The Insanity of Health Insurance

Brett Sparks, August 26, 2016

It’s early in the evening on a Tuesday when your doorbell rings. You answer the door to the find the receptionist from you lawn service standing on your front porch, looking down at her computer tablet.

“Mr. Smith?” she asks.

“Yes,” you say.

“I have to verify,” she says. “What is your social?” Mid-sentence in your response, she stops you. A group of kids walk by. “I’m sorry,” she says. “It’s required by the Homeowner’s Insurance Protection and Accountability Act. We just can’t be too careful. Now,” she asks, “can you start again?”

After verifying your social security number, date of birth and answering a series of security questions, the receptionist is satisfied that you are, indeed, Mr. Smith.

“Mr. Smith,” she says. “Your account is past due and in danger of being turned to collections.”

“That can’t be,” you say. “I have home owner’s insurance. Are the claims being paid?”

“Do you have your card?” the receptionist asks.

“Sure,” you say “right here.” You fumble through your wallet looking for your homeowner’s insurance card. “Here,” you say, handing the card to the receptionist. She looks at the card.

“Mr. Smith,” she says, “this card seems to be expired. Do you have an updated card?” Shocked, you stare at the expiration date on the card bearing last year’s date.

“Hang on,” you say and call inside the house for your wife.

“I’m sorry,” the receptionist says. “I’m going to have you speak with our billing specialist. As your wife comes to the door, the receptionist returns to the lawn service van parked in your driveway.

“Honey, do you have the updated homeowner’s insurance card?” you ask your wife.

“I should,” she says. “I set your new card on the counter last month.”

As your wife goes to her purse to find her homeowner’s insurance card, the billing specialist exits the lawn service van and comes to the door. Looking at her computer tablet, she asks, “Mr. Smith?”

“Yes,” you say. “My wife is looking for our new card. I apparently didn’t get mine put into my wallet…”

“Mr. Smith,” the billing specialist says, “I’m going to have to verify…”

Fifteen minutes later, you, your wife and the billing specialist think the problem has been identified. The two-digit day in your wife’s date of birth seems to have been transposed when your policy was renewed. The six claims for lawn service in the past two months have all been denied. There’s a $900 balance for six lawn trims at $150 each. The big problem is that the trees were trimmed at the end of last month. That claim is $1,500.

“Come on,” you say. “Nobody is actually paying those prices, right? I mean, this is going to be taken care of. You’ll send me a statement for $15 for each time you mowed the lawn and $100 for the tree trimming, I’ll ignore the first two statements until you threaten to send me to collections, and then I’ll pay the $190 after a couple of months. You can’t honestly expect me to pay $2,400 when I’ll only owe $190.”

“Mr. Smith,” the billing specialist says, “the agreement for payment of claims is between you and your homeowner’s insurance. We just perform the services and submit claims for payment. You are ultimately responsible for all charges.”

“Fine,” you say, hoping the insurance company has fixed the glitch. “Is there anything else?”

“Yes,” she says. “Next Tuesday won’t work for us. We’re slammed. It’s the busy season, you know. We need to reschedule.”

“Sure,” you say. “What day works for you?”

“Hang on,” the billing specialist says, walking back to the van. “You’ll have to speak to the scheduler…”


I could go on. I was thinking that your teenage daughter away at school might call and need the homeowner’s insurance information because she was in a car accident and through some quirk, those claims are sometimes filed through the homeowner’s insurance. Or the air conditioner might need some Freon, causing you to scramble to find if this was a covered benefit and, if so, a list of available, in-network repairmen.

I think the point is clear, though, that the current health insurance system is insane. No other insurance works like health insurance. We don’t submit claims for pest service or carpet cleaning or lawn service through our homeowner’s insurance. We don’t process claims for windshield wiper blades or car washes or oil changes through our automobile insurance. This just wouldn’t make sense, because these are low-cost, routine care items. Everyone understands that these expenses are just paid for out of pocket.

Then why are we submitting claims to our health insurance for the five-minute visit to our primary care doctor for a sinus infection? Or for the vaccine our child needs for school? Or for having routine blood work done? Or for the myriad of other low-cost, routine care services received in healthcare?

If someone wanted to know an easy way to reduce premiums, a good start would be to eliminate coverage for these low-cost, routine care services from coverage. Following the Accountable Care Act, insurance companies have been consistently redesigning plans to pass more of the cost for these, (and other), services onto the patient anyhow. One insurance plan in my wife’s primary care office has been famous for the $2.42 check. It seems that no matter what the charge is, the approved charge is always $2.42 above the patient’s responsibility.

For example, the patient might have a co-pay of $35 for an office visit. No matter what the charge is, the approved charge is reduced to $37.42. The patient pays $35 at the visit. All of the paper-pushing to submit the claim to the clearinghouse, have the insurance company process the claim and receive the remittance with explanation of benefit is just to receive the additional $2.42.

While I know much of claim processing is done electronically these days, saving the cost of the claim postage and return postage, this still makes no sense. For starters, how does the insurance plan keep approved charges at $37.42, regardless of the level of service? Well, the insurance plan won’t process a level four or five claim, (for more expensive, higher levels of service), without office notes, which require that the claim be “dropped” to paper and mailed. Which they tend to lose. On a regular basis. Again and again. If you don’t drop level four and five claim to paper, they are automatically reduced to level three claims. Voila! Now every claim has an approved charge of $37.42.

