Insurance company profits up and patient care down

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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.

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[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

Lower Costs in Grand Junction: More Primary Care, Less High Tech

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Grand Junction, Colorado, and particularly the medical care system in Grand Junction, Colorado, has been getting a great deal of publicity since the health care debate began, because it is a community with lower health-care costs, combined with high health status, compared to much of the country. While well-known to health policy analysts for many years, and particularly featured in the analyses of the Dartmouth Atlas of Health Care, it gained greatest fame when Dr. Atul Gawande published “The Cost Conundrum” in the New Yorker in June, 2009. While the focus of the article was the exceedingly high per capita cost for Medicare in the border town of McAllen, Texas, including how unfavorably those costs compared to the other border town of El Paso, Grand Junction was prominently cited as a community in which Medicare costs, and all health care costs, were exceptionally low. This little town on the western slopes of the Rocky Mountains has become a potential model for those who believe health care costs can be controlled while maintaining or increasing quality, and a bugbear for those (mostly those profiting from medical care, or funded by corporations that so profit) who fear limits on medical costs.

The most recent, and brief and pithy, article, “Low-cost lessons from Grand Junction, Colorado”[1] comes from Thomas Bodenheimer and David West in the October 7, 2010 issue of the New England Journal of Medicine. They cite the statistics on health care and costs in Grand Junction and Mesa County from the Dartmouth Atlas: “…average per capita Medicare spending in Grand Junction was $6,599 in 2007 — 24% lower than the national average and 60% below high-cost Miami”, while maintaining high quality, including high performance on preventive metrics. They note that “…data on mortality and morbidity from the Robert Wood Johnson Foundation and the University of Wisconsin's County Health Rankings database show that the population of Grand Junction's Mesa County is far less healthy than those of some U.S. counties with high Medicare costs (www.countyhealthrankings.org), although it is number one in Colorado in the quality of clinical care provided. One would expect less-healthy communities to have higher costs.”

Bodenheimer and West cite 7 characteristics of the Grand Junction medical system that they believe are responsible for this situation and might be replicable (if “generally not without political battles”):

“These are leadership by the primary care community; a payment system involving risk sharing by physicians; equalization of physician payment for the care of Medicare, Medicaid, and privately insured patients; regionalization of services into an orderly system of primary, secondary, and tertiary care; limits on the supply of expensive resources, including specialists, beds, and equipment; payment of primary care physicians for hospital visits; and robust end-of-life care.”

The payment system is based upon the Rocky Mountain HMO, begun in the 1970s and involving most of the providers in the western slope. This HMO gained the attention of scholars years ago, and was described in a case study by Wellever and Moscovice in the Journal of Rural Health in 1998.[2] One of the key parts of the “Rocky” is that it contracts with both Medicare (via a Medicare Advantage program) and Colorado Medicaid, so that providers, who are largely independent in solo or small groups, are paid more or less a single rate, regardless of the insurance (Medicaid, Medicare, or contracted with Rocky via an employer). This makes costs and reimbursement much more predictable and allows physicians to provide the appropriate care for patients, without trying to figure out what their insurance will pay for. It provides the physicians with the security that would, in fact, characterize a single-payer system.

The other critical component is not only leadership by primary care (and predominantly family) physicians, but an appropriate balance between primary care doctors and specialists, and a limitation on the expansion of procedural services that may not be necessary. The key quotation from Bodenheimer and West here is “Because only one hospital can offer interventional cardiac procedures, there isn't room for many cardiologists in Grand Junction; with such limits on facilities and workforce, the rates of such procedures remain low. The same applies to other types of expensive procedures.”

This is entirely the opposite of what happens in most communities, in which competing hospitals seek to add more facilities and hire or contract with more subspecialist physicians in order to increase the income of both physicians and the hospital. As I have discussed in the past (e.g., Cancer Care and Hospital Advertising, January 16, 2010; Doctors, their Patients, and Health Reform, August 6, 2009) and as the Dartmouth Atlas makes clear, the number of expensive services provided to patients is very different in different parts of the country, and demand is very “elastic”; that is, it is often determined not by need but by the availability of physicians and facilities. That is, supply drives demand, rather than vice versa. Hospitals in other communities compete for doctors and patients (insured patients, let us be clear!) so that they can have a bigger “market share”. This “business” rather than health, approach, can be insidious, destructive, and expensive enough, with overbuilding resulting in overcapacity. More serious, however, as Kelly reminds us,[3] than seeking a bigger market share is the complementary business practice of expanding the market – finding new “customers” for your product – in this case, high cost procedures.

