Tuesday, May 17, 2011

Insurance company profits up and patient care down

The third post in the series "Family medicine in the era of health reform" will appear at a later date. I  wanted to cover another topical issue.

Almost a year after the passage of the Affordable Care Act (ACA), amidst the dire predictions from the right about everything from death panels to socialism and their bloviating about overturning it, it turns out that the fears of the “left” are more accurate; that is, that it is insurance companies, not the American people, who are receiving the greatest benefits. There have indeed been benefits to consumers; notably the ability of young people to stay on their parents’ insurance until 26 and the elimination of restrictions on pre-existing conditions, and there will be more later on as 2014 rolls around. But the biggest impact of the bill so far has been inflating the coffers of health insurers.

The lead article in the New York Times, May 14, 2011, by Reed Abelson, is Health Insurers Making Record Profits as Many Postpone Care. In his wonderful daily commentary on health news, Quote of the Day, Dr. Don McCanne simply observes “The headline says it all.” That’s the gist of it, but it does deserve a little more discussion. For one thing, the health insurance companies, despite record profits over the last two years, are continuing to raise their premiums very significantly, justifying this by saying that they expect that, as the economy improves, people who have been delaying getting health care will begin to do so and create a great demand.

“Yet the companies continue to press for higher premiums, even though their reserve coffers are flush with profits and shareholders have been rewarded with new dividends. Many defend proposed double-digit increases in the rates they charge, citing a need for protection against any sudden uptick in demand once people have more money to spend on their health, as well as the rising price of care.”

Excuse me? This is a justification for raising rates now? That people, insured people, find the co-pays and deductibles currently in place to be so high that they are denying themselves needed care, so maybe later they’ll want to get it, so then it will finally cost the insurers money, so let’s pre-emptively raise premiums to cover it? Meanwhile, what it actually does is to ensure that even fewer people access care because the higher rates mean that they opt for policies with even greater co-pays and deductibles or even drop their insurance altogether.

The article quotes a number people, including physicians, describing how they or their patients have gone without or put off obtaining health care.
“’I am noticing my patients with insurance are more interested in costs,’ said Dr. Jim King, a family practice physician in rural Tennessee. ‘Gas prices are going up, food prices are going up. They are deciding to put some of their health care off.’ A patient might decide not to drive the 50 miles necessary to see a specialist because of the cost of gas...”
While the insurance companies are using the opportunity to stash away even more money for the flood that may, or may not, come: the Times quotes an industry analyst as saying about demand for health care services “The big question is whether it is going to stay weak or bounce back…Nobody knows.” They are raising their rates by double digits (for example, an Oregon Blue Cross/Blue Shield raised them by 22%), while having big profits (“…big insurance companies have reported first-quarter earnings that beat analysts expectations by an average of 30 percent.”)

Some of the reports suggest that people seem less interested in getting medically unnecessary services which they wanted when someone else was paying; according to Dr. King ”Fewer [people] are asking for an MRI as soon as they have a bad headache. “People are realizing that this is my money, even if I’m not writing a check.”  But others, such as the woman who has been putting off paying $350 for dental crowns she has needed for a year, are avoiding needed care. The effect on the health of the consumer may not be all bad; a doctor says more patients are “…asking for the generic alternatives to brand-name medicines, because of hefty co-payments. ‘Now, all of a sudden, they want the generic, when for years, they said they couldn’t take it.’” Let me be clear: in general, choosing generic drugs is a good thing; it is very uncommon that a patient is intolerant or allergic to a generic medication, or that it works less effectively than a brand-name one. Why, then, have this doctor’s patients heretofore been asking for them and saying that they “couldn’t take” the generics?

If you guessed “drug company advertising”, congratulations! It may seem obvious but it is also true; direct-to-consumer advertising, particularly on television, has major impact in creating demand from people on their doctors. The advertising is, of course, all for brand name drugs that are currently under patent and not available generically. Like other advertising for brand-name products it creates the (usually incorrect) impression that, somehow, this drug is better than the “no-name” drug. Why should this be surprise when it is clear that people prefer brand names in clothes, food, and other consumer items even when there is no demonstrated quality difference? [Amazingly (to me), people  -- even people over 14 years old! --pay good money to walk around with a designer’s name scrawled across their T-shirt and believe that this has cachet!]

The simple goal of drug manufacturers is to get people to switch to their drug when it comes out, develop brand loyalty when it is under patent, and stay with the brand even when generic competitors come out. The actual best thing for people’s health is to rarely adopt a new drug that “seems like it might be” better (unless all the old drugs are not working or have serious side effects or allergies), but rather wait until there is convincing evidence, usually after several years of use, that it is both more effective and has fewer dangerous side effects than the old drug it was replacing, especially if it is not cheaper. So, to the extent that higher co-pays and deductibles might counteract the impact of drug-company advertising, it can have a positive impact, and fulfills the expectations of many health care economists.

But it is not, after all, a very good way to do it. Raising health insurance premiums and co-pays and deductibles may make people more cautious with their health care dollar, but as indicated in this article, and shown years ago in the RAND Health Insurance Experiment (as cited in Freedom abroad, health at home: experiments in preventive health care, February 13, 2011; the study was published in the New England Journal of Medicine in 1983[1]; and it is summarized in an article by Joseph P. Newhouse, "Free for all?:  lessons from the RAND Health Insurance Experiment", RAND 1993), people are at least as likely to skimp on  necessary care and preventive care that may have a negative impact on their health, as well as be more likely to create high costs, in the future, as they are to forego elective or unnecessary care. They may not demand an MRI for a headache, but also may not want to pay for it when it is medically indicated. They may be more likely to ask for generic drugs, but may also skip filling the prescriptions altogether.

Dr. McCanne continued his brief comment by saying “Under the Affordable Car Act we're getting more of the same, except worse (higher costs, skimpier coverage). It doesn't have to be this way.” He is completely correct.  There is a better way to control costs, and to ensure quality health care. It is to make sure that everyone has coverage, such as through the single-payer plans recently introduced in the Senate by Bernie Sanders and the House by Jim McDermott, to have central pro-active control of costs by regulation of premiums and profit, using the power of bulk purchasing by federal agencies such as CMS to drive down drug prices, and to use the incredible power of an increased primary care workforce to increase quality and “bend the cost curve”. More on that in an upcoming blog.

[1] Brook RH, et al., “Does Free Care Improve Adults' Health? — Results from a Randomized Controlled Trial”, N Engl J Med 1983; 309:1426-1434

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