Deductibles v. Co-Pays
In a "traditional" health insurance plan, you typically have to pay a certain amount of health care expenses out of pocket at the reduced rate that doctors and other health care providers charge patients with insurance, and then a percentage of that price (typically 20%, but sometimes as much as 40% and sometimes as little as 10%) of the balance, up to a maximum out of pocket cost amount. These out of pocket costs are called "deductibles" because they are tax deductible if you itemize your deductions on your tax returns and more than 7.5% of your adjusted gross income went to out of pocket medical costs.
In an HMO plan, you typically have to pay a co-pay of a fixed amount for specific services. Typically, there is one amount for a primary care physician visit, another for a specialist physician visit, yet another for an urgent care clinic visit, another for an ER visit and another for a day in a hospital up to a certain cap. There are also usually two to five classes of drugs, each with a different co-pay amount for a month's supply (and a reduced co-pay if you purchase the drugs via a mail order pharmacy). The HMO pays the balance of the the provider costs.
Once upon a time, the traditional plan also offered a great deal more freedom to patients to choose their doctors. But, this is largely a thing of the past. These days, there is typically a preferred provider list and a patient pays a substantially larger share of the cost for using one under either type of plan.
Historically, HMO co-pays have been low, on the assumption that people in these plans have fewer funds to pay for out of pocket costs. But, one of the big attraction of a plan organized around co-pays, even if the co-pays are high and offer little insurance company contribution to the cost of care other than catastrophic care, is that they simplify the maze of health care pricing.
If you have a traditional plan, there is no easy way to determine what providers will charge. As a story I heard on NPR last week noted, many providers don't even know what their offices charge for the services that they provide. Physicians, hospitals and pharmacies almost never make their charges for particular services available to the general public, and even when they do, they generally quote the price that they charge uninsured patients who don't pay cash which only a small percentage of their patients actually pay.
In contrast, with HMO style co-pay pricing, you know up front what you will pay for particular services, and those prices are simple enough that someone who is not a health care professional can understand them, that a cheat sheet can fit on a credit card sized piece of plastic, and that a quite complete summary can appear on a few photocopied pages.
Even if the co-pay for a primary care physician visit is $75 and the co-pay for a specialist physician visit under an HMO style plan is $200 (both of which are far more than the co-pays under most HMO plans), you know what to expect and the actual amount that gets paid to the physician's office is not your problem. In contrast, in a traditional type health insurance plan, you never know when an unannounced rate change for a service will affect you and usually don't know what the charge was for the services you received until after you get the bill, and there are routinely problems involved in determining the correct amount.
An HMO plan limits risks to the patient to those disclosed in advance, and leaves the insurance company with the risks that it is in the best position to control, those involving the actual charges from providers.
It seems to me that there is a place in the market for an HMO structured plan with high co-pays, a health care savings account and lower premiums that would provide incentives similar to that of the package of a health care savings account coupled to a traditional style plan with a large deductible before any coverage kicks in, but with less of the billing hassle and easier to understand financial obligations for patients. Equally important from the insurance company's perspective, by being clear, a high co-pay HMO plan would probably have even lower participation from insureds who anticipated having high provider utilization, which would tend to reduce expenses and drive down premiums more than an economically equivalent plan that lured in people who underestimate what providers actually charge for their services in a more traditionally structured plan.
Few things are as frustrating as seeing incompetence by provider billing departments (often outsourced themselves) and insurance company claim processors escalate to the point where the provider asserts a right to hold you, the patient, responsible for charges that are supposed to be covered by your dreadfully expensive health insurance policy.
The utter disaster that is medical billing and pricing uncertainty associated with health care often rivals high premium and high out of pocket costs of a health care plan. As bad as insurer Assurant seems to be in processing big claims, their latest product, which promises to replace point of service billing with a monthly statement clarified with a personal health care advocate, by promising to reduce the bureaucratic hassle associated with health care billing is attractive.
When markets work, they work because they provide economic decision-makers with information. But, if economic decision-makers, like patients using health care, don't have good information that they can understand, then market approaches don't work.
Against the AGI Cap
The 7.5% of AGI cap on deductions of out of pocket health care costs really makes no sense when one can fully deduct out of pocket health care costs without this limit, even beyond what would ordinarily be tax deductible, with low deductible health insurance policies, with flexible spending accounts, and with health savings accounts (to name at least three options). While the notion of making it unnecessary for most patients to save health care receipts and the associated administrative burdens for tax purposes may have once made sense, it would be better if it were possible to get the same tax treatment of the same out of pocket expenses without paying fees to third party intermediaries to get it.
This would be a tax simplification measure that might actually produce net economic benefit by reducing the dead weight loss induced by the current tax code to involve third party bureaucracies in routine out of pocket medical expense payments.
Is There An App For That?
It probably already exists, but if it doesn't, I'm sure that there will soon be smart phone applications to locate health care providers on preferred provider lists, customized for the phone user's particular health care plan.
