The following guest post comes from Judy Strachan. Judy is a member of the Society of Actuaries and a Specialist Leader of Human Capital Advisory Services Total Rewards at Deloitte Consulting LLP.

“Ask yourself this: Other than medical (or dental) insurance, is there any insurance product on which you expect to make a claim every year? Undoubtedly, the answer will be, “Of course not.”

This is a thought provoking quote from an article by actuary Jim Mange, entitled Prepaid Medical Care And Medical Insurance. This article is part of a series of essays on our health care system which are available on Society of Actuaries’ Web site: http://www.soa.org/library/essays/health-essay-2009-toc.aspx. Each of these essays presents a different perspective on the problems with our current system for providing and paying for medical coverage.

It comes as no surprise, the current health care system is not working for any of the parties in the system; employers, medical providers, health plans and health insurance companies and especially not for the consumer.  More clarity is needed to help solidify a new path for healthcare reform.

For the consumer, the current billing practices of providers and payment practices of insurance companies often result in the highest charges being applied to the individuals least able to pay, the uninsured. Even for the insured, understanding the plan benefits, the provider bills and the claim payment process is a major challenge! Personally  – even though I consult with health plans and health insurance companies daily and understand the claim process and the terminology, I still find the process challenging.

I have the misfortune to be part of the population least satisfied with our current health care system, individuals with chronic health conditions that require frequent medical care.  For this group, our lives depend the most on the system working.  Each medical service requires me to sort through multiple pieces of paper in an attempt to understand what was paid on my benefit claim, why that particular amount was paid and how much of the remainder is my responsibility versus amounts the service provider is expected to contractually write off.  Because my medical providers seem to be equally confused, I am frequently billed for things my health plan says is not my responsibility. For example, correcting the claim payment, correcting the bill and finally paying my medical bills often seems to be an exercise in frustration and futility.

Medical providers, especially many public and community not-for-profit hospitals are closing or struggling to survive. Many of the health plans, for which I consult, are operating on paper thin margins. Grocery stores have higher profit margins as a percent of revenue than some of my clients. Employers are struggling to maintain benefit plans for their employees in the face of double digit annual increases in their costs.

As Mange points out in his SOA essay, the incentives of the current health system are rewarding bad behavior:

• Because the benefits are paid by a third party for most of us, we as consumers have little incentive to control costs and very little access to information that would help us understand in advance the cost of the services and whether the services are really necessary or even in our best interest. The book Overtreated by  Shannon Brownlee provides a chilling perspective on the impact of excessive medical care on our health and well being.
• Because reimbursements to providers are based on the services provided, medical care providers have an incentive to prescribe more rather than fewer procedures for their patients.
• Health plan administrator’s costs are high because for each claim they receive, even the smallest ones, they must answer a series of difficult questions: is this patient covered by our plan, are these services covered by the plan, were these services medically necessary and appropriate for the individual, were the charges reasonable.

So where do we go from here? Mange’s essay highlights some steps I believe are key in moving forward.

• Educate policymakers and the public that medical insurance should be like other insurance, frequently bought and rarely used.
• Effect legal and regulatory changes that differentiate between prepaid medical care (i.e. payment for routine annual doctor’s visits and medical tests) and medical insurance.
• Require that costs be transparent.
• Require that insurance reimbursements be based on outcomes, adjusted as appropriate for complications.
• Encourage, but do not mandate the purchase of prepaid medical care.

Related posts:

1. More Responsible Patients=More Accountable Providers
2. Life in the Trenches of the Health Insurance Business
3. Blog Roundup: President Obama's budget plan for health care reform
4. Thoughts on a Single Payer System
5. Top 8 Reasons Single People Don’t Buy Health Insurance — And why they might want to reconsider that decision

This entry was posted on Monday, September 28th, 2009 at 7:30 am and is filed under Cost, Guest Posts, Health Reform, Insurance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.