It  would be easier for the practice just not to submit the claim, but then they technically would be in violation of their agreement with the health insurance plan and wouldn’t be able to collect the patient’s co-pay—which is a benefit derived from the practice’s agreement with the insurance plan. If the practice doesn’t meet the terms of their insurance plan agreement by submitting a claim, an insurance plan could, in theory, audit the practice and require that the co-payments collected for claims not submitted be refunded to the patient. Now do you see why healthcare billing is such a fun and exciting job?


Of course, all of my assumptions so far only apply to fee-for service, non-HMO coverage. In an HMO situation, base payments are not tied to claim submissions because the practice is paid on a capitated per-patient-per-month (PMPM) rate. If a practice has 500 HMO members on a capitated rate of $40 PMPM, the practice is paid $20,000 a month to care for those patients, regardless of how many claims are submitted for care. The base payment may be adjusted for treatment or diagnosis information on the claims—the practice may receive a quality bonus or holdback, for example—but this just gives both parties incentive to submit and process claims. The practice hopes that claim data shows that they are meeting quality guidelines for each diagnosis. The insurance plan uses the claim data to hold the practice accountable for care delivered.

Suppose, for example, that the practice can receive an additional 20% of capitation if they meet quality care guidelines. For the practice with 500 members, that equates to another $4,000 a month. The down side is that the practice could be at risk of losing 20% of capitation for poor quality performance, which would reduce the base payment by $4,000. The claims in an HMO aren’t used for payment processing as much as data collection.

Because quality performance factors have grown tremendously in scope, it is increasingly common to find only large, market-dominating groups available on HMO networks. Large groups are best suited for managing the risks of at-home care, hospital follow up, nurses’ visits, specialist care, etc. Large groups can also service more patients, which helps to spread the risk across a population, (i.e. “population management.”) The more services that a group practice “takes risk” on for the larger number of patients, the more lucrative the contract can be to both the group practice and the insurance company.

This leaves only the solo and small group practices left to survive on the fee-for-service plans and the bureaucracy of low-cost, routine care claims. The insurance companies aren’t really motivated to work with these offices. They are nice to have for some of the ‘rich” insurance plan networks—and the insurance plans aren’t paying these practices much anyhow—but if a practice terminates their provider agreement or goes out of business, those patients will be forced into the nearest population management practice.

It’s hard to calculate the direct cost of paying, processing and administering the volume of low-cost, routine claims, but there are also indirect costs that have to be considered. Part of the push towards population management is to provide incentive for primary care providers to do a better job of managing routine care, especially as it relates to chronic disease. In the fee-for-service model, primary care physicians make more money by seeing a higher volume of patients and utilizing specialists rather than actively managing a smaller number of patients themselves. It’s not unheard of in Las Vegas for a physician to tell a patient that insurance payments only allow the physician to spend six minutes with the patient.

And those specialists who are getting the referrals from primary care fee-for-services physicians? They are in the same boat, just for larger amounts. They are most likely fee-for-service and don’t have the luxury of a monthly capitation check, either. They don’t get paid to spend time with patients. They make their money doing testing and procedures. It is pretty common place for a specialist in Las Vegas to redo screening tests even if the patient comes to their office with them completed. The specialist wants to be sure that they have valid information—and they have no incentive not to repeat the tests.

Removing health insurance involvement in most low-cost, routine fee-for-service encounters would let the market—rather than the insurance company—dictate price and service. Physicians who invest time, build rapport and actively manage patient health would be in greater demand and demand a higher office visit payment from patients. Physicians who kept the six-minute-visit schedule would hemorrhage patients or would have to charge much less. Rather than producing network provider directories showing all providers as equals, insurance companies could share downstream care outcome data to help their members make informed decisions about their providers.


I’m not the only one who thinks processing low-cost, routine care is insane. Healthcare sharing ministries, a type of entity whose members are exempt from the ACA insurance requirement, employ a similar approach with their members. While each of the approximately half dozen healthcare sharing ministries is unique, the basic principle is that the member is responsible for low-cost, routine encounters and only turns to the healthcare sharing ministry for expenses that exceed a certain amount.

And guess what? The monthly membership contributions required by healthcare sharing ministries are often less than half the monthly premiums for health insurance. Don’t get me wrong: Healthcare sharing ministries are not insurance. They’re often not regulated by state insurance departments, can deny membership based on health history as well as personal beliefs and can exclude preexisting conditions. Payments from the healthcare sharing ministry for services that trigger sharing are not guaranteed. As the word “ministries” might infer, healthcare sharing ministries require their members to have faith that their qualifying healthcare expenses will be paid.

Regardless of what you think of healthcare sharing ministries, though, their basic structure offers an improvement on the traditional insurance plan structure. Let patients select who they want to see for low-cost, routine care. Don’t require claims be submitted for this care. Allow the patient to be responsible for payment and only get involved when the amount of the claim warrants it. Changes need to be made. Can’t this be addressed? Please, the lawn service van needs to leave the driveway.

©2016, Brett Sparks, e3Business.