical care you came in for is worth paying for. At the Insurance Company, on the processing floor, they are trying to make sure that you get the actual benefits you deserve as much as they are trying to make sure you don't get ones you don't. It is not their fault that they are enmeshed in a system in which every component is Suboptimizing for that component's own gain.

So, back to those groups: apart from overtly government-funded Insurance systems (Medicare, Medicaid, and certain local entities), most insurance coverage comes from groups, primarily through Employers. Now, at some point, as the game entrenched between Health Care and Insurance, Employers realized that the cost of providing insurance to their employees was going up and up. Of course, they are also businesses, and making profit is what keeps them afloat (or else they're other agencies that get revenue from somebody, even if it's through taxes, so the same basic pressures apply). So they have done what the other entities in the system did, and Suboptimized. They started coming with new and creative ways to hire employees without providing Insurance benefits for them.

This leaves more working Individuals who have little or no access to affordable Insurance, and no access to affordable Health Care either. If they get sick or injured, they just have to somehow find a way to deal with the costs. As this amount of people increases, it actually decreases the number of people (subscribers) available to pay into the cost of supporting the Insurance Industry, which is what pays the cost of supporting the Health Care System. The system is straining under the pressure all over the place.

There are two additional complicating factors that are pretty important. First, Bureaucracy.

The system has spawned a huge, encrusted, cumbersome Bureaucracy which acts as the referee, making sure both sides are playing by the rules in every instance, no matter how minute. This bureaucracy, in turn, eats up loads of money, but at this point, it's a pretty necessary evil, because there have to be some limits on how much a hospital can expect an insurance company to pay, or what pretzel logic an insurance company will come up with to avoid paying something they've promised to pay. Without it, if a hospital could charge a million dollars to take your blood pressure, or an insurance company could reject every claim that crosses its desk.

Okay, that's an exaggeration, but there's a lot they could do, and would do, if they could get away with it. Over time, the Bureaucracy has grown huger and more complicated (as the Health Care System, the Insurance Industry, and the Bureaucracy itself react to new technologies, new laws, and in response to what the other entities are doing), which in turn complicates every step in Health Care System and the Insurance Industry.

It's as if after a football game, a fleet of referees had to scrutinize every second of every game, and every player had to fill out weeks of paperwork to explain every single thing they did on the field. Then, months later, the officials would compile a report and declare a winner.

That would be crazy, and nobody would create a system like that on purpose. But something like that builds up slowly, based on decisions that seemed to make sense at the time. By the time people realize how crazy it is, it's out of control, but that's how the refereeing has been done as long as anyone remembers it. You have to have a referee, because if it's the Super Bowl, there are millions of dollars riding on whether that play was good or not. And dismantling the system means a risk of throwing everything into chaos.

In addition, all the millions of companies and agencies that make up the Healthcare System, the Insurance Industry, and the Bureaucracy are all themselves Employers, who are Suboptimizing according to the same logic as all the other Employers. They are attempting to do more work with fewer Employees, and doing everything they can to avoid giving those staff people benefits (including the products of the Insurance Industry, which affects individual access to the Health Care System).

That means that at the same time the Bureaucracy has grown larger and unfathomably complex, and as medical and technological advances have also complicated the system, the day-to-day work of getting everything done is increasingly likely to be done by people who are temporary workers, or underpaid, underbenefited employees who are no longer invested in the system. That's because individuals are all Suboptimizing, too: doing what's best for them as individuals. And I'm not picking on these industries: it's happening everywhere in our country, in every industry. But it really has an impact on industries that are as detail-driven as the Health Care and Insurance Industries, with their Bureaucratic requirements, are.

Every individual change that works to make a system more complicated will increase the chances of error in the system. (Some people would add "exponentially," but I can't really do the math). The more complicated the work, the more difficult and time-consuming it will be to do, and the harder it'll be to catch and correct errors. To sum up: as the systems have grown more complicated, the industries have made an unrelated decision to Suboptimize as Employers, leading to undertrained, short-term, and uninvested staff performing day-to-day work. Thus, the error-ridden bills you frequently receive from your various Health Care providers, and the equally error-ridden benefits statements you get back from your Insurance company.

Sometimes the errors do, in fact, work in the patients' favor. If it impacts a small enough dollar amount, it won't get noticed. Apart from when errors lose an entity so much money that it draws attention to itself, it largely works like this: if a Health Care Provider sends out a bill and the Insurance Company pays it, then it's all good. If an Insurance Company processes a claim and the subscriber doesn't complain, then it's all good.

When the Health Care Provider makes a mistake in billing and gets away with it, it'll eventually trickle down to affect the customer's rates and the overall cost: in the long run, if more money comes in by making mistakes, there's little incentive for a company to fix them.

If the Insurance company makes a mistake in processing and gets away with it, again: in the long run, if more money comes in by making mistakes, there's little incentive for a company to fix them.

For a person who has insurance, mistakes in the Health Care Provider's incomprehensible forms are more the problem of the insurance company, where people are trained to interpret them. The situation leads to costly reprocessing, which adds to the cost of the overall system, but again, people with insurance are still better off than the people who don't have insurance, and who can't possibly have anything like the detailed knowledge needed to make head or tail out of that complicated bill.

