Hey, I have a right to make a buck
I’m a corporation with rules to protect me
If you get hit by a puck
And once had a scratch on your knee
Then why should I pay for your care?
That pre-condition was there
And I will fight to the death
Or until you take your last breath
To prove you haven’t a claim
Because it is you who’s to blame
The California Nurses Association recently conducted a study to determine the claim rejection rate of major insurers in California. As you may have already heard, the rejection rate averaged 22%. These insurers rejected over 45 million claims according to numbers that the insurers themselves submitted. While the rejections were not characterized in terms of rationale, the sheer numbers are staggering and indicate several issues that underlie insuring healthcare. The insurers claim that many of the rejections are related to paperwork as though that was something over which they had no control. They also were unable or unwilling to provide numbers to support their defense of claim acceptance.
The claims rejection numbers varied from a high of 39.6 for Pacificare to 6.5% for Aetna with Cigna coming in at 33% and Healthnet rejecting 30%. Anthem Blue Cross and Kaiser each reported 28% rejections. We know that the claims business is complicated. I personally have three levels of claim including Medicare, a paid for supplement by an insurance company and Tricare (the military medical insurance). This often results in confusion when my healthcare provider (physician or hospital, for example) has difficulty fitting a claim into the right category and to the proper insurer, even though two of the three are government entities. Providers don’t always get it right. According to my physician son, who is a gifted analyst and has an IQ over 180, the process is obscure and requires a medical administrative expert rather than an automated system or a “fill in the blanks” approach. There are medical procedures that are similar to each other and yet the reimbursement rate may vary according to the description, so there is no guarantee that a claim will be paid at the rate expected or paid at all. This alone sometimes results in multiple applications and rejections. He has also learned that not all insurance companies have the same rules, so the combinations and permutations of filing a correct claim approach infinity as the number of providers and the number of insurers increase. That alone may be a good reason to consider a single payer system, although single payer is anathema to the “free” market approach. I use the word “free” because free market is a relative term since one insurer in Alabama (Blue Cross), for example, covers 89% of those insured. There may, in reality, be few choices in the “free” market. We have outlined a few sources for increasing costs and reducing coverage of those who happen to be insured. Denial of claims may also lead to denial of coverage for pre-existing conditions. We will consider that separately in the paragraphs ahead. First, let us look at the history of the healthcare insurance system we have cobbled together over the years. It may hold the key to some of our frustration.
Healthcare and heath insurance, as we now know it, really began after World War II, but there were precursors of note. Prior to about 1920, hospitals did not deliver the preponderance of healthcare, but individual physicians did and often they delivered care to the patient’s home. In 1929, Baylor University began the first medical insurance system that eventually became Blue Cross by offering to insure against hospital expenses for a cost of about $1.20 per month. Physicians later, concerned that hospitals could take their place in delivering care followed up with what eventually became Blue Shield as a way to help in getting paid for their work without depending on hospitals. Only a few years later, the depression forced everyone to rethink insurance as hospital endowments were lost to the economics of the time and many physicians were going unpaid. In the 1920s and earlier, medical care was actually less expensive than the loss of wages for being sick or incapacitated. People and corporations became aware that it was cheaper to pay for insurance than it was to pay for an unstable workforce that might miss work due to injury or illness. That is right. It was CHEAPER to have insurance than to lose wages or to lose the critical skills of a worker. The government was not involved. Businessmen protected their businesses and individuals protected themselves through cheap insurance. After WW II, however, the march of technology was such that the cost of care began to rise to pay for the increasingly more complex equipment, procedures and chemistry involved. Insurance was still cheaper than losing the services of a worker, but the margin began to narrow and it was commonplace for corporations to contract for medical care insurance coverage offered as a benefit to employees. The government remained apart from healthcare or insuring citizens for care. Other nations developed systems that essentially viewed healthcare as a benefit provided by a tax system that could ensure that providers could be compensated without worrying about endowments and that citizens could receive care regardless of job status. Kaiser was a major government production contractor, but it developed its own healthcare system to ensure a steady workforce. Kaiser Permanente survives today despite the decline of Kaiser Industries. We did not choose the same path as most nations and thereby built up a whole industry out of the accidental circumstances of the 1920s and 1930s. This served us reasonably well until medical costs spiraled out of control and the understandable reaction of corporations was to reduce or eliminate health insurance. Despite an increasing population, the number of insured declined. With a reduction in the number of insured and a need to stay economically viable in an environment of increasing medical costs, the price for insurance went up thereby causing even more employers to reduce or eliminate coverage. A cobbled system began to fail and eventually fall apart. If you were unfortunate enough to suffer a major illness or injury, you became a likely subscriber to bankruptcy that, in turn, placed further pressure on individuals and corporations, including insurance companies. Our healthcare system depends on timely and accurate financial support. The system is now broken.
Health insurance companies depend on a regular flow of premiums into their coffers in order to provide a service of insuring people from loss due to some undesirable health condition. That is a given. It is the way of the corporate world. That is capitalism 101 and it is to be expected…or is it?
If we encourage the same business behavior of health insurers as we get from manufacturing or accounting services, for example, we would expect unprotected open market competition and also internal scrutiny by each company to reduce costs and increase profits. That makes sense and cents. If I can get cheaper materials or labor and still produce a quality and competitive product or service, then there is no harm to the consumer. On insuring healthcare, however, my profit is affected more directly by denying or delaying care through the claims process so that my premium collection can overweigh my expenses. This simply is not the same as manufacturing or accounting. It does not work and yet we cannot assume that an insurance company will become a non-profit entity because it has altruistic management. The management would and should be fired if they cannot turn a profit. Incompatibility is inherent. Therefore claim denial is increasingly likely as costs rise. If the cost of my raw materials increases and the cost of my labor increases, there simply are not many ways to stay in business unless I price my product higher and reduce my expenses (claims). Pre-existing conditions have become synonymous with claim denial. Unfortunately, the associated logic has more to do with profit than medicine. Exactly how is acne a pre-existing condition for breast cancer, for example? The examples are legend. And they are disturbing. Treating cancer is expensive. Claim denials are cheap.
It is time to develop a system that emphasizes the medical over the fiscal and to think the unthinkable that perhaps the common good is no longer well served by a system that was cobbled together when medicine was crude and cheap. Medicine is now sophisticated and expensive. Get over it. We can help ourselves by either going to a single payer system with one set of rules or we can inject competition into the equation through a combination of government oversight, incentives and penalties and see if that experiment works well enough to save health insurance companies. You decide.
15 August 2009