2016 Pre-Mortem - Another Election And Here We Are Again

2016 Pre-Mortem - Another Election And Here We Are Again

It has been several years since I posted to this blog, a little less than 3 to be precise.

So have we advanced in terms of our society's knowledge about insurance, health care financing and quality control and improvement? Sadly not.

Our two major candidates still don't embrace a single payer, national health insurer as I have shown (See "Standard Errors: Our Failing Health Care (Finance) Systems And How To Fix Them"). Donald Trump used to embrace a single payer because he understood that it would lower, not increase, the operating costs for his business enterprise.

Hillary Clinton never had it right, failing abysmally at health care finance reform in 1992-1993.

One of the most prestigious journals in the area of health care (finance) systems analysis and public policy (Health Affairs) still doesn't grasp how insurance actually works so they continue to publish articles that assume that transferring health insurance riks to health care providers can reduce costs and improve quality of care.

So, here again is the essence of the situation:

We do not buy insurance products underwritten by our neighbors - we buy them from large, hopefully well capitalized, responsibly managed, and efficient insurers.

We avoid smaller, under-capitalized, poorly managed, and inefficient insurers because we understand that they are unlikely to be able to make good on their policies when claims run significantly higher than expected.

Small, inefficient and inadequately capitalized insurers fail all the time. Hundreds of insurers fail every year and their losses are socialized to other insurers and us taxpayers. The Mutual Benefit, Executive Life Insurance Company<, Metropolitan, CIGNA, AIG and Reliance Insurance Group's insurer insolvencies and financial failures added billions to the cost of insurance for policyholders who had no role in the failures of those insurers.

Hundreds of thousands of policyholders and beneficiaries were deprived of their benefits, and taxpayers contributed significantly to the socialized costs of these insurers' failures. The Society of Actuaries published an article describing the pitfalls of health and life insurer insolvencies for policyholders, claimants, the insurance regulatory system, the insurance industry and society at large. The original article started on page 1 and continued on Page 20 but this link has just the pages relevant to the article.

A variety of "innovative" health care finance mechanisms transfer patient insurance risks to health care providers: Capitation, Risk/Profit sharing, Bundled and Episodic Payment schemes, Block Grants and Pay for Performance. These insurance risks are transferred from large, financially capable entities such as insurers, Medicare, State Medicaid programs, Managed Care Organizations, and Employer self-insurance programs.

When patient insurance risks are transferred from large from large, financially capable entities to smaller, less capable entities, the risks of financial ruin increase dramatically. Providers, qua small, inefficient insurers, are far more likely to fail financially.

Efficient health care providers can only reduce their risks of financial ruin by cutting the level of care they provide. Cutting care below the levels assumed in their insurance risk transferring payments is necessary because they are inefficient insurers. Even when they perform exactly as anticipated, the variability in health care needs of their patients leads about half of the insurance risk assuming health care providers to have lower than expected costs and about half of the insurance risk assuming health care providers to have higher than expected costs.

The only way to improve quality, reduce costs, and improve the health care status of patients is to remove disincentives to care for providers. Instead, the next four years is likely to entail yet more transfers of insurance risks to health care providers and patients while insurers, managed care organizations, and third party intermediaries share of health insurace dollars continue to rise.