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August 22, 2011

What Agents Must Know About The Mechanics Of America’s Healthcare Delivery System

Summary:

The fundamental problem with the American healthcare system is that we hardly spend any money on basic, general care which causes us to spend a whole bunch of money on specialty care. The fact is that five chronic diseases account for 70% of our country's $2.6 trillion annual healthcare expenditures. Those diseases are coronary artery disease, congestive heart failure, diabetes, depression and asthma. The status quo of the way we deliver healthcare is conducive to inadequate management of chronic illness.

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I believe it is very important that agents fully understand the mechanics of America’s healthcare delivery system, why it is broken and what it might look like if it’s successfully overhauled.The fundamental problem with the American healthcare system is that we hardly spend any money on basic, general care which causes us to spend a whole bunch of money on specialty care. The fact is that five chronic diseases account for 70% of our country’s $2.6 trillion annual healthcare expenditures. Those diseases are coronary artery disease, congestive heart failure, diabetes, depression and asthma. The status quo of the way we deliver healthcare is conducive to inadequate management of chronic illness.

There’s not a lot of money in educating a family on what brings on an asthmatic attack and what to do in case a child suffers from one. But there’s a whole lot of money spent when an asthmatic is admitted to the hospital. The lack of proper care and management of diabetes can lead to very expensive care including amputations, dialysis at $10,000 a day and maybe even a new kidney at $250k. Outreach programs to help diabetics methodically check their blood chemistry, see their doctors regularly and gain access to nutritionists are generally poorly funded, if they exist at all. So it’s no wonder that diabetes alone accounts for 35% of Medicare expenditures.

Shortages in access to primary care due to lack of financial incentives (why be a general practitioner when you can make three times the money being a specialist?) cost our system hundreds of billions of dollars a year. Unless our country does more to encourage chronic disease management, the healthcare cost curve will continue upward and ultimately drive our country off the edge of an economic cliff.

Having said this, our system appears to be in the early stages of changing for the better.

For example, Congress included within the Patient Protection and Affordability Care Act (PPACA) language to encourage development of Accountable Care Organizations (ACOs) to help save Medicare money.

According to Wikipedia, many healthcare leaders define the three core principles for ACOs as follows: 1) Provider-led organizations with a strong base of primary care that are collectively accountable for quality and total per capita costs across the full continuum of care for a population of patients; 2) Payments linked to quality improvements that also reduce overall costs; and, 3) Reliable and progressively more sophisticated performance measurement, to support improvement and provide confidence that savings are achieved through improvements in care. Living examples kind of look like Integrated Delivery Systems such as Kaiser and HealthCare Partners Medical Group. In other words, in this model, hospitals and specialists within an ACO would be rewarded for positive health outcomes even if they never see the patient.

While Congress had making Medicare more effective and efficient in mind when they incorporated ACOs into PPACA, my bet is that large employers will be watching the development of this model with a great deal of interest. One of the advantages that large groups have over small groups is the fact that they can realize a return on investment (in the form of lower premiums and higher employee productivity) by incorporating chronic disease management and wellness programs into their employee management regimen. And that’s a good step towards lowering the cost of healthcare in our country.

But what about small employers?

Small employers don’t have the advantage that large employers have because of how small group rates are pooled in our markets. An employer with 10 employees who tries to help his employees live healthier lives will not realize a meaningful decrease in his health insurance premiums for his efforts because his company’s rates are pooled with thousands of others. But carriers being sensitive to the escalating cost of the delivery system and the threat this poses to the industry via reduced commercial enrollment are likely to take steps to modify their networks to look more like integrated delivery systems, ACO’s and , yes, even fully capitated HMO’s (remember those?).

Further, since the PPACA and its related changes to Medicare and Medicaid became the law of the land, the nature of conversations between providers and insurers appears to have changed for the better. So there is likely to be more productive innovation when it comes to developing future, new health care delivery models. Everyone realizes that unsustainable increases in cost are simply that: unsustainable.

Will these initiatives work? I think they will. All of this equates to more optimism that the healthcare delivery system has the potential to change and that the cost curve can begin to change course and begin to trend downward. But how long it takes to turn our system around and empower it to deliver and finance the level of care we expect for ourselves and fellow Americans for the long haul greatly depends on you, the agent.

The public needs to understand what we talked about above. The more they know about how the healthcare delivery system works, the more they will embrace and expect positive changes to it. Educating the public can bring you short term dividends, as well. The agent who typically explains away a rate increase by simply stating that this is “trend” is vulnerable to an agent who is on top of his game and can really explain what is behind the increase.

In the client’s eyes, the agent who knows his stuff and can explain in simple terms the mechanics of our healthcare system will come across as being more credible than the other guy. Increasing your understanding of how our healthcare system works will empower you to become more successful at building and retaining your base of clients. If you would like real case examples of the benefits of managing chronic diseases, let me know by completing the contact form below, and I’ll forward you the article. I promise you that it will find it eye-opening and inspirational.

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About the Author

John Nelson has long been a champion of legislative and educational efforts in the health insurance industry. He is a Chief Executive Officer of Warner Pacific Insurance Services, one of the nation’s largest health insurance general agencies serving over 35,000 small employers with over $1.5 billion of inforce premium.

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