In Part One, we looked at the overall dysfunction of the healthcare industry and the reasons for it. Here, we’ll continue to follow the money and look at the first two disconnects.
Condition of the Existing Healthcare Industry
At one time, individuals paid for treatment directly to the provider. Later, health insurance was offered as a means of spreading the cost of unexpected medical care among premium payers in order to help prevent financial ruin for individuals and families.
As a result, the healthcare delivery system has evolved into several distinct and separate sub-industries that only interact with each other when it is absolutely necessary, and do not see themselves as part of a larger collective in the way the people paying them do (or should).
In fact, the processes involved in paying claims has pre-empted the original patient/provider relationship and taken on a life of its own.
Consolidating the various activities required for sales and subsequent administration and payment of benefits can provide a firsthand view of the process from start to finish, and is a step toward lowering costs. Unfortunately this is actually discouraged, and in some cases, considered illegal. There is sort of a catch 22 here where separation of functions is recommended or required to keep people from stealing money, and the only way to view the whole process firsthand is to consolidate the workflow.
By whatever means, transparency leads to public scrutiny, which can help lower costs.
The system now embraces separation of segments for a variety of reasons.
The major segments are:
Those who pay: Policy holders
And those who get paid, from premium dollars that come in, before providers get paid:
Insurance agents, insurance companies/plan sponsors, government agencies (premium taxes and fees), billing companies/departments, pricing and medical review companies, and technology providers.
These people pay for everything. Unfortunately, there is a tendency to spend as little time as possible on the selection of coverage and providers of care. The net result is that all too many of us find out what our benefits cover (or don’t cover) after the fact when we use them.
We observed three major types of buyers:
- Those who are healthy but buy insurance to help cover any unforeseen illness or accident.
- Those who have had medical issues in the past but have recovered and want to help cover a new unrelated and unforeseen illness or accident.
- Those who know they are going to require medical treatment and want to buy insurance to help cover the costs.
The majority, regardless of personal agenda, appear to have some things in common:
- Apathy towards the total cost of treatment.
- Sense of entitlement to the extent that lying on medical applications is “no big deal.”
- Lack of personal involvement in monitoring total costs (an exception would be those who use Health Saving Accounts (HSA) as they were intended to be used).
As a result, buyers become enablers of downstream providers’ ability to help themselves to higher profits in an environment that is not transparent.
Agents, brokers, and agencies
Insurance agents are the link between buyers and insurance companies (payors). As we are beginning to see, attempts to extract this service from the insurance buyer’s available resources produces a void in the total buying experience.
They provide guidance for the people who pay premiums, and have significant influence on the amount of “money in.”
We observed two distinct types of sellers:
- Those who balance their responsibilities to the buyer and the company(s) they sell for.
- Those who work toward maximizing the commissions they make. This is disconnect number-one.
Insurance Companies/Plan Sponsors
Premiums are paid to an insurance company or gathered on behalf of a self-funded plan. They are part of “money in” and “money out.” All costs for selling and administration are separated out, and the remaining funds are used to pay claims for services. This process has become extremely complex. It includes internal and external controls, and government regulation, both federal and state.
There appears to be a common belief among many policy holders that that there is a big inexhaustible pile of money somewhere for paying claims that is somehow unrelated to premiums they pay. The fact is that this pile of money consists of premium dollars paid by members. This is confirmed by raises in the premiums members pay at renewal. This is disconnect number-two.
Part Two Summary
Complexity involved in the way healthcare dollars are gathered and made available for healthcare claims has led to loss of transparency. In Part Three, we will look at the delivery of payment to providers.