First off, I apologize for the long delay between blog posts. I’m still here, and I still am obsessed with health policy. I’ve been working on a publication that outlines some of what I’ve figured out lately, and I’d rather people first see it in a publication by me rather than by someone else who came across it on my random blog and ran with it.
Anyway, let’s talk about why insurers are starting to do things differently lately. They’ve started doing pilot projects to see if investing in primary care will save them money by preventing unnecessary tests and services (they predict it will in a big way). They’ve also started investing more in IT to keep track of patients’ health information, again hoping they can use it to find ways to prevent patients from needing preventable tests and services.
Of course this makes sense. If they, as a business, can invest $500,000 in primary care and then save $600,000 by preventing a whole bunch of things down the road that they otherwise would have had to pay for, it’s a great investment! But why haven’t they started trying out these investments in cost-saving prevention until now? Remember that a business is always trying to use the money they’re making and invest it in projects that improve their financial performance. But there are a lot more options of projects to invest in than they have the money to invest. So they are trying to find the projects that seem to offer the greatest reward for the lowest risk. This would lead us to assume that these kinds of projects haven’t had a great reward-risk ratio until now.
I haven’t figured out a great way to organize my thoughts about this, so here they are in a random order. (FYI, one of the items in the list below is going to change, and it explains why insurers are changing their ways, so you better figure out which.)
- If an insurer wants to invest in prevention, but then the patient switches insurance before the insurer gets to reap the savings, that was basically wasted money. Yeah the patient is healthier as a result, so that’s a small consolation prize, but the analyst who forgot to compare the expected payback period with the average length a patients stay on their insurance will probably still be fired.
- Trying to pay a primary care physician to do better at keeping patients healthy isn’t an across-the-board money saver. Actually, it probably only saves money for a small portion of patients. But the thing that makes it worth it is that those patients are probably the highest-cost patients, so a ton of money still stands to be saved.
- Paying a physician more to establish a medical home or hire a care manager or something like that probably involves the insurer paying the whole cost for the physician to do that, otherwise they won’t. And since the physician has the care manager, chances are he/she will use that care manager for all his/her patients who need the service, including patients that are covered by other insurers. So the insurer is now stuck paying for a competitor’s patients to get healthier, saving the competitor money even though the competitor didn’t invest a thing.
- An insurer won’t be very popular if they add services to only a select group of patients on the exact same coverage plan. Other people will say that’s unfair and demand to receive the same service. This would be annoying, and they’d have to find a way around it so they don’t end up spending all this prevention money on people who won’t end up saving them much in return.
- People, when buying insurance plans, aren’t really able to compare the coverage offered by different plans. There are so many complexities, all they can really do is look at the price and look at some of the basic coverage provisions, but that’s it. There may be all sorts of limitations that they don’t even know about. Because of this, insurers can get away with offering a high-priced plan with not great coverage and still (through great marketing) convince a lot of people to buy it, so where is the reward in finding ways to lower price by doing cost-saving prevention when you can just add a few exclusions to save money instead and nobody will ever notice when they’re choosing their insurance plan?
I hope you figured out that the last one is changing. With new tools coming out that help people more easily compare the quality of coverage offered by different health plans, including insurance exchanges’ standardized levels of coverage, people will be able to spot the insurance plan with equivalent coverage but a way lower price. And when that happens, people will flock to that insurance plan. This is a significantly larger incentive to try out risky investments in cost-saving prevention, which also means it’s quite a risk not to try anything out for fear that you’ll lose all your customers. Finally, cost-saving prevention projects that actually decrease overall health spending and keep patients healthier will top every analyst’s list!
And in case you’re wondering what role increasing health costs have played in this whole thing, the answer is . . . probably nothing. Health costs have always risen, and insurers have always raised premiums to maintain pretty constant profit margins. Sometimes spending increases slower and they make a bundle, sometimes costs rise faster than predicted and they increase premiums even more the next year. But none of this changes the risk-reward evaluation done by analysts to decide if they should finally start to invest in cost-saving measures, although it might in an indirect way because people are clamoring louder (as costs rise) to get cheaper health insurance, but unless those people were finally able to compare the value of different plans, all their clamoring wouldn’t have much of an effect on insurers’ investment strategies.