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The Future of Health Insurance?
The impact of U. S. Supreme Court decisions on healthcare has rightly focused on the reversal of Roe v. Wade, but another decision may be an omen of future developments.[1] First, a little background. Dialysis treatments for patients with end-stage kidney disease are expensive. In 1973 Medicare benefits were extended to patients on dialysis regardless of age or other medical conditions beginning 91 days after the start of treatments. Over the years various tweaks have been made, particularly what is called the Medicare Secondary Payer Statute, 42 U.S.C. §1395, which requires commercial insurers to be the primary payer for dialysis treatments for the first 30 months, with Medicare being the secondary payer “when that plan covers the same services.” Marietta Memorial Hospital Employee Health Benefit Plan was written to provide the same limited coverage to all employees for dialysis treatments. DaVita, one of the two publicly owned commercial dialysis companies sued. “DaVita sued the Plan, arguing that this limited coverage violates the statute by (1) differentiating between individuals with and without end-stage renal disease, and (2) taking into account the Medicare eligibility of individuals with end-stage renal disease. The Sixth Circuit agreed with DaVita, holding that the statute prohibits plans that have a disparate impact on its participants, and that the Marietta Plan has a disparate impact on individuals with end-stage renal disease. In an opinion by Justice Kavanaugh, the Court reversed.” While this might appear to be a very narrow, technical decision based upon specific language in a particular statute, it has implications worth thinking about. First, why was DaVita prepared to spend the money on lawyers to sue and appeal? In most dialysis units, about 95% of the patients are covered by Medicare and/or Medicaid, but governmental payers account for only 80-85% of the revenue. And it is no secret that commercial payers represent the profit margin. Said another way, as a publicly traded corporation, DaVita is dependent on the spread between the commercial payers and the governmental payers to return a profit to the shareholders. Not surprisingly, then, the commercial dialysis providers are incentivized to (1) locate units in areas with high rates of commercially-insured patients, (2) minimize the number of patients with either no insurance, or Medicaid only, and (3) keep treatment costs to a minimum. That is to say they are incentivized to pursue “affluent” patients and to cost-shift to other payers whenever possible. Of course, these incentives are not peculiar to DaVita, or to the dialysis industry, rather it is a problem for all players. What made the case so urgent for DaVita, in my opinion, is the threat of a complete collapse of their business model if similar restrictive language becomes widely adopted by health plans. Since about 70% of patients with end-stage kidney disease receive their treatments from the two large, commercial dialysis organizations, this ruling threatens the economic viability of at least some of their units. Yes, for some individual patients, Medicare might become the primary payer, but if there is no unit nearby, this would force difficult choices for both patients and physicians. At a minimum, this ruling will increase CMS expenditures for the ESRD program. What if health plans were to adopt broad coverage limits for other major, high-expense treatments like neonatal ICU care, burns, or acute leukemia chemotherapy? Of course, some limits already exist, but could this ruling exacerbate the trend? Of is this just specific to treatment of kidney failure, which is a special case of diagnosis-based national health insurance? I titled this piece the future of health insurance. One of the “facts” I have learned over the years is that health insurance is not like life insurance. Most health insurance companies are actually claims processors and are not really “insuring” anything. Second, the try to manage the “medical loss ratio,” meaning the spread between revenue charged to plans and payments to providers, but if the ratio approaches 100%, the fees charged go up. What this means, of course, is the health plan participant ultimately bears the brunt of the cost, no matter the plan design. So, the question is this. Do you design a plan with large deductibles, but preserve the “insurance” for the individual, keep the net cost for the individual down by limiting coverage for expensive care, or some combination of the two? In practice most plans do some of both. What limits plan design presently is competition with other carriers and the self-insured market, plus the individual’s perception that he/she has insurance. It is ironic that this Supreme Court case was generated by a healthcare system’s attempt to control its health insurance costs, given that most of its income is derived from insurance companies. Barring legislative action, which seems improbable, we can predict health insurance will either become prohibitively expensive, or provide progressively less coverage, and perhaps both. Either, way the financial burden on individuals and health care providers will only grow worse. And the challenge to providers will continue to be how to re-design care so that it is cheaper, and hopefully, better. 17 October 2022 [1] Schweitzer D. National Association of Attorneys General Supreme Court Report: Martin Memorial Hospital Employee Health Benefit Plan v. DaVita, Inc., 20-1641. 29:18, 30 June 2022. Accessed online at https://www.naag.org/attorney-general-journal/supreme-court-report-marietta-memorial-hospital-employee-health-benefit-plan-v-davita-inc-20-1641/, 16 August 2022. |
Further Reading
Costs and Wasteful Care Thinking about aggregate cost won't help doctors reduce unnecessary testing, but understanding Bayesian analysis might. Financing Healthcare How Did We Get Here? How did the health care payment system become such a mess? More on Money in Healthcare Hospitals account for the largest fraction of the healthcare dollar, but are usually hegemonic if not monopolies in their communities. Can Trustees call them back to their mission of patient care? Social Determinants of Health Social determinants of health trump many medical therapies, but can changes be made that result in better health? |