In the 1960's and
70's, the "great insurance experiment" took place. Insurance companies
wanted to determine which payment schemes were the most effective for
healthcare dollars spent and medical services delivered. The insurance
industry contracted with RAND, a healthcare research organization in Santa
Monica, California to study this.
Several medical plans
were studied. At one end of the spectrum was the plan in which patients
paid 100% of their health care expenses; at the other end was the plan
in which patients' employers paid 100%. Within the range were various
combinations of deductible and co-payment plans. For example, some plans
had a 20% co-payment by the patient and 80% by the insurance company.
The study determined that when patients paid a deductible prior to the
insurance company paying, services were delivered efficiently and in the
most cost-effective manner for patients, employers, doctors, and insurance
companies. The insurance companies then adopted the deductible and co-payment
method as suggested by the study findings, and for a while, things worked
as planned. Healthcare was delivered and cost was manageable.
An Experiment Gone
Wrong
Over time, healthcare dollars became more competitive. No one had expected
doctors to search for ways to make their practice more affordable and
desirable to their patients. Originally, doctors received 100% payment
in full from the patient, and the patient then submitted the bill to the
insurance company for reimbursement. For example, if a patient was scheduled
for three weekly visits over four weeks at $50 per visit, the cost amounted
to $600 per month. Paying for medical services up front meant that patients
needed a large cash reserve while they waited for the insurance company's
partial reimbursement. This could be a heavy financial outlay, especially
for patients under continuous care.
To entice patients,
doctors offered to bill the insurance portion if the patient paid the
co-payment amount. The doctor saw more patients because services were
more affordable to the average person. It was easier for the patient to
pay 20% of $50, or $10 per visit ($120 per month for three visits per
week), while the doctor waited 30 days to be paid for the 80% balance
or $480 in accounts receivable.
As more doctors did
this, competition for patients increased. To further increase their attractiveness,
some doctors waived the co-payment and accepted the 80% insurance reimbursement
as payment in full. Thus, the patient's only financial obligation was
the deductible. Eventually, doctors began waiving the deductible as well
as the co-payment and accepted the insurance portion as full payment.
Without patients paying
the deductible or co-payment (a built-in cost containment method), doctors
made up the loss by over treating and over billing of services. Thus,
the cost of health care escalated, and a vicious cycle ensued. Doctors
billed for unnecessary and/or unperformed services; an increasing incidence
of malpractice lawsuits caused a dramatic increase in the number of sophisticated,
costly (but sometimes unnecessary) diagnostic tests; and the cutting edge
technology required for such tests was expensive. As a result, insurance
companies began to pay more for their members' care.
Hospitals and doctors
purchased the "latest and greatest" technology to try to keep their patients,
only to discover that they were unsuccessfully competing against each
other for patients' healthcare dollars. Soaring costs were the result
of duplicate technology and ever-increasing malpractice insurance. This
increased cost of healthcare was ultimately passed on to the patients.
The insurance industry's "great insurance experiment" had gone awry and
administrators were hard pressed to find the answers.
In Comes Managed
Care
In the early 1980's, approximately 80% of the health insurance available
was indemnity insurance, which means that the insurance company paid upon
demand with no limits. During the 1980's, managed care companies began
organizing and marketing their new healthcare delivery designed to reduce
costs and curb over-utilization.
By the end of the
1980's, 80% of the health insurance overage was delivered through some
form of managed care, including Health Maintenance Organizations (HMO's),
Preferred Provider Organizations, (PPO's), Independent Provider Associations
(IPA's).
1999 -- welcome to
managed care. Due to the factors mentioned above, managed care is here
to stay. However, a re-evaluation of the benefit of managed care relative
to quality of care delivered has begun. There seems to be an evolution
towards something like indemnity insurance, yet due to economic pressures,
it will never fully reach that point. How it ends up is anyone's guess.
Today's Insurance
Trend
The current trend in healthcare insurance is giving patients the option
for a traditional indemnity plan with a deductible and co-payment or the
managed care option. If a patient stays with the HMO providers, he or
she patient can pay the $5 or $10 office visit fee with no deductible.
Patients can also go to a non-HMO provider of their choice or doctor's
recommendation and simply pay the deductible and co-payment. This gives
patients and doctors a choice and more flexibility.
For providers who
might be thinking about participating in a managed care panel, here are
some issues to consider. First, take a look at the potential benefits
and negatives, as it could be a tremendous benefit to your practice or
the biggest mistake of your professional life. The primary factor to consider
is whether you can make an acceptable living with the fee reimbursement
the managed care offers. The answer depends on the actual cost of seeing
a patient in your office. If the HMO or IPA is offering a fee schedule
you can live with, then sign up for it. If not, don't sign up for the
panel. To help you do this evaluation in a step-by-step method, read "Should
I Sign-up with the HMO's?".