It would be interesting to see what the ranks of "non-preferred" health care providers who don't have contracts to provide reduced rates to insurance companies look like. In what medical specialties are they most common? Do they do medicine differently? Do they produce better medical outcomes? What kind of patients do they serve? How much do their charges differ from preferred providers?
Certainly, there are whole specialties (cosmetic surgery and abortion providers, for example) that are overwhelmingly not on preferred provider lists. My sense is that the proportion of psychiatrists on these lists is also low, while it seems that most "bread and butter" specialties like OB/GYN, pediatrics, and cardiologists, for example, are on preferred provider lists.
The prevailing assumption is that providers not on these lists charge much more, service affluent service-oriented patients, and provide services that are in some qualitative way better. But, it also isn't clear that these assumptions are really supported by the data, and I would be hard pressed to guess what proportion of physicians aren't on major insurance company preferred provider lists.
Medicaid and Medicare Provider Reimbursement
Of course, one of the other great mysteries of modern publicly funded health insurance programs is that providers can opt out of providing services to Medicaid and Medicare insured patients, and that those programs pay below market rates for services (understandable given their large market share) and pay different rates for the same services (Medicaid reimbursement rates are the lower than Medicare or private insurance or uninsured patient rates).
It doesn't make sense that two federal government sponsored health care programs should have different reimbursement rates for the same services.
The studies I have seen suggest that Medicaid reimbursement rates are below cost, that Medicare reimbursement rates are at cost, and that private health insurance patients pay a premium to make up for Medicaid reimbursement rate related losses, charity care and bad debt from uninsured patients.
It isn't that I don't see some of the reasons. If Medicare patients didn't have Medicare they would usually be paying their physicians similar amounts, and they have essentially 100% of the market share for patients over age sixty-five so a large deviation between costs and charges would be unsustainable in many kinds of practices. In contrast, Medicaid patients make up a minority of people needing most kinds of care, so physicians can stay in business without them, so they can afford to not serve these patients rather than being forced to lobby for higher costs.
The cost of increasing Medicaid reimbursement rates is immense. It is one of a handful of programs that has grown much faster than inflation, overwhelmed state budgets, and has become a larger and larger share of the federal budget. And, the visible beneficiaries of increased reimbursement rates are physicians, not the poor, who benefit invisible and indirectly from having more health care options. Still, one can't expect to get something for nothing.
From state and federal politician's perspectives, it is easier politically to cut reimbursement rates for providers than it is to cut the services that Medicaid provides. But, as fewer and fewer providers are accepting Medicaid patients it is becoming clear that this isn't a sustainable approach.
And, the American Association of Retired Persons (a major Medicare lobby) is much more effective in Congress and state houses than the American Association of Poor People (there is no such thing). Unions, the biggest lobbying force for people of relatively ordinary means, are still largely devoted to helping people who have decent steady jobs at least most of the time.
One of the biggest political arguments for universal or categorical approaches to the welfare state, as opposed to means tested ones is that they provide a large political base of beneficiaries and service providers for those programs that incidentally ends up providing better funded and better quality services for the poor who often can't lobby for themselves.
Some of the highest quality care in the country comes from physicians who are on salary, rather than being employee-owners in their practices. Mayo Clinic, for example, operates this way. These physicians actually get paid considerably less than the highest income earning physicians who are routinely self-employed.
Self-employment for physicians, and for lawyers for that matter, has been justified historically as a matter of preserving autonomy in professional judgment. In practice, health insurance programs, professional minimum standards, and drug company incentives, to name just a few, routinely limit professional judgment for physicians, but self-employment remains the norm.
This has been very good financially for physicians as a class. They have received entrepreneurial profits, in addition to ordinary labor market compensation, as a result. But, it hasn't necessarily been good for the economics of health care or the quality of care.
People don't go to medical school because they have a talent for running a small business, and medical school prepares doctors to be small business people far less than law school prepares lawyers to be small business people, even though lawyers are considerably less likely to run small businesses than doctors.
This means that most doctors spend lots of time on administrative matters that they don't have much comparative advantage in providing and frankly aren't very good at on average, leaving them less time to do what they were trained to do.
The abysmal state of medical billing, the routine long waits in doctor's offices even for pre-scheduled appointments, significant levels of dubious tax positions taken by physicians, and the failure to most physician's offices to follow basic "by the book" accepted "checklist medicine" practices that have a big impact on medical outcomes despite high levels of personal expertise, are all symptoms of the problems caused by having physicians rather than expert business administrators usually run medical offices.
Removing barriers to non-physician management of medical offices might be one way to improve the quality of health care and physician satisfaction, while reducing provider costs (of which physician compensation is the largest component). Movements to improve administration quality, such of the rise of urgent care clinics and ambulatory surgery centers, are examples of these trends.
Preventative v. Diagnostic Care
Normally, both preventative health care services, like vaccinations, and diagnostic care, like sick kid visits, are both provided by primary care physicians. But, preventative care, because it is predictable and narrow, can be provided by people who are far less expensive than diagnostic care, where the ability to spot uncommon conditions is critical. Would it be possible to further decouple the two and reduce costs?