Thursday, July 1, 2010

Today’s Health Insurance Has Perverse Incentives

Whether we have commercial insurance through our employer or Medicare, the incentives are poorly aligned to lower costs and improve quality. In fact, they actually encourage greater and greater expenditures. In most instances, our insurance covers everything from prevention to basic routine care to complex care of serious illness. Coverage may not be all that good for some things like preventive care and our primary care physician feels underpaid for routine visits but nevertheless we basically have “prepaid medical care” meaning that insurance is designed to go from A to Z. And we are not the client contracting with our physician. We get our insurance through a third party – employer or government – and although we may pay for part of it, we do not feel a contractual arrangement with our physician. Not does the physician. He or she has a “contract” with the insurer, not us.

Since we have “prepaid” care, we have no incentive nor does our physician to look for ways to reduce the costs. Yes, we may have a co-pay or a small deductible but that does not really get us thinking much about what is being proposed for our care.

Take drugs. Let’s say you need an acid suppressor for reflux esophagitis [acid reflux or GERD.] Your doctor could tell you to go to the grocery store and pickup Prilosec for about $30 for a months supply. Or, he or she could give you a prescription for Nexium. It would cost about $150 for a two week supply and is no better than Prilosec. But your insurance will pay for it except for your co-pay of, say, $15. So your doctor will probably suggest Nexium since it will cost you less. But the overall system is paying out a huge amount more than necessary. What a perverse incentive.

Much better if we all had insurance with a high deductible. [In practice this might mean a general insurance policy and a separate medication insurance policy as with Medicare; but each would have its own high deductible.] In that situation we pay less for the insurance and self insure for the deductible, just like car collision insurance. Now we are focused on cost effectiveness. We would purchase the Prilosec at $30 and save $120 off the cost of Nexium. Better still would be having the physician actually spend time with us to talk about preventing the reflux in the first place. Here again, if we were paying out of pocket for our routine primary care, we would expect our physicians to spend the time with us to review the following – don’t eat just before going to bed; avoid caffeine before bedtime; cut back on alcohol; avoid spicy foods; and put the head of the bed up on 4 inch blocks. These don’t cost anything and generally will solve the problem without the need for any medications. Now that is real cost effectiveness.

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Praise for Dr Schimpff

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