From: konstan@saturn.cs.umn.edu (Joe Konstan)
Newsgroups: misc.consumers
Subject: Re: Doctor ripoff, or just reality?
Date: 17 Nov 92 01:01:32 GMT
Article-I.D.: news2.1992Nov17.010132.6974
Distribution: na
Organization: Department of Computer Science, University of Minnesota

In article <CURT.92Nov16173338@vtucs.cc.vt.edu>, curt@vtucs.cc.vt.edu (Curt Tilmes) writes:
|> In article <1992Nov13.061347.4826@cbnewsc.cb.att.com> kapa@cbnewsc.cb.att.com (k.a.perkins) writes:
|> >   It is quite clear to me what my insurance is not
|> >   going to pay for, like preventative medicine, for example.  My insurance
|> >   will not pay a dime for vaccinations, but if I or one of my dependents
|> >   got polio or tuberculosious (sp?), they would pay big time.
|> Why do you need insurance for a 100% probable cost?  There is an
|> overhead cost for every dollar that you (or your employer) pays the
|> insurance company, who then pays the doctor.  If you know you are
|> going to have to make some payments, just keep that money out of your
|> paycheck yourself.

This argument keeps recurring.  To summarize:

	"Insurance" is a way of buying out of risk.  You should therefore
	have as high a deductible as you can afford, as well as co-payments
	if possible, to reduce your insurance cost while maintaining
	a barrier against unacceptable calamities.

I disagree with the idea that medical coverage is, ever was, or should be
insurance.  I know that it is run in an insurance-like fashion, but most
people want and expect to purchase (or get from their employers) a package
of medical care.  This is expected to include routine care as well as 
emergency care.  The model is not insurance, but rather a  service contract.  
I pay $X a month, and the nice people with the sharpened pencils agree to
cover my medical expenses (perhaps subject to some predictable co-payments).

Now, if you think of medical care as a service contract, it should be clear
that there are all sorts of benefits to be had by including almost all
routine procedures in the "covered" category.  Since the insurer buys in bulk,
it should be able to negotiate a better price on vaccines and other 
preventive care.  Also, the cost goes down in the long run if prevention is
heavily encouraged.  I'd even suggest it might be "required" in the same way
that regular oil changes and maintenance are required for cars under
long-term service contracts (extended warantees).

Basically, I think in this matter the good HMO's have been leading the way.

Why isn't this the way things are handled now?

1.  Too much "surface price" competition.  A lot of non-HMO medical insurance
    is interchangeable enough that companies can quickly switch to cheaper 
    insurers or policies.  As a result, the pitch is to keep down the 
    "official" price while boosting the actual cost to the enrolled.

2.  Prevention only pays for the long-term.  Companies don't save money by
    paying for preventive care unless they expect to keep the same
    customers for a long time.  For example, the Graduate Student Health 
    Insurance Program (GSHIP) at U.C. Berkeley pays for no general physical
    exams.  Economically, that makes sense.  The odds are that you will be 
    covered by someone else by the time any problems arise.

3.  Remote decision making.  All the decisions are made too far away from the
    actual customer/patients.  Company personnel departments and insurance
    underwriters have their own agendas.

What solutions are there?

I think there are a few that have merits--but they need wide implementation.

1.  HMO's are one good idea.  They aren't perfect, but they cover some
    of the problems well.  They could even go further by rewarding clients
    for pro-health activities (regular check-up, lose weight, quit smoking,
    ...)

2.  A good health history should be a tradeable asset.  Perhaps a person 
    that is changing insurers should be reviewed, under standard criteria, and
    the prior insurer is paid a certain bonus by the new one for a good
    health history.

3.  Health care must be nationwide, and should be portable between employers.
    Portability will increase the benefits to insurers of providing 
    prevention since they will be more likely to have long-term
    relationships.

4.  Medical costs must be brought back in-line.  The market should handle this
    with a combination of group discounts, HMO's and different cost structures
    based on malpractice suit caps (i.e., I agree not to sue for more than
    $100,000 in non-direct damages and get a lower price).  If this doesn't
    happen directly, it may take some government trust-busting to bring in
    competition.

5.  Sane employee benefits.  It is absurd that I pay the same to cover me
    and my wife as for me, my wife, and 12 kids.  It is also absurd that
    few employers provide real economic incentives for employees to choose, or
    be eligible for, reduced cost insurance.  I think that benefit accounts, 
    convertible to dollars, are the right way to go.

Well, I've rambled on about what I think.  
Now, looking at health coverage as a service contract, do any of you change
your minds?

Joe Konstan
konstan@cs.umn.edu