The Medical Insurance Industry and The Health Care Industry

        On March 8, 2012 I posted a blog titled “ The Greatest Marketing Job Ever.”  This blog points out how the medical insurance industry sold the public on the idea of medical insurance with first dollar coverage. 

They also sold the public on the convenience of having the health provider handle the claim.  They sold the health care provider that this was a needed service for their clients.  They also sold the health care provider that this system would help them get paid for their services. 

This sounds great, but all this service costs.  Thousands of people are employed in medical billing and claims for both the insurance company and the health care provider.  Every health care service provided is submitted to the insurance company, even if pays nothing on the claim.  The cost of the claims process is enormous and is driving up the cost of heath care. 

Another problem in my option is the practice of discounting the cost of health care services to the insurance company.  The insurance company obviously encourages this practice.  It also means the health care provider must raise their prices to cover the discounts. 

Health care providers discount their services by as much as 70% to the insurance providers.  This means an insurance company would only pay $300 for a $1,000 service. 

Which figure do you think is used for your deductible or co-pay requirement.  If you think the $300 figure is used for those computations, you are just being naive.

It also means that if you want to buy a true major medical policy and pay for your normal predictable and routine health care personally, you will be paying $1,000 for a $300 service.  Some politicians like U.S. Senator Charles Grassley of Iowa has been trying to stop the discounting practice for years with little success.

Since many people do not ask about costs for health care services, there is little competition.  People have the attitude, “It is covered by insurance anyway so who cares.” 

There was a study of heath care costs in our area.  One health care service studied varied in price from $1,000 to $6,000.  Were there differences in quality?  Yes, but quality had little correlation to the price.  This seems to be the same as with most businesses.

How much has this first dollar coverage medical billing raised the cost of heath care?  A very conservative estimate is 100%.  Personally, I think the real cost is closer to 500%. 

How do we fix the problem?  It is a problem that has been caused over the last sixty years and can’t be totally fixed over night, but some change could be done over night.

Specifics next week.