Thursday, April 22, 2010

From Managed Care to Miscommunication (Part I)

The current healthcare system, while the subject of much debate, evolved out of several smaller pieces of legislation.  Like the glacier, this movement toward an insurance-based economy moved slowly but inexorably toward prominence, thanks in large part to a number of legislative efforts aimed at giving the consumer of healthcare protection from perceived exorbitant costs.
The real problem arose when we stopped regulating the companies that swooped in to protect the "little guy."
According to Wikipedia (that great bastion of knowledge):
The McCarran–Ferguson Act, 15 U.S.C. §§ 1011-1015, is a United States federal law that exempts the business of insurance from most federal regulation, including federal anti-trust laws to a limited extent. The McCarran–Ferguson Act was passed by Congress in 1945 after the Supreme Court ruled in United States v. South-Eastern Underwriters Association that the federal government could regulate insurance companies under the authority of the Commerce Clause in the U.S. Constitution.
In essence, this Act gave insurance companies a free pass, avoiding common regulatory practices enforced on large corporations. No anti-trust laws.  No federal oversight. States have ultimate control, though even this is debatable. Whether you agree with the practice of federal involvement or not, there exists little doubt that, unwatched, most corporations minimize expenditures and maximize profits by whatever means necessary.  This is evidenced by the practices of the insurance industry that most proponents of the curent reform bill reference: closed purchasing within a state, denials for pre-existing conditions, dropping patients who are "really sick." 
These problems are simply symptoms of a broken system and a broken economy, both the result of misguided consumerism and economic profiteering.  Breaking it down simply, in the current system people buy insurance because they fear getting sick and having high medical bills.  Insurance premiums are paid to the company supported by their employer (a sketchy proposition at best, which I'll discuss in a minute) and the patient offsets some of the cost personally (current figures approximate 85% employer/15% employee).  IF the consumer gets sick, THEN the insurance agrees to cover a portion of the medical bills, often only after a certain amount ("the deductible") has been paid by the consumer. In other words, you pay money to avoid paying money, then have to pay more money before the money you already paid is given back to you with a modicum of interest. 
In some cases, specifically conditions requiring long hospital stays or significantly expensive treatments or for patients who require frequent treatment, this process pays off.  For most, however, the entire process is simply a demonstration of how poorly people as a whole calculate risk.  Without going into too many details about pooled risk and actuarial calculations, the average consumer with private insurance rarely meets their deductible, but still pays, on average family plans with no deductible a premium of $12686 each year, while plans with an annual deductible of $10,000 had an average premium of $5380 each year (per the report Individual Health Insurance 2009: A Comprehensive Survey of Premiums,Availability, and Benefits). So in essence, you, as a private insurance consumer, pay at least $5000 a year, then another $10000 if you get sick, to prevent paying for long stay or frequent hospitalization. Unfortunately, few people actually stay longer than 2-3 days in a hospital setting.
Current consumer healthcare system based on large companies providing pooled risk insurance charge large sums to both you and your employer, and prior to the health care reform bill, could simply drop you for any significant illness.  They could also refuse to cover any medical condition you had prior to receiving their insurance.  Legally.

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