Can We Have Health Care Without Health Insurance Companies?

After the senseless killing of the CEO of UnitedHealthcare, responsible commentators were quick to condemn the act.

“Murder is bad, and so are murderers,” wrote liberal economist Paul Krugman. “And it should not be celebrated.”

But Krugman then went on to concede that “somewhat . . . caricatured” view of US health care:

It’s a system in which taxpayers bear the cost of major medical care, but this taxpayer money goes through private companies that cut a lot of money, spending a lot of money on the system,’ and they do everything in their power to prevent people who need them.

What services do private insurers provide in return for the premiums they collect? Krugman writes:

“[Americans] they may not realize how much they are exposing themselves to delay-and-denial Private insurers often use a formula to avoid paying for care….”

For years, Krugman has been an advocate of individual health insurance—often pointing to Canada as a role model. In Canada, there are no health insurance companies. When Canadians get health care, the cost is covered by the government—often with few questions asked.

If Canadians can live without health insurance companies, could something like that work in the United States? Not in a way that people would find desirable.

All developed countries face certain health problems

There are three problems with the doctor-patient relationship all developed countries—regardless of how the payment system is structured.

First, when someone else pays the bill, neither the doctor nor the patient has any incentive to use the type of cost/benefit analysis that is common when purchasing goods or any other services. When considering whether to get an expensive test (an MRI scan, for example), the motivation is to think only about the benefits. Since the cost is irrelevant to the patient, a small benefit—no matter what the cost—is viewed as desirable.

Second, in a fee-for-service arrangement (such as exists in the US and Canada), the more services doctors provide, the higher their salaries. So, just as patients have the motivation to overeat, doctors have the motivation to overprescribe.

Third, there are wrongful convictions, which is very problematic in the US. If the doctor orders an unnecessary MRI scan, he does not face real punishment. But no matter how impossible it is, there is always a chance to scan it not prescribed will fail to detect a problem that worsens over time. Therefore, our legal system provides incentives for too many tests and too many methods, compared to a system where costs would have to be justified by comparable benefits.

What we are describing are three perverse recommendations. If they are not checked in some way, medical care becomes unreasonably expensive. That means higher fees or higher taxes or both.

Canadian food security

Canada evaluates these incentives by reducing resources. A typical Canadian doctor, for example, does not have radiology equipment and must send patients to the hospital for a simple x-ray. Hospitals operate under global financial standards that limit spending, regardless of where the need is.

Canada is ranked 25th^th from 29 countries in the number of MRI scanners per capita. As a result, the wait for a scan is about 3 months and the wait until the final treatment is more than 6 months. The government has decided to prevent the overuse of MRI machines by restricting power the number of scanners available.

Canada’s system of reducing health care resources and forcing doctors to provide nutritional care has many undesirable characteristics. The system favors high incomes over low-income patients Favors whites over minorities. It favors urban dwellers over rural dwellers. It favors the politically connected over the unconnected.

There is arguably more inequality in access to health care in Canada than in the United States.

How aggressive are private insurers?

Despite complaints about pre-approval requirements and denials, one could argue that private insurers are not aggressive enough. One oft-cited estimate is that a third of US health care spending is wasted. If we could magically eliminate all that waste, we could give every American about $5,000 every year.

You might think that in countries that enforce segregation, such as Canada and the UK, doctors are forced to work efficiently—prioritizing resources so that the most promising procedures are done first. But studies by the RAND Corporation found that not to be the case. For example, in Canada and Britain, experts received as little attention (equal to one percent of the total) as they received in the United States.

Then there is fraud, which is a particular problem in government-run programs. For example, in Medicare and Medicaid, fraud is estimated to cost at least $100 billion annually.

Hospitalization (claiming a higher level of patient severity in order to get a higher insurance payment) is another problem. One study estimated that the increase in codes (compared to a decade earlier) was associated with $14.6 billion in hospital charges.

Although doctors are the most critical of claims being denied, hospitals are a bigger problem.

Let’s say the patient’s condition is stable in the ER. Then the correct medical procedure is usually to send the patient home and leave further care to the outpatient. However, some hospitals will keep the patient for a night or two and try to bill the insurance for that cost.

He said that the patient’s condition requires the patient to remain in the “monitoring bed” for one or two nights. Some hospitals will treat the patient as a full admission instead of trying to bill the insurance at a very high rate.

These are two of the hundreds of ways that some hospitals are trying to add unnecessary costs to our health care system. When insurers reject these claims and refuse to pay the bills they are doing social work.

And the price of that work is unbelievable. Despite claims that insurers put “profits before people,” profit margins for health insurance are lower than those of the average S&P 500 company.

Pre-authorization section

An important tool that private insurers use to avoid unnecessary use and inappropriate care is to require prior authorization for a particular drug, treatment or procedure. Doctors tend to view these procedures as difficult and tedious. Yet only 7.4% of patients’ applications for Medicare Advantage and Medicaid managed care plans are denied. In addition, in a large majority of appeals (83.2%) the first refusal was overturned.

If you follow health policy literature, you may be led to believe that denial rates are a particular problem in Medicare Advantage. In fact, the denial rate for Medicaid is double the rate for Medicare Advantage.

Some policymakers have decided to take up the challenge of using AI to generate pledges. At the same time, some doctors are using AI to enter their appeals—significantly reducing the time to enter and increasing the success rate. However both methods should be encouraged if the desire is to make the whole process more efficient.

In general, our health insurance system can be improved, and experts associated with the Goodman Institute have presented several ways to do so. But we can’t have a system that works well without companies doing the jobs that life insurance does today.

The community seems to understand this. Despite occasional complaints, more than two-thirds of Americans rate their health insurance as “good” or “very good.” And that holds for all types of insurance: employer plans, (Obamacare) marketplace plans, Medicare and even Medicaid.

Even among people who say they are not healthy (and who, perhaps, need medical care), the vast majority give good ratings to their health plans. Only a small percentage describe their insurance as “poor.”

And that is good news.