The cost of health care: insurance companies, high-profit and low value care

We know that health care in the US is incredibly expensive. Those who read about health policy from a variety of sources (perhaps including this blog) know this in terms of data – our per capita cost is 50% more than the second highest-cost nation (Norway), twice what most comparable (rich) countries spend, and almost 3 times that of the United Kingdom. But you don’t have to be a policy wonk to know that health care is expensive; you just have to be a consumer who is trying to buy health insurance and is seeing their premiums go up – and their out-of-pocket costs (deductibles, co-pays, co-insurance) go up as well. All those other countries cover everyone, equitably, despite spending so much less money (and those that spend more, like Norway, have especially good coverage). Not so here.

“My premiums are more than $600 a month, which is more than our mortgage payment,” a cancer survivor quoted by the New York Times in its August 14, 2016 article by Robert Pear “Health insurers use process intended to curb rate increases to justify them”, said. “I am grateful that the Affordable Care Act is here for my family, but I am disappointed by its limitations. All I want is a plan that makes our health care affordable, but it doesn’t exist.” She is likely to be disappointed, because this was not how the Affordable Care Act (ACA) was set up, and unless control of Congress changes dramatically, we probably will not see a fix. ACA passed because it guaranteed continued profit for insurance companies, and this has led to both the rate increases and out-of-pocket cost increases we have seen. Insurance companies can do this because the law allows them to ask for premium hikes when they are not making “enough” money. Essentially, ACA requires the American people (subsidized by the federal government if they are poor) to ensure private insurance companies are profitable. Because they believe that they have not been permitted to jack up rates “enough”, some companies (Humana, United, Ætna) are leaving the exchanges in many places.

While other counties make sure everyone is covered by some national health insurance (a national health service in the UK, a single-payer national health insurance system in Canada, and highly-regulated multi-payer systems in many other European countries such as France, Germany, and Switzerland), we have tried a patchwork that leaves many people out (e.g., the undocumented, poor people in the 19 states that haven’t expanded Medicaid), and encourages others to buy policies on the health insurance exchanges based solely on their cost. This is examined in a story by Reed Abelson in the Times from August 12, 2016, “Cost, not choice, is top concern of health insurance customers”. It notes that people who are healthy and young but don’t have employer-based health insurance are either buying the cheapest policies available on the exchanges or “particularly those not eligible for generous subsidies, are shunning plans altogether, finding all of the prices too high.” When they don't buy insurance, it messes with the insurance company model of offsetting costs for sick people with the premiums paid by healthy people, the reason for increasing premiums. And many other people, neither young nor healthy, are also buying the cheapest policy they can find because they can’t afford the cost (and maybe can’t understand the details); for these folks, it is not the insurance companies that pay the financial price, but themselves, when they get hospitalized or otherwise need costly care and discover that their “insurance” is inadequate (the technical term here is “crap”).

And this is just the health insurance contribution to high health care cost. Also very important is the cost of the care itself, particularly high-tech, high-cost care, provided to many Americans (at least those with good insurance coverage). This is driven, at least currently, by the fact that in most places, where insurance companies pay providers by piecework (“fee-for-service”), high-cost is also high-profit for providers, both individual physicians and the large institutional providers (hospitals and health systems) that often employ them. This blog, and a variety of exposés in many news articles including in the Times (particularly the work of Elisabeth Rosenthal) have given example after example of such incentives driving both the kind of care delivered and the cost of that care. In the worst instances, this is the result of rapacious greed that provides unnecessary care at very high cost. In many other settings, the opportunity for profit subtly (I hope) tips the scales toward providing high-cost, high-profit services rather than just as good, or almost as good, alternatives. But there are even more insidious drivers of cost; these are in the “everyday tests”, such as those done for screening, that in themselves, one by one, don’t seem to be excessive but multiplied by the number of people receiving them cost a lot (and make a lot of money for providers). The practice of ordering such tests is often driven by advocacy groups, providers in certain specialties and relatively small numbers of people with a specific condition who think everyone needs to be tested for it.