If you have insurance, then the company will transform the bill, what they paid on it, and why, into their own incomprehensible "Explanation of Benefits" (ha ha ha!) which they will send to you. So if the Insurance company makes a mistake, that will have to be noticed either by the Bureaucracy, or by the patient, who, I'll say again, can't possibly have anything like the detailed knowledge needed to make head or tail out of that complicated statement.

My own rule of thumb when I get the claim statements from the Insurance company is: if what's left on the bill for me to pay is in the ballpark of what I expected, I don't worry about it. If it's not, or if there's something wrong that's glaringly obvious, then I call in. Because I worked on both sides, I know that there's a continual flurry of reprocessing going on between the Health Care Providers and Insurance, and between Insurance and their customers. So if my deductible and co-pay amount looks reasonable and there are no red flags, I just pay it.

However, when my bill for the new eyeglasses comes back with $50 for the anti-glare coating that I hate and never have put on, I know it's a mistake, and I'll call in. When the bill for my husband's 5-day hospital stay is rejected for a completely ludicrous reason, I fortunately know enough not to panic. I call in, and, just like with that $50 charge, someone looked at a computer screen for about two seconds and said, "Yup, our mistake. We'll reprocess." And the second time around, it was all done right.

In addition, I mentioned how the Employers afford their Insurance rates because they're organized in groups, thus bringing the costs down for all the members of groups, and driving up the costs for the uninsured. When Employers avoid offering Insurance benefits to some Employees, or in times of layoffs, for example, the negative impact on the uninsured is easy to see. What most people forget is that it also has a negative impact on the remaining people who are in the group. The insured can afford their Insurance because the cost was spread out over a large group of people. As that group shrinks to an elite few, the amount those individuals contribute will have to go up to cover the people who used to pay in.

To wrap things up:

At every point, all the different parts that make up the system are suboptimizing: the Health Care System, the Insurance Industry, and the Employers and other groups that provide coverage. But what's most profitable for any of those entities is not necessarily good for the actual physical health of the country, and the quality of life for the citizens who are paying, one way or the other, for the whole thing. Because the system has grown so complex, fixing it is also necessarily a complex and difficult task, and almost any change, however small, could be debated almost infinitely.

For now, the system is more less holding together, which is why people are so emotional over it. They're afraid of losing what they have. The reason that the examples I gave earlier were absurd is because if a hospital charges a million dollars for a simple test, then nobody will, or can, pay for it, insurance or no insurance. Insurance companies can't reject every claim willy-nilly, because if they did, nobody would bother to buy insurance from them anymore. The "market" does, to some extent, keep things from going too far in either direction. However, the game will drive up Health Care costs past the point where uninsured people can pay for them waaaaaay before it ceases to be profitable for the Health Care and Insurance Industries. And as long as the status quo is profitable enough for enough people, there is no incentive for the people making the money to correct the mistakes they're already making, much less reform their own industries. Reform will only come from within when it's more profitable overall to do so, at least within the paradigm we have now, which has the making of profit as the sole motivating factor.

I don't have a crystal ball, so I can't say how long the current system could go on unchecked, without a major rethinking. People who know a lot more than I do can't. But it seems reasonable to assume that this already unstable system cannot go on forever. Whatever eventually happens will be difficult, and potentially unsettling to society at large. But at least we can face the state of affairs as it currently exists.

One added sideline, not related to Health Care per se, but that arose out of this train of thought: as I mentioned, because of the expense, Employers spend a lot of time finding loopholes to avoid giving benefits to their Employees. This includes things like paid vacation days and holidays, pension plans, with insurance benefits being probably the biggest expense to the employer and the most imporant immediate benefit to the employee. However, benefits are really the only lever most Employers have to keep Employees.

What I mean is: if all you're offering is a part-time job with no benefits, you can find plenty of people to hire. But if anything about the job sucks, how are you going to keep them? There are plenty of other part-time jobs with no benefits out there, most of which probably pay about the same. When people are in benefitted positions, they'll put up with a lot more, because there's an incentive to stay.

Just thought I'd mention that, as long as we're already more or less discussing Unintended Consquences.

For the record, I am neither promoting nor opposing the Health Care Reform bill, largely because it's too complicated for me to understand with some hard-core scrutiny that I haven't done. But here's a link, if you want:

1 comment:

SpyGirl said...

I can't believe you used a football analogy (which was awesomely done and worked really well, btw). This whole post is awesome.

I've been meaning to tell you about a program I heard on Morning Edition last month. It was a coproduction between NPR News and This American Life so it follows the This American Life format of four acts:
Act One talks about coupons you can get from the drug company that make their drugs cheaper (I have one of these coupons, and I always wondered, "How on earth can this possibly work? What exactly is the point of setting a price for your product and then giving customers a reusable $50 off coupon for it?" But they explain it in the program!)
Then Act Two talks about employer-provided insurance came to be. Act Three talks about pet insurance, and Act Four is about why insurance companies drop members. It's all very interesting and related to all the stuff you talk about in this post.

You can listen to the entire thing at this link: