Exploring the Feasibility of Providing Health Care Devoid of Health Insurance Firms
Exploring the Feasibility of Providing Health Care Devoid of Health Insurance Firms
Following the mysterious killing of the CEO of UnitedHealthcare, many experts swiftly denounced the act.
"Murder is wrong, and wrongdoers should never be glorified," opined the renowned liberal economist Stephen Kinsella. "Absolutely not."
However, Kinsella then presented a rather satirical portrayal of the U.S. healthcare system: "It's a system where the general public shoulders the burden of major medical expenses. Yet, this public money diverted through private companies, who take a slice, spend excessively on administration, and strive to deny care to those who truly need it."
What advantages do private health insurance providers offer in exchange for the fees they accumulate? Many Americans may be unaware of the extent to which they expose themselves to the "delay-and-deny" strategy that private insurers frequently employ to skirt paying for care, wrote Kinsella.
For several years, Kinsella has advocated for a single-payer healthcare system—often drawing attention to Canada as an example to emulate. In Canada, there are no health insurance firms. When Canadians receive medical treatment, the cost is covered by the government—usually with minimal questions asked.
If Canada can manage without health insurance companies, could such an arrangement work in the United States? Not in a manner appealing to the majority.
Healthcare Challenges in Developed Nations
There are three issues with the doctor-patient relationship in all developed countries, regardless of how the payment system is structured.
First, when a third party covers the expenses, there's no incentive for either the doctor or the patient to consider cost-benefit analysis when deciding between pricey tests (like MRI scans, for instance). Since cost doesn't impact the patient, even a small benefit, no matter the cost, is deemed desirable.
Second, doctors undertake more procedures in a fee-for-service arrangement (as is the situation in both the U.S. and Canada). Consequently, doctors have a motivation to over-provide, just as patients have an inclination to over-consume.
Third, medical negligence liability poses a significant issue, particularly in the U.S. A doctor who orders an unnecessary MRI scan faces no repercussions. On the other hand, a potential failure to order a necessary MRI scan raises concerns about a missed diagnosis that may worsen with time. Hence, our legal system fosters the proliferation of unnecessary tests and procedures compared to a system where costs would be justified by proportionate benefits.
These three adverse incentives can escalate medical care costs, necessitating higher premiums or taxes or both.
Rationing of Care in Canada
Canada controls these incentives by limiting resources. A typical Canadian GP, for instance, doesn't possess radiology equipment and must send patients to a hospital for basic x-rays. Hospitals, in turn, operate under budget constraints that cap spending, regardless of demand.
Canada ranks 25th among 29 nations in terms of MRI scanners per capita. As a result, the wait for an MRI scan is nearly three months, and the wait for final treatment exceeds six months. The government deliberately restricts MRI scanner availability to prevent overuse.
Canada's system of restricting healthcare resources and compelling doctors to ration care has several unpleasant aspects. The system favors high-income patients over low-income ones. It favors white patients over racial minorities. It favors urban residents over rural dwellers. It favors well-connected individuals over those without connections.
Quite possibly, healthcare access inequality is more pronounced in Canada than it is in the United States.
How Aggressive Are U.S. Insurers?
Though there are complaints about pre-authorization requirements and denials, one could argue that U.S. insurers aren't being aggressive enough. Estimates suggest that one-third of U.S. healthcare expenditure is wasteful. Eliminating all this waste could provide nearly $5,000 per person annually.
One might assume that in countries with rationing, like Canada and the U.K., doctors are compelled to be more efficient—prioritizing resources to ensure that the most beneficial procedures are performed first. However, studies conducted by the RAND Corporation found otherwise. In Canada and Britain, researchers detected just as much unnecessary care (as a percentage) as they did in the United States.
Then there's fraud—a particular issue concerning government-administered programs. In Medicare and Medicaid, for example, fraud is estimated to cost at least $100 billion annually.
Upcoding in hospitals—claiming a higher level of patient severity to secure a higher insurance payment—is another problem. One study suggests that increased upcoding (relative to a decade ago) was responsible for $14.6 billion in hospital payments.
While doctors criticize claim denials, hospitals are far more problematic.
Suppose a patient's condition is stabilized in an ER. Then, the appropriate move is usually to send the patient home for further outpatient care. However, some hospitals retain the patient for an additional night or two and attempt to bill the insurer for the unnecessary expenses.
Suppose a patient's condition merits their stay in an "observation bed" for a night or two. Some hospitals will treat the patient as a full admission and attempt to bill the insurer at an exorbitant rate instead.
Here are a couple of strategies some hospitals employ to inflate healthcare costs within our system. When insurance companies dismiss these expenses and decline to cover payments, they are performing a beneficial social duty.
The cost of this task isn't excessively high. Contrary to allegations that profit is prioritized over people by health insurers, their profit margins are actually significantly lower than the average enterprise found in the S&P 500.
The Role of Pre-Authorization
A significant instrument private insurers employ to prevent unnecessary spending and inappropriate care is mandating pre-authorization for specific medications, therapies, or procedures. Generally, physicians view these processes as bothersome and aggravating. However, it's worth noting that only 7.4% of patient appeals in Medicare Advantage and Medicaid managed care plans are denied initially. Moreover, over 83.2% of these overturned denials occur during appeals.
If you study health policy literature, you might be led to think that denial rates are a unique challenge in Medicare Advantage. In contrast, the denial rate in Medicaid is more than double that of Medicare Advantage.
Some policy-makers have chosen to focus on the use of AI in generating denials. At the same time, some doctors are now utilizing AI to file their appeals, significantly reducing time spent on the process and increasing the success rate. Both developments should be praised if the goal is to streamline the system as a whole.
In summary, our healthcare insurance system can be enhanced, and the Goodman Institute researchers have offered various means to achieve this. However, we can't have an efficient system without companies that fulfill the functions currently performed by health insurers.
Moreover, the public seems to comprehend this. Regardless of occasional complaints, more than two-thirds of Americans view their health insurance favorably, rating it as "good" or "excellent." This sentiment is consistent across all types of insurance, including employer plans, Obamacare marketplace plans, Medicare, and even Medicaid.
Even individuals who claim to be in poor health (and presumably require medical care) often offer positive appraisals of their health plans. Only a minute percentage rate their coverage as "poor."
In conclusion, this is a positive development.
In contrast to Canada's healthcare system where private health insurance companies are non-existent, the U.S. relies on private insurers who often employ strategies to skip paying for necessary care, a concern highlighted by economist Stephen Kinsella.
Medicaid, a government-funded health program, is subject to significant fraud, estimated to cost at least $100 billion annually, according to some sources.
Pre-authorization is a tool used by private insurers to prevent unnecessary spending and inappropriate care, with only 7.4% of patient appeals in Medicare Advantage and Medicaid managed care plans initially denied. However, over 83.2% of these denials are overturned during appeals.