April 3 2020
The POTUS and “geniuses” around him bought into (or were sold) a myth, a fiction, a “fake news” by insurance companies. Take a deep breath: INSURANCE COMPANIES (naturally - the great ones!) DECIDED to WAIVE CO-PAYMENT for CODID-19 related services! This is being publicized as something the POTUS and the VERY generous insurers give as a gift, a donation, from the deep in their hearts, to struggling Americans. They forgot one little thing: the definition and the purpose of co-payment.
Co·pay·ment /kōˈpāmənt/, noun, is a payment made by a beneficiary (especially for health services) in addition to that made by an insurer.
To begin with, let’s define ben·e·fi·ci·ar·y /ˌbenəˈfiSHēˌerē/, noun, is a person who derives advantage from something, especially a trust, will, or life insurance policy.
Got the point? If not, I must explain: the most generous government and the most generous, the greatest, the most charitable, the most patriotic, and the most well-meaning health insurers allowed beneficiaries (patients, e.g. you and I) NOT to PAY copayment to PROVIDERS of medical services, e.g. doctors. In other words, doctors, who are on forefront of the struggle with epidemic(s), just got a pay cut.
Why? Because co-payment (to make sure, it is a small amount ranging from $10 to $40 per incidence of service), DOES NOT belong either to insurers or to the government. It is an amount beneficiary (a patient) must pay out of pocket to a provider in order to receive services. It is akin of me allowing you to eat someone else’s lunch for free!
So, what did they just waive? They told everyone of us that by claiming that one is here to receive services because of COVID-19 scrooge, does not have to pay his portion of a doctor’s fee for service. This means, if I am a patient, I have no obligation to pay my doctor my share of the cost.
One may ask, why is this a big deal? Here is why:
Co-payment is designed to be a deterrent. Insurance companies use copayments to share health care costs to prevent moral hazard. It may be a small portion of the actual cost of medical service but it is meant to deter people from seeking medical care that may not be necessary (e.g., an infection by the common cold). In health systems with prices below the market clearing level in which waiting lists act as rationing tools, copayment can serve to reduce the welfare cost of waiting lists.
In economics, moral hazard occurs when an individual has an incentive to increase their exposure to risk because they do not bear the full costs of that risk. For example, when a person is insured, they may take on higher risk knowing that their insurance will pay the associated costs. A moral hazard may occur where the actions of the risk-taking party change to the detriment of the cost-bearing party after a financial transaction has taken place;
However, a copay may also discourage people from seeking necessary medical care and higher copays may result in non-use of essential medical services and prescriptions, thus rendering someone who is insured effectively uninsured because they are unable to pay higher copays. Thus, there is a balance to be achieved: a high enough copay to deter unneeded expenses but low enough to not render the insurance useless;
That balance may not be achieved by allowing us NOT to PAY our portion of doctor’s fee and therefore remove deterrent for seeking service;
Is this is a big deal to a doctor? Yes and no. From one standpoint, doctor who has contract with an insurer is obliged to collect copayment. A doctor breaks a contract, if he does not collect it;
From another standpoint, this may be a significant portion of doctor’s revenue. Let’s say, doctor sees 40 patients a day and collects $40 dollars from each patient. This adds up to $1,600 per day, $48,000 per month (if doctor works 30 days every month), and $576,000 per year (if doctor does not take a vacation). If doctor manages to collect additional $40 per patient from an insurer, the total is $1,152,000;
Therefore, by waiving co-payment, insurers release doctors from contracts while potentially taking away 1/2 of their income!
Insurers may also take a hit although: if patient does not have to pay co-payment, he is more likely to seek medical services thus exposing insurer to risk;
Provider, in turn, has all of the incentives to charge insurer more to compensate for loss of revenue;
Even if insurer waives co-payment, patient is still liable for co-insurance - normally between $6,000 to $10,000 per year. Insurance does not get on a hook, until patient pays out of pocket maximum, e.g. coinsurance - another deterrent!
Is government at risk? Yes, because it just removed the moral hazard and will have to pay all costs, as soon as patient satisfies co-insurance requirement;
Did government minimized its risk? Yes, by announcing that provider will be paid on Medicare fee schedule, which is normally 2-4 times lower than commercial insurer pays;
In conclusion, this is a lose-lose-lose proposition: a patient, an insurer and the government are exposed to a moral hazard due to governments actions;
Is there an alternative? The only alternative is “medicare for all” or similar government funded health plan;
Why “Medicare for all” is a bad idea? Because it eliminates moral hazard, while compensating for this by rationing healthcare services, cutting payment to providers, and creating long waiting lists;
What is the solution? I am afraid there is none now. The government put itself in a corner by promising something it cannot deliver, forcing providers to take a pay cut, while rationing services;
Got the point?
If not, read this Trump’s proposed $4.8 trillion budget will seek cuts to Medicare, Medicaid , WSJ, Fe 09 2020.
P.S. What about waiving co-payments for patients with cancer and other dread diseases, while paying providers x 2 to compensate for the lost co-payment revenue? I am sorry, but a cancer patient is no more guilty (unless a smoker) than a COVID-19 patient with pneumonia (unless a smoker)!
P.S.2 Removing moral hazard may overload the system to a halt! Does this sound familiar?