In the days of old it was “insurance”

I recently retired after working in corporate employee benefits for over 47 years, much of that time spent managing, designing and administering employee health benefits.

Like many employers in the US, my company first offered health benefits in the 1940s, back then it was hospitalization and medical surgical coverage.  It pretty much stayed that way until 1961 when the idea of major medical coverage was first introduced.

The hospitalization provided full coverage up to a limited number of days.  Medical-surgical coverage paid for physician services rendered in the hospital, but the fees were based on a fixed schedule.  I recall when my first child was born the allowable fee was $350 for the obstetrician.  The basic coverage also provided limited and fixed benefits for x-rays and a whopping $25 for laboratory work.  There was no financial incentive to run test after test and the patent had a clear stake in the cost.  Hey, it was “insurance” after all. On the other hand, there was also a strong incentive to provide services in the hospital (unintended consequences).  We became a bit smarter and later provided basic coverage for outpatient services.

With the introduction of major medical coverage with a deductible of $100 (which should be $712.10 in 2008 general inflation dollars), the plan paid 80% of charges up to an annual out of pocket maximum of $10,000.  Coverage expanded to include office visits, services not covered or limited under basic coverage, medical supplies and prescription drugs.  Note, no co-pay for prescriptions, just part of the overall mix. While an office visit was only $5.00 back in 1961 (which would be $35.61 in 2008 applying general inflation), utilizing co-insurance made sure that the patient had a stake in the cost.  Not maintaining the deductible in parity with inflation resulted in other unintended consequence, but even back then the typical viewpoint was that health care bills were someone else’s responsibility (an idea that is even stronger in 2009).

Health and Wellness 101
Health and Wellness 101

In 1970s, we (and I use the word “we” collectively for much of the employer community) made the biggest mistake of all; we moved from a fee schedule for physician services to what then were called reasonable and customary fees.  Most plans paid at the 80th or 90th percentile meaning that eight or nine out of ten physicians billed within what was allowed.  Of course, that also meant that since there was no fee schedule the increase in allowable fees was in the hands of the health care providers.  Another unintended consequence of trying to insulate patients from costs.

We then moved into HMOs in the late 1970s.  The idea was appealing, better coverage in exchange for better control and management over the costs and services provided.  The problem was that the choice of provider was limited and telling Americans they cannot have something always means it must be bad.  The idea was to have limited networks of participating providers to control costs and better manage the services rendered.  In response to the lack of choice, HMOs essentially stopped screening providers and everyone was allowed into the pool.  We were left with a high level of benefits and virtually no management of the health care services.  The HMO concept morphed into open access plans and into the Point of Service (POS) plan with both in and out of network services.  Once again, we experienced the unintended consequences of watering down management of health care services; management of health care is something Americans seem to abhor. Instead we encouraged health plans to negotiate the best fees possible with physicians and hospitals, an idea that merely shifts costs around the system and does nothing to control utilization, dare I say unintended consequences (I bet you are tired of hearing that).

Along this journey from the 1960s we tried pushing second opinions for elective surgery, flexible benefits, outpatient services, health and wellness programs, pre-admission testing and much more and yet health care as a percentage of the economy continues to grow.  Ummmm?

Considering all of the above, look at the pending “reform” legislation and see if you can find anything that will actually control the overall cost of health care in America.

Today we appear to think that the government will provide unlimited health care with no management of services but with cost control.  It has not worked in the past (consider Medicare) and it will not work in the future. On the other hand, the new catch phrase in Washington and elsewhere is “accountable” health plans and the concept of physician capitation for payment and a primary care coordinator, which sounds a great deal like an HMO.  Stand by for the implications of this one.

Do we wonder why health care costs have gotten out of control?  We have moved from a system of “insurance” with a financial stake in the process for patients to total entitlement.  Today Congress debates a new health care system and yet we appear to ignore lessons learned.  The guidance in the pending House legislation to the Secretary of HHS is to try to avoid coinsurance in designing the required benefits package going forward in favor of co-payments.  This is exactly the kind of thinking that got us into this mess.  Pending legislation states and the message to Americans is that medical decisions are between the patient and the doctor.  That may be fine when you are buying a TV, but in health care with all its variables and misdirected incentives, it simply does not work.

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