A good example is screening for lipid disorders (basically, high cholesterol) in children. Yes, some children have a genetic disorder which means that they should be tested and treated, but the vast majority do not and screening them (barring a history of familial hyperlipidemia or very early heart attacks) should not be done. It is not recommended by either the US Preventive Services Task Force or the American Academy of Family Physicians (AAFP), nor by the UK National Screening Committee. This example is discussed in an outstanding editorial in JAMA Internal Medicine by Thomas B. Newman, Alan R. Schroeder, and Mark J. Pletcher published on August 9, 2016, titled “Lipid screening in children: Low-value care”, preceded by the tagline “Less is more.” The authors contrast the USPSTF and AAFP recommendations to those of the National Heart, Lung and Blood Institute of the NIH, endorsed by the American Academy of Pediatrics, which recommends it. The authors of the editorial demonstrate the amazing lack of cost-effectiveness for this screening test, and note that is only because USPSTF does not consider cost-effectiveness that it gave the test an “I” (insufficient evidence to recommend for or against”) and not a “D” (recommend against testing).

But the most important point made in the editorial is that our recommendations for testing – and how to spend our healthcare dollars – are individually focused, and virtually ignore (and thus dramatically underfund) those interventions in public health and the social determinants of health that would truly make a major difference in the health of millions of Americans. The authors say it extremely well:

Tackling major public health concerns such as climate change, poverty, obesity, and gun violence is likely to yield high-value solutions, and many advocate policy and community-level interventions that might achieve such solutions. Meanwhile, other segments of our health care establishment continue to try to solve health problems by doubling down on individual-level health care solutions that tend to be low in value...The need for clinicians and leaders to focus on sustainability and health care value has never been greater, and it is likely that policy and community-based interventions will get us there much more quickly than adding more clinic-based interventions that have low value and are wasteful of resources and clinicians’ time.

We need to take this advice to heart. It goes way beyond lipid screening in children. It means supporting interventions that actually  improve the health of the public on a large scale. And, as always, “support” is spelled M-O-N-E-Y.

Solving Medicare costs and the budget deficit: primary care, cost-effectiveness, and universal health coverage

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According to the New York Times, “Here is a basic truth about the deficit: In the long run, it cannot be fixed, without reining in spending on Medicare and Medicaid.” In a December 11, 2010 editorial titled “Health Care and the Deficit”, the Times lets us know that Medicare, Medicaid, and S-CHIP (the Children’s Health Insurance Program that covers low-income children whose families are too “rich” for Medicaid) account for more than 20% of federal expenditures, more than Social Security or national defense; and that, if unchecked, will rise to 40% by 2035. To the editorialist this is obviously unacceptable, and s/he reviews the proposals of the two recent “bipartisan” commissions that have made recommendations to reduce spending on these programs.

Overall, the editorial is good in that it is very critical of the recommendations of both commissions. “The most disturbing element of both reports is that, in their efforts to show quick savings, they shift much of the burden from the federal budget to individuals or, in some cases, to states. That may make the federal deficit look better, but it is a shell game that produces no real reduction in the cost of health care.” Bowles-Simpson (the conceived-of-as-a-deficit-reduction-but-changed-into-a-tax-cut panel, previously addressed in my blog of December 12, 2010 Tax Breaks for the "Masters of the Universe" or for the rest of us? ) wants mostly to save money by having greater “cost sharing” by Medicare beneficiaries.

While, as the editorialist points out, there is something to be said for people with any type of insurance not being completely insulated from the cost when they opt for probably-unnecessary expensive tests, the fact is that the fault is much less often on the part of the patient than on the part of the doctors who recommend these tests. This is particularly true when those doctors have a financial interest in doing the tests because they are highly-reimbursed for them. If this is the problem, then regulation should address it directly, by having Medicare, Medicaid, and other insurers use cost-effectiveness criteria rather than taking the real risk that “people on modest incomes might forgo needed care.”

The other panel, Domenici-Rivlin (another “bipartisan” group headed by a conservative Republican and a conservative Democrat), also recommends cost sharing, and goes even further by taxing the cost of health benefits that workers receive. It relies on the idea that, with cost sharing, beneficiaries will restrain their own spending. They are likely to – even at the cost of their own health. It also resurrects the idea of vouchers for people on Medicaid.

Yes: Medicare, Medicaid, and the entire US health system spend too much money; and yes: the cost of what is called “health care” is squeezing out spending on other critical social programs, such as education. But the recommendations of these two commissions, essentially capping spending while continuing to reward private health insurers through their “market-based” solutions, will only exacerbate the problem.