Do I know if the number of interventional cardiac procedures (or any other procedures) done in Grand Junction is the “right number”, or if the system that exists there and limits them means that too few are done? No, of course not. We can look at data cited by Bodenheimer and West that suggest that it is not far off, that health status is not decreasing, and that preventive services on discharge are higher than average. But I do know that there is a “right number” and that it is determined by the health status of the patient population and the risk/benefit ratio from doing procedures, not by the driver of “more is better”. Arguable for other consumer goods (e.g., cars, music, toothpaste), the idea of “expanding the market” for expensive medical procedures – widening the field of those who are “eligible” so that we can have “more business” and make more money, is outrageous and immoral, as well as ridiculously expensive. This is true for procedures which are highly advertised and of little or no medical value as well as for procedures that can be important and lifesaving when utilized appropriately in the right patients. The money not spent on unnecessary high-tech procedures can provide more primary care to more people, and improve health outcomes.

Grand Junction, Colorado may not have all the answers to our health care system, any more than Canada or Britain or Switzerland do. But it is doing a lot of things right, it is saving money, and it is improving the health of the community, and that’s a lot more than most areas in the US are doing.


[1]Bodenheimer T, West D, “Low-cost lessons from Grand Junction, Colorado”, NEJM 7Oct2010;363(15):1391-3
[2] Wellever A, Moscovice I, “Rocky Mountain HMO”, J Rural Health. 1998 Summer;14(3):211-23
[3] Kelly PJ, Personal communication.

A Modest Proposal: Bribe the Insurance Companies

(apologies to Mr. Swift)

Extensive research done by the Physicians for a National Health Program (PNHP), particularly by Steffie Woolhandler and David Himmelstein, have identified at least $400 BILLION in annual “waste” from our current system of health insurance (and, of course, lack of insurance for tens of millions of Americans). Drs. Woolhandler and Himmelstein are major advocates of a single-payer system, as am I (OK, I’m not so major!) and I have used much of their research in supporting single payer and in pointing out the limitations of a “public option”. Himmelstein, in his testimony to Congress (http://www.pnhp.org/news/2009/april/testimony_of_david_u.php) and in more detail on his PNHP blog (http://www.pnhp.org/campaign/materials/Refuting%20the%20Public%20Option.pdf) notes that a public option “…foregoes at least 84% of the administrative savings available through single payer. The public plan option would do nothing to streamline the administrative tasks (and costs) of hospitals, physicians offices, and nursing homes. They would still contend with multiple payers, and hence still need the complex cost tracking and billing apparatus that drives administrative costs. These unnecessary provider administrative costs account for the vast majority of bureaucratic waste. Hence, even if 95% of Americans who are currently privately insured were to join a public plan (and it had overhead costs at current Medicare levels), the savings on insurance overhead would amount to only 16% of the roughly $400 billion annually achievable through single payer.”

More than that, only a part of that 16% is actual insurance company profit, as noted in a letter to the New York Times (June 21, 2009) by Dr. Woolhandler: “Moreover, the savings on overhead from a public plan option are far smaller than you suggest. While it might cut insurers’ profits (which is why they hate it), that’s only 3 percent of the roughly $400 billion squandered on health bureaucracy annually.” (http://pnhp.org/blog/2009/06/25/paul-starr-and-steffie-woolhandler-on-the-public-option/).

Let’s think about that. We waste $400 billion a year in administrative overhead so that the insurance companies can make 3% of that, or about $10-15 billion. That is a lot of money, but it is also a high waste:profit ratio. We could just pay the insurance companies their $15 billion a year, maybe for a limited time (5-10 years, perhaps decreasing 10% per year, so they could get into some other business, perhaps cleaning up the environment or rebuilding infrastructure or teaching underserved inner-city children), and tell them to disappear, leave the debate, get out; then we do single-payer and save the other $385 billion.

Sounds like a good deal to me. And not so bad for the insurance companies, since they won’t have to work or bribe Congressmen! Sure, it is lacking in morality, but so was the bank bailout, and this is a lot cheaper. And it would get us a plan a lot better than any of those being tossed around by the administration and congressional committees.

Maybe we should go for it!
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