Thursday, December 19, 2013

Insurance Companies Suck: Core Strategy Undermines the ACA

In all of the back and forth over the Affordable Care Act that you find in the media, one of the things that I've never seen addressed relates to inherent problems with the fundamental strategy behind the law. In the media, you may see concerns about the lack of a single-payer, medicare-for-all option or, on the other side of the spectrum, people complaining about the mandate requiring people to buy health insurance. While these two examples deal with opposite sides of the political spectrum, in one respect, they share a common underlying issue -- insurance companies suck.

Anyone who has had to deal with health insurance over a doctor's bill knows how frustrating it can be. And it's just gotten worse and worse over time.

Insurance companies use layers of contractual complexity to make treatment and treatment reimbursement horribly conditional. Why? Because, fundamentally, the way that an insurance company maximizes their profits is by paying out as little of the money as possible. Insurance is a wager that you, as the gambler, wants to be as safe and as predictable as possible -- I am sick, I go to the doctor, and the treatment is paid.

In the midst of the storm of the site problems, I read one post on Talking Points Memo that pointed to one of the challenges of individuals purchasing health insurance was that it was so complicated. And the entire reason it is so complicated is that insurance companies benefit from that complexity. They write policies that create a range of caveats to the "I am sick" equation in order to reduce the likelihood of a payout -- like saying that the roll of the dice doesn't count if they didn't hit the back wall of the craps table. Sometimes, they make these caveats deceptive so that you think that you're covered when you aren't. It's like playing 3-card Monte with some guy on the street -- you have a great chance of winning until you actually start playing.

This is why most states have insurance regulators and why we are forced to turn to "experts" in our HR department to help us navigate the contracts and, hopefully, prevent fraud. And yet, despite the existence of a regulation infrastructure in the states, the system has gotten progressively worse since I can remember.

The Pre-existing Condition
Perhaps the biggest sticking point surrounding health insurance was the pre-existing condition. This was the escape clause that would allow an insurance company to skip out on paying for various medical bills that might get too large and cut into their profits. Over the past decade or so, it also seems like they used it, increasingly, as leverage against churn. By that what I mean is, if you were unhappy with your insurance or you lost your job, the insurance companies forced you to keep paying for insurance coverage lest you be hit with the pre-existing condition clause when you get a new job or sign up for a new policy.

This use of the pre-existing condition was another driver for crappy health-insurance-in-name-only plans. If you were out of work or working at a job that didn't provide health insurance, you could get one of these plans and be able to say that you had maintained insurance coverage.

Underlying Fallacies of the Health Care Debate
I think that the think that pisses me off the most when I listen to a debate about health care is this idea that we make choices about the level of care that we want to pay for. Given the choice, it's hard for me to imagine somebody saying, "just give me half of what's required to make me well." Or, like the snippet from the Michael Moore film healthcare, "I know I lost three fingers in the accident, just repair one." These aren't decisions made by choice. In the same way, the decision to not participate in the healthcare system -- to not have coverage -- is not something somebody chooses. They may choose between having shelter or healthcare coverage, having food or healthcare coverage, or even -- like I might have back in my college days -- having beer or healthcare coverage, but it isn't healthcare or not.

Similarly, there is this notion that the reason that health care is expensive is because people with health insurance use too much healthcare because they don't realize how much it costs. It's as though we are choosing to take Vioxx instead of aspirin because we make decadent choices as opposed to the reality -- we take it because they, the experts, tell us it's better and more effective. In the old days of a lifetime relationship with a family doctor, efficacy might be measured by long term patient health. These days, profit plays a significant role.

I Don't Like My Existing Healthcare Plan
Which brings us to the issue behind the most recent round of controversies. I don't think that anyone actually likes their existing healthcare plan; rather, they probably prefer it over the idea that the available options are worse. Or more expensive for, essentially, the same crappy service. Because, like most of the airlines, we have been subjected to a historical degradation of service and the majority of the incumbents essentially offer minor variations of the same service, we don't see any upgrade in change.

The bottom line: insurance companies suck. And this is, fundamentally, what's wrong with the ACA. Rather than crippling an industry that most people have had terrible experiences with, the government essentially said, "heck-of-a-job insurance companies, let's give you more customers and more business." For many people, this would be the equivalent of handing over Social Security to the same corrupt financial industry that crashed the economy with the sub-prime mortgage crisis. Rather than stopping all of this "your surgeon was covered, but your anesthesiologist wasn't in network and so he wasn't covered' mess, they stomped on the gas and pointed all of us straight into the heart of darkness.

The Paradox of Choice
Here's a great link to psychologist Barry Schwartz's Ted Talk where he talks about how having more choices makes us less happy with our choice and also makes it more difficult to choose. In that way, another difficult aspect of the ACA is, inherently, one of the things that is supposed to be better about it -- more choices. The paradox of choice also plays into the health insurance offering -- with so many nuanced aspects to compare and options to segment, they can move you into a state of selection paralysis. This is another way that they are able to control the transaction.

In many respects, the importance of choice in health care is overstated. If we're sick and we need antibiotics, we don't choose which medicine to prescribe. We think we want choices, but, like a menu with too many options, more is not better.  

While the idea of more choices pays lip service to freedom, if you couple some of the themes in the Paradox of Choice with the idea that all of the choices are deal-with-the-devil options from businesses that many people have had negative experiences with, you're in for a high level of customer dissatisfaction, even if the product has been reformed and is actually improved. The reformed system may be better, but we are primed for not liking it.

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