Why private insurance companies take longer to pay doctors than Medicare

In an earlier thread (“By its built-in logic, Obamacare will cause the health care industry to go bankrupt within months”), I asked:

The author of the Free Republic article says that doctors treating Medicare-Medicaid patients only get reimbursed 70 percent of their costs. Meaning they are losing money for every Medicare patient they see. Can someone explain how such a system came into being, and why the doctors ever accepted it at all?

Kathlene M. then commented that one reason would appear to be that, as doctors had told her, Medicare payments come very quickly, while

private insurance companies play coding/reimbursement games with doctors even if there are agreed-upon rates and the submitted paperwork is correct. And the payment is slow, around 45-60 days. Insurance companies will often try to pay less than the agreed fees, using coding “errors” or “downcoding” practices (i.e., changing the doctor’s reimbursement code), to mention a few. This requires the doctor to resubmit paperwork 2-3 times to get the proper reimbursement, or charge the patient the difference when that is allowed. Yes, medicare has its paperwork-submission games, but private insurance companies’ paperwork/reimbursement games are far worse.

Kristor writes in reply:

Kathlene M. describes the caviling of private insurers with doctors. I’m sure that it makes things harder for doctors, and I don’t blame them for complaining about it. But we should remember that claims adjustment is a critical business process for insurers, because insurance fraud is so easy. Can you imagine how high our premiums would be if health insurers weren’t casting a gimlet eye on claims? I’ll bet almost all of us have been to the doctor for a cold or the flu, and heard him say, “I’ll just code this as x, so that it is fully covered by your carrier.” That Medicare is a pushover for that sort of thing is yet another example of their ineptitude.

It is tempting to think that with the nationalization of health care, none of us will need to think about such things. We’ll just go to the doctor when we get sick, and the doctor won’t need to hassle with claims procedures because he’ll be an employee like those at the DMV. It will all be so simple! Think of Obama, foolishly believing that his premium payments for his bare bones, dirt cheap, de minimis auto insurance policy that covered only liability ought by rights to cover collision damage, too. What a compleat chump. The relentless leftist trope that insurers are “in the business of denying claims” is another instance of this pathetic idiocy (not that I’m accusing Kathlene of any such thing, I hasten to add). If insurers didn’t deny every claim they possibly could under their contracts, they’d either have to go out of business or jack up premiums. The contracts are not carte blanche, and there is no free lunch. Leftists are gnostic reductionists. They think everything is simple. But unfortunately reality is complex, and there’s no way of avoiding the complexities. Someone has to deal with them; someone has to pay for dealing with them. When we pay our premiums, one of the things we pay for is assistance with our negotiations with providers. Claims adjustment is one of the ways private insurers account for the complexity of the world. It is a service that they provide to us.

An insurance policy is not a license to be stupid, contrary to what Obama seems to think.

LA to Kristor:

This sort of real world explanation for why things are the way they are is very useful.

Kristor replies:

Such explanations are a big reason why I became a conservative. When one doesn’t understand how things actually work, one is prone to think, “That’s so unfair!” When one sees the concrete, pragmatic reason things are the way they are, one says, “Oh. That makes sense. Never mind.”

Obama doesn’t understand insurance; doesn’t understand the very principle of insurance. He is not alone; almost no one on either side of the health care reform debate seems to have a clue how insurance works, or what it is intended to do, or what it is not intended to do. The blogger doctor to whom Diogenes points us in this morning’s entry, and who thinks insurers backed Obamacare, is just as confused as Obama (albeit that insurers may well indeed have backed Obamacare; greater government regulation of an industry generally leads to higher profit and less competition—what’s not to like?). He says that, “Health insurance companies find themselves at the place in their industry’s life cycle where, for the very first time, they have to try to make a profit by actually taking care of sick people. They have never done that successfully, and never will.” But insurance companies are not in the business of taking care of people. They are in the business of pooling risk. It’s a totally different business. The lines between provision of health care and health care insurance have been blurred so much by the risk management activities of insurers—which resulted in such things as Preferred Provider Organizations, which providers may join only by agreeing to accept the insurer’s price for each service—and by the self-insurance activities of provider organizations—which resulted in HMOs—that now people think Aetna is in the health care business. It’s not. Insurance is not intended to take care of us. It is intended to accept and pool the risks to individuals of catastrophes that are beyond anyone’s capacity to predict or prevent, no matter how well they take care of themselves.

It’s always been a big PR problem for insurers: their business is both bewildering and boring to everyone else.

The divide between idealistic Democrats and pragmatic Republicans is like the great divide between theoretical physicists and experimental physicists, or, better, between architects and builders. The builders are constantly shaking their heads at the inane fantasies of the architects, who seem to the builders to be disconnected from reality. Meanwhile the architects are frustrated with the builders, who seem to them to be blind to the glorious vision they themselves can see so plainly. The architects tend to see the builders as obstructionists. The builders are the Republicans, the party of no, the ones who say, “OK, but the problem is that your idea won’t work in the real world.”

My brother is a builder of high end houses, and he loves to tell the story of the architect who was too smart by half and designed a $5 million house with a shake roof shaped like a V, instead of the inverted V that has been traditional for 100,000 years or so. The architect could not understand why the builders were unable to prevent the roof from leaking at its central channel. The architect and his client, the homeowner, were both driven by the need to build a structure that would break new ground, and would get into Architectural Digest (a lot of modern culture is about breaking new ground for the sake of breaking new ground—novelty is noticeable, thus marketable and memorable). It was all about prestige, and marketing. And they succeeded in that. The house was featured in Architectural Digest. It looked great. So I guess the building wasn’t really a failure, in their terms. But no one could live in it.

Obamacare will be like living in a house with a roof that leaks all the time, and can’t be fixed, because it is designed to leak.

Posted by Lawrence Auster at March 24, 2010 08:01 AM | Send