Right now, one of my company’s competitors is running a series of radio ads. The ads tout that in the small and medium group market segments, 90% of their groups renewed last year. The implication is that 90% of their customers/decision makers are happy, so your small company should buy their product.
Being an employee of a major competitor what I hear is 10% of their customers are pissed off enough to engage in the very expensive, time consuming, disruptive no-fun task of changing insurance companies, but hey, that is just me.
As a policy blogger, I also hear the reasoning why so many preventative care procedures weren’t covered in the pre-Obamacare world.
The theory of change for preventative care as a cost control measure is that wide spread but small costs to treat a population in order to prevent a small number of people from that population from requiring very expensive treatment leads to a net cost reduction. There were two problems with this idea from a pre-Obamacare insurance company business model perspective.
The first problem is that quite a bit of preventative care has significant social cost savings that the insurance company can not capture as reduced claims payment. For instance, sending a diabetic to a wound care training, and regular podiatry check-up visits will lead to greatly improved quality of life for the individual. The benefits from a wide angle cost benefit analysis clearly outweigh costs at almost any non-parabolic discount rate. However most of those benefits acrue to the individual through improved quality of life, the individual’s employer through better attendance and fewer accomodations, and cost avoidance via fewer amputations requiring long term rehabilitation and nursing care. The insurance company captures a very small portion of the benefits in the first year or two through reduced claims. There is a good chance that from the insurer’s point of view, costs have gone up in the first year or two as the amputation and attendant rehab probably won’t occur in the first few years of disease management.
In a pre-Obamacare world, the only preventative benefits that reduced pay-outs in a short time period made sense to cover at low or no cost share. This is why insurers were very willing to cover flu vaccines as the period where the insurance company would see a cost “win” would be eight months or less but why insurers were reluctant to pay for vaccines where the “win” period is a lifetime.
And if an insurer paid for long term “wins”, that leads to the second business model problem.
People churn through health insurance companies. Going back to the radio ad at the top, a 90% retention rate implies (with certain assumptions about indepedence of variables), that a company will only retain half of its original groups in a seven year period. Paying for preventative care with multi-year claims reduction pay-offs means a good chunk of the actual pay-offs are going to competitors who picked up groups that left the original insurer who paid for the one time preventative care. The insurance company has a serious problem of actually capturing economic gains from promoting long term better health.
In most cases, long term preventative care that is voluntarily provided by an insurance company means the insurance company that is paying for the care is making the risk pool of another company better in the years where the pay-offs occur. It is a classic collective action problem.
Obamacare is getting around this collective action problem by mandating every plan cover almost all preventative care that has a high degree of confidence in producing systemic cost savings and population health improvements (birth control is the one major exemption from the “all”). The goal is to remove the incentive of a company to free ride on general population health improvement measures while still benefiting from a healthier long term risk pool.
The theory of change is if everyone pays, everyone benefits from a healthier population over the long term. The long term benefits may not immediately accrue to lower medical spending (although there is a good chance of that happening) but that is okay when analyzing a program from a national perspective if the benefits show up in improved quality of life, improved attendance/performance at school/work, or fewer hospital stays. From a federal perspective, any of these things are wins.