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Enticing Health Insurers to Pay for Prevention

Ronen Avraham proposes a system that might put economic incentives on the side of better health.

The American health care system suffers a litany of well-known flaws: high medical costs, rising numbers of uninsured and a greater percentage of sick citizens than in many industrialized countries. Despite what election-year rhetoric might suggest, there's no quick fix. But a Northwestern University law professor and a Houston lawyer have an idea for how to help pay for some expensive treatments.

In a Cardozo Law Reviewpaper, Northwestern’s Ronen Avraham and attorney K.A.D. Camara of Ahmad, Zavitsanos & Anaipakos propose a clearinghouse to reward insurance companies that pay for preventive care, saving both money and lives in the long term.

There's a common-sense argument for preventive care measures such as immunizations and mammograms: They increase quality of life by keeping people from getting sick, and better health leads to lower costs for insurers. Yet numerous studies show that, for a variety of reasons, prevention often doesn't happen. Patients may neglect to take care of themselves until they're seriously ill, or insurance policies may not cover preventive procedures they deem too costly.

Avraham became interested in the latter problem after a physician friend at a medical device company complained that insurers weren't covering bariatric surgery, a procedure to combat morbid obesity. About 15 million Americans are morbidly obese, according to the Centers for Disease Control, leading to pain and suffering from diseases such as cancer and diabetes. The financial costs are huge, with one study estimating the cost of morbid obesity alone at $11 billion.

Bariatric surgery modifies the gastrointestinal tract, often with a gastric bypass, in which the surgeon creates a small pouch at the top of the stomach and then bypasses part of the small intestine. When combined with behavior changes, it aids in weight loss — and lowers the risk of obesity-related medical problems. But its average cost is $25,000 per patient.

Still, Avraham and Camara estimate that the reduction in claims by healthier post-operative patients sees insurance companies recouping their average payment in about five years.

So why do many insurance companies choose not to pay? The researchers believe the answer lies in "the tragedy of the human commons," which they say applies to several preventive procedures. It's a special type of tragedy of the commons, in which individuals benefit from actions that hurt the common good — but in this case, the common goods are real people.

On average, patients switch insurers within four years, either because they change jobs or their employer changes providers. So covering bariatric surgery often isn't economically worth it to insurers because the now-healthier customer moves on to another company that will save on the person's claims.

"Nobody wants to be the only firm in town covering bariatric surgery," said Eric Finkelstein, a health economist at North Carolina research institute RTI International.

The result is that patients may hold off on surgery and stay morbidly obese. A working paper by Bradley Herring at the Johns Hopkins School of Public Health includes data showing that the more insurance turnover in a metropolitan area, the fewer preventive care measures taken.

Avraham mulled several solutions, including an expansion of current state mandates that require insurance companies to cover specific procedures, rebates for patients who pay upfront for expensive preventive care procedures and a new legal tort that would allow patients to easily sue to gain coverage. He then met Camara, a visiting Northwestern professor who a few years before, at age 19, had become the youngest graduate in Harvard Law School's history. The wunderkind helped the professor focus on the clearinghouse.

Under the plan, the government mandates that insurance companies become members of the clearinghouse, collectively specifying the treatment member insurers are required to provide. When patients switch providers, their new insurer compensates the insurer losing a customer, based on an agreed-upon rate. Though membership is required, the insurers, not the government, make the price and coverage decisions.

Theoretically, the system would make it more likely that insurers would cover even procedures that are only cost-efficient in the long term. Yet several researchers who agree with parts of Avraham's analysis are skeptical it would work in the real world.

Although preventive care often has clear health benefits, evidence on how much insurers actually save by paying for it remains inconclusive. In gastric bypass, for example, several researchers said post-surgery costs from complications or follow-up care might mean insurers wouldn't recoup savings for more than a decade, if ever — though Avraham said his estimates account for those additional costs. Without bulletproof data, it would be challenging to convince insurance companies.

“Insurers will be very wary of such promises,” said Roland Sturm, senior economist at Santa Monica, Calif.-based policy center RAND Corporation. “They have heard (and hear) them daily from any provider group that wants their services better-covered, and most of the promises in the past turned out to be false.”

Spokeswoman Susan Pisano for America’s Health Insurance Plans, an industry trade group, claimed the plan failed to fully take into account that coverage decisions are based partly on science and patient safety, along with costs.

If the scheme were eventually implemented, the complexity of administration and the transaction costs involved might also cut into the savings, said Michelle Mello, director of the program in law and public health at Harvard.

Many believe our current system, in which states often mandate coverage of conditions that insurers don't want to pay for, is vulnerable to manipulation by patient advocates and other special-interest groups. But barring a major change, such as the establishment of universal health care or the end of Medicare, it's one we all have to live with.

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