Monday, April 19, 2010

On Health-care Pt. 2.6: Risk Pools and Fraud

Health-care reform has been a BigDeal(tm) lately, and I wanted to express some thoughts about it, the way it works and my general gripes about what is decidedly not real progress in my mind. In this series I will explore the benefits and failures of the current path of health-care reform in the United States. I will talk about insurance companies and risk pools; the difference between moral, political and economic decisions; and (in)efficiencies of scale in different levels of the industry.

So, I was taking a look at the Coalition Against Insurance Fraud website, and found a page full of stats (2) for reporters. Two things became instantly apparent: they don't know how to cite their so-called "stats" in any kind of usable manner and they are obviously run by the insurance companies themselves. Despite this, some of their claims are sort of interesting:

The U.S. spends more than $2 trillion on healthcare annually. At least 3 percent of that spending — or $68 billion — is lost to fraud each year. (National Health Care Anti-Fraud Association, 2008)
Medicare and private health insurers pay up to $16 billion a year for needless imaging tests ordered by doctors. (American College of Radiology, 2004)
Fraud accounts for 19 percent of the $600 billion to $800 billion in waste in the U.S. healthcare system annually. Fraud amounts to between $125 billion and $175 billion annually, including everything from bogus Medicare claims to kickbacks for worthless treatments and other services. (Thomson Reuters, 2009)
Medicare and Medicaid lose an estimated $60 billion or more annually to fraud, including $2.5 billion in South Florida. (Miami Herald, August 11, 2008)
First of all, let me say that I have little faith in these so-called statistics. I have little faith in anything that uses as its source The Miami Herald. Not because the Herald isn't a fine newspaper (it isn't) but because it's written by journalists not academic researchers. I'd like to see real research, not some little quotable that's mostly unfounded opinion. In the great words of Wikipedia, "[citation needed.]"

Second, the actual figures don't really matter to me. I'm here to talk about ideas. Let's look at four types of fraud:
  • Person without coverage receives care which is billed as if the covered person had received it
  • Person with coverage conspires with provider to participate in excess billing in exchange for cash or otherwise
  • Doctor orders unnecessary procedures to increase billings when lacking clients
  • Person receives medicine paid for by insurance which is improperly used or re-sold. (Where do you think dealers get pills?)
The first one stands out to me, because I see a solution for it. The fraud consists of someone not participating in the insured pool, but then using the coverage of the pool to receive treatment. It is the equivalent of sneaking in a concert. His / her costs are being paid for by the rest of the participants, raising their premiums. The higher the premiums go, the more incentive there is to cheat or forgo insurance in this system. You could detect and stop the fraudsters by investing in additional fraud and abuse detection units and then attempting to prosecute the fraudsters, which costs money. Another possible solution is to make participation in the pool compulsory, and severely limit the possibility of fraud. You still would be open to abuse from people not eligible for the mandated pool (e.g. illegal immigrants), but it would be much more difficult and there would be much less incentive for legal residents to attempt to cheat this system.

Final result? Compulsory participation reduces the amount of care the uninsured fraudulently receive that is paid for by the presently-insured. Depending on the levels of fraud in the system and the cost of compulsory participation, the costs of the presently-insured might even drop.


  1. Dear Will,

    Some girl who likes smartypants sparring better snap you up.

    Also, you are right to focus on that first of the fraud-types. Part 2 and 3 require unethical behavior by doctors; part 4 is really unavoidable as long as we have drugs that are prescribed for reason A but cause side effect x and are therefore interesting to a free market. I mean, I just don't see the pill-selling market getting any less appealing/rampant with less/more "socialist" health care. It's a moot point in the current argument. The only thing I can foresee is a lower cost of these pills to the underground market, but you can't expect to regulate an illegal market, anyway.

    But part 1 - fradulent medical claims by patients - man, oh, man should we get that under control. Right now, we all know that the "system" we have is WAY more expensive than necessary because poor/ineligible people go to the ER for the common cold because ER doctors cannot ethically turn them away, when in a better economic scenario, these patients should have access to an NP, which would cost a lot less (and we also know that we taxpayers are footing this uber-expensive ER visit so jeepers, let's clamor for more access to NPs, already). We also know that most routine annual visits are pretty low-cost. For gentlemen...I mean, I don't know a high-earning gentleman under 40 who even goes to the doctor annually. For ladies, there's a pap smear (not too spendy a lab bill) and a blood test for cholesterol/vitamin levels, if the doc is thorough. An eye exam every few years. Otherwise, it's a series of verbal questions and thumps and weight-measures and manual boob-squeezing and stethoscope tapping and all in all, healthy people cost so very little to the greater pool, and we pay so very little. But we are a short-sighted nation/generation, we hate and fear old age, and we don't like to think that we will ever need more care than we need now, and so we are stupid enough to think that since our annual appointments are cheap and arguably useless, we should not have to pay for insurance to subsidize other people's health appointments (our own parents'!) and we overlook all the "free" care we got as younger, wee people. The vaccines, the antibiotics, the stitches, the fluoride treatments that are such a routine of childhood cost someone a chunk of change. Without these low-cost preventative measures, we would not have lived to the glorious age of [20/30something]. Someone paid. It is not polite or PC to talk about it but someone paid for us, whether it was our parents out of pocket, their family health plan, or a government plan, and we owe it to the pool to pay for someone else because darn it, we made it this far without polio or rickets or scurvy. Our current appointments are low-cost precisely because someone else helped us get all the childhood care we needed to prevent a lot of adulthood diseases and we owe it to society or if you want, to the almighty GDP to continue this trend of relatively disease-free childhood and healthy young productive adulthood.

  2. p.s. in true, age-appropriate form, I have had more beverages at Bar than one's liver should by 8:49 pm, so my above rant may not be entirely coherent. happy Marathon Monday.


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