What a great idea for a contest!
Let's begin with the fact that providers of care (doctors, hospitals, etc.) receive about 80 to 85% of the premiums paid to insurance companies. These payments are compensation for the services they render to their patients. The money paid to providers is commonly referred to as the cost of care. It is the cost of care that is escalating out of control and has the single most significant impact on the cost of insurance. With that said, the fundamental flaw of the Affordable Care Act is that it doesn't do anything to address what providers are charging for their services.
The solution for reducing the cost of care is rather basic. While I’m not an advocate of excessive government regulation in the private sector, I do believe two simple provisions should be added to the legislation and could replace most, but not necessarily all of the existing provisions. One provision, for example, that is important to retain is coverage for preventive care.
The first provision that needs to be added should require providers to fully disclose the net price for all services. Prices are not the same for everybody. They vary based on the arrangement your insurance has with their network of providers. Historically this information hasn’t been disclosed until after the services are rendered; when the bill is received in the mail. Think about it. Who buys a car without knowing the cost of in advance of the transaction? Price transparency is required for most other industries. Why not for health care? Why is it secretive and proprietary information? After all, the patient-provider relationship is theoretically a customer-supplier relationship. In other words, patients are customers of hospitals and doctors. Customers have the right to know what their purchase is going to cost them before they buy it.
The second provision that needs to be added should require all administrators and carriers to exclusively offer plans that will encourage consumerism among patients. For example, many people believe the cost of a doctor’s visit is only $20. Why? It’s because their insurance plan probably has an office visit copayment of $20. Plans with copayments need to be eliminated because they mask the true cost of the services being provided. With the exception of preventive care services, plans with 100% reimbursement also need to be eliminated. Services that are covered at 100% cause patients to perceive the services are free! This practice encourages unnecessary purchases. How many cars would you buy if you thought they were free? What kind of cars would buy if you thought they were free?
When patients begin to understand the true cost of health care services and are fiscally responsible for a percentage of every purchase they make they will begin to focus on value. This will change behavior and patients will become informed consumers of health care services which will drive competition in the market. The result: reduced cost of care and improved quality. Proof of this exists in the health care industry today.
An example is Lasik surgery which is typically not covered by most insurance plans. Patients have to pay for this service with their own money. As more providers began offering and marketing this service, the natural competition resulted in consumers driving down its price. Providers also began publishing their outcomes in an attempt to illustrate value and thereby attract more buyers. A more prevalent example is the cyclical pattern of prescription medications. As with Lasix surgery, "over-the-counter" medications are typically not covered by most insurance plans. When prescriptions become available “over-the-counter” their price is significantly reduced. Claritin is a good pharmaceutical example of this theory. The ingredients in the “over-the-counter” medications are the same as the prescription medications. Therefore the quality is the same but the cost of the “over-the-counter” medication is drastically less than the prescription form of medication. Why? Because consumers have to pay for it!
The legislation only focuses on insurance reform. It does not focus on health care reform. Insurance companies only keep about 15 to 20 % of the premiums they receive. On average three percent is retained for profit and the balance covers expenses like overhead and taxes, margin and reserves. The legislation needs to address the 80 to 85% of the premium that insurance companies pay to the providers for the services they render. It is the doctors and hospitals costs that are growing exponentially out of control!
When the cost of care is reduced as a result of true and pure competition, the downstream effect will be radically lower insurance premiums providing more citizens affordable coverage options. The final outcome will be less need for government subsidies which we all know translates into lower taxes!
I don’t understand why, with all the intellectual capital in Washington, this solution is not in the forefront. I do not believe it’s even been a consideration. I guess it’s kind of like an Ivy League scholar who struggles to solve a riddle that a five year old can solve in less than ten seconds. They are over thinking it. It is very basic. It’s Economics 101!