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We all assume malpractice insurance plays a big role, but how much do you think the cost of health insurance inflates the cost of health care? Could the cost of health insurance actually be the primary culprit? Have you considered this? Well, we did. This fundamental issue is at the heart of the way the healthcare system has evolved in the United States and why we have the situation we are in. Our health coverage is categorized as "insurance" but it is provided as "maintenance plus insurance." We assume our "insurance" should pay for routine physicals, minor illnesses, routine doctor visits, etc. We are offended if we have to pay a co-pay of more than twenty-five dollars to see the doctor. We grouse about a deductible of $500. But what is "insurance?"

Insurance is a risk management product. We buy insurance to protect us from big losses that cannot be anticipated or planned for and that are rare. Why isn't there an auto insurance crisis or a homeowner's insurance crisis? Because only a very few customers in a given year file a claim. Everyone pays a reasonable amount of money into a pool to manage risk. The basic concept is that it is worth it to one person to pay a thousand dollars a year or a hundred dollars a month in case something extremely rare occurs and the house burns down or the car is severely damaged. One pays the premium and still pays a deductible if there is a claim. One understands the deductible must be paid and that the deductible helps keep the premiums lower. One also understands that frequent claims, whether or not abusive, will result in a loss of coverage or a dramatic increase in rates. It is still worth it to pay your monthly or annual premium because it provides peace of mind. You realize that if your car is totaled or your house burns down you will be very grateful for the insurance you pay for because you would not have the means to replace a loss of this magnitude, or if you did, it would take a significant toll on your net worth. It is pennies spent to save dollars in the event of a a major unpredictable loss. The rarity of the type of loss that is covered by "insurance" makes the insurance premiums affordable to almost everyone, since the payout to the claimant is taken from the accumulated, pooled premiums paid by thousands or millions of people who have not needed to file a claim.

How does that compare to the concept we have of health "insurance?"  With health insurance as currently understood in America, we know that nearly everyone who is insured will file not only one claim but several claims each year. Most claims will not be for huge amounts. Most claims will not be for unexpected and rare occurrences. If we used our homeowner's insurance the way we use our health insurance we'd be filing a claim every time we had to call a plumber or replace the roof (after nornal wear and tear). If we own a home, we realize there will be routine maintenance required. We will have to repaint every so many years or install vinyl siding. We will have to replace the roof eventually. We will occasionally have a plumbing emergency. We wouldn't think of filing an insurance claim to cover such predictable, routine, and relatively inexpensive tasks (we should be saving every year for long-term maintenance such as painting and roof replacement and we should have a budget item for minor manintenance such as plumbing and electrical repairs). To use the same analogy with auto insurance we don't file a claim to change the oil, replace the brakes, or paint over rust. If we used our home and auto insurance as we use our health "insurance" there would be crises in those areas as well. The premiums would be rising and costs for all of those services would be rising at astronomical rates because if insurance paid for such routine maintenance people would use it more than necessary without even thinking about the cost. There would be no direct connection between the consumer and the cost of the service. Instead the insurance premium would be a buffer between the consumer and an understanding of the market for the services they are using. Everyone would blame insurance companies for the rising cost of premiums and people would start calling for the government to get involved to "fix" the problem.

Therefore, if we treated health insurance as insurance is designed to work, there would be no health care crisis! Costs of care would not be inflating at twice the rate of inflation overall. Insurance premiums would not be inflating at an even faster rate.

We don't really have health insurance in our society. What we actually have is a healthcare funding program, a pooled group purchasing program, not a health "insurance" program.  If that's what we want, that's fine, but lets call it what it is and realize that it will cost much more than insurance would cost and unless consumers have both knowledge of and investment in the cost of routine care, they will continue to abuse the system which will continue to increase costs for care and for coverage. It can be argued that for some, even routine, preventative health care is unaffordable, and that there needs to be a system to pay for care on the front end for those who can't afford it because it is cheaper than paying for acute care for the same people on the back end, because their neglect of routine care today has increased their likelihood of requiring acute care later. That is a separate issue to a point. To a point, however, if we had never tried to use health "insurance" as a health maintenance program or a group purchasing plan, routine and preventative care would not be unaffordable to anyone with a minimal income. In part two of this series we will demonstrate that front end health care can be provided to the patient, pay as you go, for as little as $25 per visit. Before you tell me that is too much for some people, let me remind you that the same people find a way to shell out that much for a carton of cigarettes, much more often than they would be paying to see a doctor.

The Cost of Processing "Insurance" Claims
One of the current factors that makes the cost of  health care increase exponentially is the cost of processing claims. Doctors, clinics and hospitals agree to be your insurance collection agent. They file and process claims on your behalf. Insurance companies encourage this. Why? Because if the provider is filing claims for the patient the insurance company can take an obstructionist approach to settling claims without the direct and immediate knowledge of their customers. The providers are the ones who have to fight with insurance companies daily to get claims paid that are initially denied or initially returned for more documentation. It takes an army of highly trained, skilled workers to deal with insurance processing for the providers. The insurance companies then employ their own army of claims processors who are trained to look for ways to delay or deny claims.

The Ripple Effects of Health Maintenance Plans on the Cost of Health Care
Most health care providers from your family physician to your regional medical center and everyone in between use the same basic method of billing for care. It is itemized, fee for service, billing. They bill you separately for every aspirin, every tiny unit of care that can be broken down and attached a retail value. Next to the cost of paying for redundant claims processing (by providers and "insurers") this is the biggest cause of health care inflation. The more the cost of health care is broken down to fee for service billing, for units and sub-units of care, and itemized billing for each pill, each cotton ball, each band-aid, the faster the cost of care inflates because each separately billed item or unit requires inventory management by the provider, much more elaborate accounting by the provider, and a much more complex and labor intensive review and approaval processes by the "insurer." Costs increase exponentially at each point of management.

This may sound like no way to "run a railroad" (or a hospital) but the current system has fostered and rewarded this approach. Insurance companies are constantly squeezing providers to accept smaller and smaller percentages of their published fees. As a result, providers are forced to break down everything they do for the patient into smaller and smaller units which then have to be clearly itemized, in order to get more money from the insurance companies so the providers can just break even. The more the insurers squeeze providers to accept less per charge, the more charges the providers have to invent to keep their revenues in line with their expenses. It is a vicious cycle.

As bad as all of this sounds, however, the fix isn't rocket science. It's really very simple. In the subsequent articles in this series we will address ways providers can cut their costs and yours dramatically by getting out of the insurance processing business, and how health insurance can be brought down to a reasonable and stable cost if it is used as true insurance instead of a health maintenance program.