Meanwhile, following on the heels of Massachusetts’ experience in not having enough primary care doctors – or other providers – to meet the health needs of its increased number of insured citizens, California is experiencing the same problem, without even having a state-wide health reform. Documented in the PBS News Hour report aired November 18, 2010, “In California, facing down a family physician shortage”, residents of that state cannot find the primary care doctors they need to provide cost-effective care, and it is anticipated to get “worse” with health reform. Paul Leight, a health economist at the University of California Davis, states “So, we have more than 20 million Americans who now don't have health insurance who will have health insurance. And once they get health insurance, naturally, they're going to want to see a primary care physician.“ Naturally. And we don’t have nearly enough of them.

But, of course, as has been it seems endlessly documented on this blog and by study after study, including for example the Commonwealth Foundation’s 2010 report “Mirror, Mirror on the Wall: How the Performance of the U.S. Health Care System Compares Internationally, 2010 Update”[1], the US spends far more (2-3 times more!) and gets worse health outcomes than all other developed countries. Commonwealth’s 2008 report shows that the US, in terms of health outcomes, did worse than in its original report of 2006, and spending has continued to increase. The biggest reason for the excessive cost in the US is that it is based in a system geared to profit, by insurers, drug and device makers, and health care providers (including hospitals, doctors, nursing homes, etc.) As I have pointed out (for example, in A Modest Proposal: Bribe the Insurance Companies, August 23, 2009), it is not simply the profit itself that causes the grossly bloated cost of US health care, but the inefficient system built to ensure the continuation of that profit. To suggest solutions based on increasing the role of private, profit-incented, players as a method of controlling costs is illogical. Increasing profits will come either from increasing costs or from decreasing access to care. This is not the way to go.

The goal must not be simply reducing costs, but increasing quality. The wonderful thing about health care is that our system is so bloated and inverted in its incentives and outputs – and in having far more tertiary than primary care -- that this seeming contradiction, reduce costs and increase quality, can be achieved. Different groups push for more primary care, limitations on high cost technical procedures, and a more rational health system based upon universal access and elimination of profit. Unfortunately, taken alone, each is inadequate. Here is what the evidence shows will work:

More Primary Care. We need a system based upon primary care, so that Massachusetts, California, and the rest of the country, can have the primary care providers they need. This is the focus of the Patient Centered Primary Care Collaborative (PCPCC). This means completely changing the financial incentives at every level that lead to production of more subspecialists. The “encouragements” for increasing primary care contained in ACA are inadequate. The key issue is the inverted reimbursement system in which procedure-based subspecialists make many times the income-per-hour of primary care doctors. The reimbursement system used by Medicare (upon which all other insurers base their reimbursement), currently controlled by a specialist-dominated advisory group, needs to change entirely so that potential income is eliminated from the specialty-choice decisions of medical students, and so that procedure-based profit is eliminated from the decision of hospitals about what kind of care and specialists they wish to support.

Cost-effectiveness payment. Tied to changing the mix of primary and sub-specialty providers and their reimbursement is for Medicare and other payers to not pay for, or not pay as much for, unproven high-cost therapies, whether those are new drugs or devices or unproven procedures. This does not mean denying access to some procedures or drugs across the board to all patients; it means appropriately selecting those who are most likely to benefit. This is a complex science, but an easy concept: what is likely to be cost-effective for me may well not be for you, because we are different, in disease, disease stage, intercurrent conditions, underlying reserve, etc.

Universal not-for-profit health insurance system. This is the sine qua non, the single necessary element for improving the health of all our people. It is not sufficient in itself, but without it there is no chance to control costs, or to implement reimbursement reform, or to effectively limit the use of high-cost, low-effectiveness and/or unproven technologies.

These will work, but need to all be done. Expanding primary care and limiting expenditures on high-cost procedures will not improve everyone’s health unless we have a university health insurance system that is not based upon profit; a universal health system without increased primary care or cost-effectiveness criteria for procedures will not achieve either goal of improving America’s health or saving money. They are all necessary legs for the stool of cost-effective, high-quality, universally-accessible health care to stand up.


[1] K. Davis, C. Schoen, and K. Stremikis, How the Performance of the U.S. Health Care System Compares Internationally 2010 Update, The Commonwealth Fund, June 2010.
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