Repairing Health Insurance: The Modern Broker’s Role Gary Fradin 2017 1 2 All materials in this book are copyrighted © by Gary Fradin, 2017. All rights reserved. No part of this text may be reproduced without the express written consent of Gary Fradin 3 4 The Author Gary Fradin teaches healthcare economics to hundreds of health insurance brokers annually. He has written 6 books about healthcare: Moral Hazard in American Healthcare Healthcare Problems and Solutions Understanding Health Insurance Transparency Metrics Uninformed: The Plight of America’s Patients Consumerism and Value Creation in American Healthcare He also developed TheMedicalGuide, an online consumer education company, to teach patients how to make wiser medical care decisions. Many of the tools discussed in this text are available at www.TheMedicalGuide.net. Gary holds Master’s Degrees from University College London and Harvard. 5 6 Table of Contents Preface …………………………………………………………………. Page 9 Introduction……………………………………………………………… Page 11 Part 1: Why We Need to Repair Health Insurance ……....……. Page 21 Review Questions ……………………………………………. Page 57 Employer Based Health Insurance …………………..……………… Page 61 Review Questions …………………………………………….. Page 95 Poorly Targeted Government Incentives and Tax Benefits……….. Page 99 Review Questions…………………………………………….. Page 135 Low Levels of Consumer Education and Knowledge…………….. Page 139 Review Questions ……………………………………………. Page 173 Poorly Understood Risks and Risk Reduction Metrics ………….. Page 177 Sample Research Report ……………………..……………. Page 201 Review Questions …………………………………………… Page 205 The Price Transparency Movement and Related Confusion…….. Page 209 Review Questions ……………………………………………. Page 237 Our Stop-and-Start History of Healthcare Reforms……………. Page 241 Review Questions …………………………………………… Page 259 The Affordable Care Act ………………………….…………………. Page 263 Review Questions ……………………………………………. Page 301 Part 2: Repairing Health Ins By Engaging Consumers ………. Page 305 Expanding Consumer Understanding and Knowledge…………….. Page 311 Review Questions …………………………………………….. Page 387 Integrating Consumer Education into Broker Services……………… Page 397 Review Questions ……………………………………………… Page 411 7 8 Preface This is an expanded version of my 2015 book Consumerism and Value Creation in American Healthcare. ‘Value creation’ means improving American’s health for less money. That book was based on lectures I gave to health insurance brokers between 2012 and 2014. It described factors that destroy value or are value neutral: Employer based financing (value destructive) Misguided food, transportation and housing subsidies (value destructive) Poor levels of patient knowledge (value destructive) Price transparency programs (value neutral, contains both creating and destructive aspects) The Affordable Care Act (value neutral) It then introduced a consumer literacy program that, if widely implemented, could create substantial value. This book expands on those themes. It includes new material from lectures I gave in 2015 and 2016. I’ve retained many of the original chapters from Consumerism and Value Creation and have added 3 new ones: Why we need to repair health insurance Poorly understood risks and risk metrics The stop and start evolution of healthcare reform I decided to call it Repairing Health Insurance since it explains both why we need to repair our system and how to do it. As with the previous version, I kept the original lecture format so each chapter focuses on a single, independent issue. That means there’s substantial information overlap since, for example, discussions of both price transparency and systemic waste require an understanding of treatment variation. I also used similar examples / case studies in different chapters to illuminate different points and sometimes even the same point. Since each chapter is a self contained discussion of a specific issue, readers can jump from chapter to chapter in no particular order, but based on their own interests. There’s 9 less content development from one chapter to the next than exposition of different topics. I hope the overlap and redundancy reinforces key ideas and doesn’t simply bore readers. I take the issues discussed here personally and seriously. As a child of the 1960s who, among other things, tried to create value in Chad, Africa by building primary schools and planting orchards - the latter in a leaper colony outside N’Djamena - I have a great passion for activities that improve people’s lots in life. I have an equal passion for opposing value destructive activities, with unnecessary medical care being a prime example. I hope you find reading this book a stimulating and worthwhile experience. Gary Fradin 10 Introduction Our healthcare system falls somewhere between a ‘mess’ 1 and ‘insane’ 2 costing $10,000 per person per year but putting us about 40th internationally in life expectancy and infant mortality. That the system works badly is clear. Why it works so poorly and what we can do to fix it remain hotly debated topics, with the same basic positions restated consistently for almost a century.3 Some say we have too much government influence thus destroying the market’s ability to deliver high quality services at reasonable costs. Others argue that we have insufficient government influence, allowing private companies and healthcare providers arbitrarily to provide too much or too little care thus raising costs without improving outcomes. Hundreds, even thousands of commentators wax poetic about the problems (OK, generally not so poetically) and their own favored solution. As I’ve read dozens of books and hundreds of articles, I’ve become impressed with a similarity among proposed solutions: ‘If only we can get the payment and regulatory incentives right,’ they seem to say, ‘the system will work.’ Virtually everyone in the healthcare commentary business focuses on the supply of medical services, how we distribute medical care in this country, and proposes a fix that fits his or her own orientation. I disagree with the entire supply side orientation. If we could have gotten the incentives right, we would have gotten the incentives right, given that we’ve worked on this for decades with ineffective reforms regularly emanating from both the federal and state governments, and carrier plans increasing in complexity to reduce costs. I don’t think we can do much that’s terribly useful by focusing on the supply side of healthcare. 1 See Richmond and Fein, The Healthcare Mess, 2005. Both gentlemen were Harvard Medical School professors, with Richmond the US Surgeon General under President Carter. 2 Regina Herzlinger of Harvard Business School, speaking at the Massachusetts Association of Health Plans convention in Boston, December 2014. My notes are unclear if she said ‘crazy’ or ‘insane’. Apologies for any error here. 3 See Thomas Miller’s article ‘Health Reform: Only a Cease Fire in a Political Hundred Year’s War, Health Affairs June 2010 for the gory details 11 Instead, I think the demand side offers greater opportunities to rein in costs, reduce waste and improve outcomes. Let me state my position clearly: we will never get the payment and regulatory systems right. In fact, I don’t think we can even improve them. I don’t see payment reforms, organizational changes or plan design modifications making our healthcare distribution system more efficient, effective or valuable, with ‘value’ defined as better outcomes at lower costs. I don’t think focusing on the supply side gets us anywhere. No healthcare reform in the past 50 years has simultaneously improved access, reduced cost and improved outcomes, i.e. created more value, though some reforms have improved access. Value creation – when it occurs - seems to come primarily from the private sector, though I’m not sure how frequently even this happens. We sometimes get better outcomes at higher costs, sometimes similar outcomes at higher costs, perhaps sometimes better outcomes at lower costs per unit but providers tend to make up the income loss per unit by doing more units so I’m not sure about the overall systemic gain. We lack a value creation paradigm in healthcare. That’s what I propose in this book. Why we have the healthcare mess we have It’s as important to understand why we’ll never get the supply side right – why all incentive-oriented, regulatory-based reform efforts always fail - as to understand why the demand side offers such promise. Our healthcare system exists, I would argue, for two main reasons, the less important of which is to get people healthy. The prima facie case here: we’re not terribly healthy. We don’t live as long as other populations, we have higher infant mortality rates than most developed countries and higher disease morbidity rates, unconscionably high hospital readmission rates (about 20% within 30 days), tragically high hospital infection and error rates and a utilization waste factor north of 30%, probably closer to 40 or 45% and maybe even half of all medical care. 4 4 I’ll explain in detail in the chapter on Price Transparency 12 These situations simply would not exist if our system was primarily designed to get people healthy. We have too many smart and caring people working in healthcare. A country that can put a man on the moon, as they say, can fix these problems….if it wants to. That we haven’t fixed them, and maybe haven’t even improved on them over the past decades, results from the primary reason our healthcare system exists: to pay participants. American healthcare is more a jobs program than a medical improvement one and it actually performs this function remarkably well. Doctors get paid to perform their tasks, as do hospitals, X-ray technicians and MRI operators, orthopedists and chiropractors, psychiatrists and podiatrists, nutritionists and pharmacists, acupuncturists, art therapists and even lowly Continuing Education teachers, all extremely busy, most fighting with carriers and Medicare over codes and payments, none tying patient range-of-motion increases or pain reduction to their incomes. Financiers loan money for medical equipment and hospital construction, lawyers draw up financing and leasing contracts and sue when doctors screw up and sometimes even if they don’t.