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How Insurance Companies are Destroying Healthcare

Health insurance companies are destroying the state of healthcare in the United States. This isn't a new occurrence - it has been slowly developing since its inception nearly a century ago. That's not to say that health insurance companies are intentional in the destruction healthcare. Health insurance companies in America are like any other business in a free market economy - they exist to earn a profit.

Health insurance continues to be a controversial social, economical, and political issue in the United States. For nearly 20 years, politicians have made outlandish promises to ensure "universal healthcare" or "Medicare for all". In 2010, President Obama attempted to expand the number of Americans with health insurance by signing into law the Patient Protection and Affordable Care Act. Over a decade later, the impact of this legislation on increasing the availability and affordability of medical care has been, at best, minimal.

Regardless of where you land on the political spectrum, liberal or conservative, everyone should carefully consider the meaning behind what these promises mean for all those involved. The stakeholders in healthcare are innumerable - they apply to all of us in one way or another. As long as you are a human, the healthcare landscape impacts you in a very personal way.

While you may believe everyone has a right to healthcare (or not), why is it that health insurance (not healthcare) is always seen as the primary solution. Ultimately, it is unhelpful to confuse the two ideas - health insurance and healthcare are not the same thing. Healthcare is the delivery of medical products and medical services. Health insurance is the management of financial risk for the healthcare consumer.

How Health Insurance Companies Operate

Most Americans consider health insurance to be some kind of discount program. The average person believes that by having health insurance, that they will somehow manage to spend less money on doctors visits, hospital stays, medications, or surgeries. This belief couldn't be further from the truth. In fact, if it were true that health insurance saves money, the health insurance companies would go bankrupt immediately.

Health insurance companies are remarkably similar to banks in their operation - their existence relies solely on the transactions of dollars and cents. They offer no additional products or services aside from accepting payments in the form of insurance premiums and making payments for submitted insurance claims. That's it - cash in, cash out.

So how exactly do health insurance companies stay in business? That's the most important question and the answer is very simple - they must accept more money in premiums than they pay out in claims. How can they do this? Is this even possible? The backbone of the insurance industry is the actuary - the professional mathematician who crunches numbers in the form of statistics. The actuary is responsible for making sure that the company can earn more money than they will pay out in the future - a sort of professional fortune teller, but with math.

The operation of a health insurance company is actually that simple. The complexity of their operations over the course of history has dramatically increased in an effort to decrease the amount of money paid in claims. These tactics implemented by the health insurance industry are precisely what is causing the destruction of healthcare, resulting in increasing costs, decreasing availability of care, only to guarantee their profitability.

Tactics Used by Health Insurance to Destroy Healthcare

Health insurance companies use very sketchy and questionable tactics to earn a profit. While they do not deserve to be vilified simply for being profitable, the implementation of unethical practices to do so should be criticized. These unethical practices have one goal in mind - pay less money in claims.

Tactic #1 - Just Don't Pay the Claim

Believe it or not, this is one of the simplest ways health insurance companies earn a profit - just don't pay. The legality of the practice is certainly worthy of consideration, but to question the existence of the practice is nothing less than naive. The practice may present itself in a variety of ways, but the intent is the same. For example, the insurance company may have a common practice where they will not pay a claim until the second submission or create a reason (valid or not) why the claim should not be paid. The company may implement or enforce rules that have been fabricated by one of their staff (frequently including one or more physicians, to appear legit) in an effort to reduce the number of claims paid.

Tactic #2 - Deny the Claim

The absolute worst practice legally allowed by the health insurance industry is the determination of medical necessity. Under the umbrella of "medical necessity", insurance companies have been given the ability to make decisions in determining what treatments or procedures are appropriate for any patient. These decisions aren't limited to what treatments are best for the patient, but also used to determine how many treatments can be done and how frequent they can be done. For example, it doesn't matter how many physical therapy treatments a patient needs, the health insurance company will not pay for more than 8 or 12 visits, whatever indiscriminate number they pulled from thin air.

Personal Anecdote: With my previous employer, there was one procedure code that was denied by the insurance company. The company stated that the diagnoses listed were invalid for this procedure, then citing a local coverage determination (LCD) issued by CMS as justification. None of the claims using this procedure code were ever paid, to my knowledge, despite the claims being resubmitted many times and despite the LCD being followed to the letter. Unfortunately, the insurance company was under no obligation to provide a reason for denial and we apparently were not entitled to one.

Tactic #3 - Create More Rules

Health insurance companies have become increasingly creative in recent years to make it more difficulty for physicians and hospital to receive payment. One of the ways they have done this is through the requirement of prior authorizations. "Prior authorization" refers to a practice where the insurance company must approve a claim to be submitted prior to the work being done. For example, the insurance company may require a prior authorization for a knee injection. If the injection was received by the patient prior to the authorization, the insurance company will not pay for the injection - even if the company authorized the injection. What is worse is that there have been insurance companies who deny the claim even when performed after the prior authorization was received!

Another sketchy tactic used by insurance companies is called "peer review". This is a practice where insurance companies hire physicians to talk to the physician submitting the claim. I'm not sure what purpose the review process serves except to take time out of a working doctor's day. My understanding from other colleagues is that peer review rarely results in claim denial, but I don't know for sure. I have personally never engaged in one of these peer review sessions - I refuse to give up the time I spend with my patients to work for the insurance company.

Tactic #4 - Claim Ignorance

This practice is one of the more subtle ones - claim ignorance. When a claim is submitted to an insurance company it is processed by a person who is not a medical professional. This person is responsible for looking at the codes submitted and determining whether or not the criteria were met for payment. While on the surface this seems a reasonable justification for some denials, the truth is much more ridiculous. For example, we had a claim denied for a knee x-ray but one of the diagnosis codes was "bilateral osteoarthritis of the knee", when the individual codes for each knee were also included in the claim.

The Impact of Health Insurance on Doctor's Offices

Doctors are becoming increasingly aware of the ability of health insurance companies to negatively affect their ability to deliver quality medical care to patients. More physicians than ever are establishing direct-primary care practices or concierge medicine practices that attempt to remove health insurance companies from healthcare.

The largest impact of health insurance on doctors offices involves overhead. The MGMA estimates that many solo private practice offices operate with overhead around 50-60%. Overhead simply refers to the cost of operation, including staff wages/salaries, cost of office space, equipment, etc. This means that for every dollar that comes into the practice, the physician receives 50 cents - or do they?

The average insurance-based medical practice maintains accounts receivables of around 70-80%. What this means is simple - the insurance companies are only paying 75 cents for every dollar of work performed. As a result, for every dollar earned by the practice, the physician only receives 37.5 cents for each dollar value of work performed.

In summary, the cost of accepting health insurance is likely not worth it. Given the data on account receivables, 20-30% of revenue will never be seen. In addition, outsourcing medical billing subtracts another 5-10%, which is supposedly cheaper than keeping billing in-house. In what other industry is a company expected to to relinquish 25-40% of all revenue just to exist. Keep in mind that this is before paying salaries, rent, utilities, etc. The numbers just don't add up.

So, here are the questions:

  • Is 40% of office revenue worth keeping the status quo for insurance companies?

  • What will be the breaking point for physicians with outpatient practices?

  • Will inflation be the straw that broke the physician's back?

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