Part 1 – Indemnity Plans
Health insurance started out paying by paying a percentage of the doctor’s or hospital’s fees. These plans were known as indemnity or fee for service plans. In an ideal world this type of arrangement worked great for both doctor and patient. The patient was able to go to any doctor they wanted have a procedure and the insurance company would pay a portion of the doctors fee. For the most part the doctor diagnosed and proposed treatment in the best interest of the patient and a fair fee was set and the patient would be responsible to pay the difference between the fee and what the insurance would cover.
And then Adam ate the apple, or was it Eve who tempted Adam with the forbidden fruit, or was there a third party bent on destroying Eden. Here are some scenarios on how it began to crumble.
Doctor: “Mrs. Jones, after examining you and taking a chest x-ray and a throat culture it appears you have bronchitis. I will need to prescribe an antibiotic and have you return in 2 weeks for a follow up.”
Mrs. Jones: “Ok doctor, how much will that be.”
Doctor: “$200”
Mrs. Jones: “But doctor I have insurance will they pay for this?”
Doctor: “they will pay a percentage; I am not sure how much.”
Mrs. Jones: “I am low on money this week. Can’t you just take what the insurance cover and call it even.”
Doctor: “ok Mrs. Jones, this time I will, because you are such a loyal patient and I do feel bad that you can’t afford the full fee this time.”
4 weeks later………
Doctor’s receptionist Sally: “Doctor I got the insurance check for Mrs. Jones but they only paid $100 of the $200. Should I send a bill to Mrs. Jones for the rest?”
Doctor: “That’s ok Sally, I told Mrs. Jones I would accept only what her insurance would cover.”
4 months later……
Doctor: “Mrs. Jones, after examining you and taking a chest x-ray and a throat culture it appears you have bronchitis again. I will need to prescribe an antibiotic and have you return in 2 weeks for a follow up.”
Mrs. Jones: “Ok doctor, how much will that be.”
Doctor: “$200”
Mrs. Jones: “But doctor I still am low on funds. Can you do what you did last time and just accept what my insurance will pay?”
Doctor: “Honestly, Mrs. Jones they only paid $100 and that is well below my usual fee for an x-ray, exam, prescription and follow up.”
Mrs. Jones: “Well I don’t have the money”
Doctor: “ok Mrs. Jones; let me see what I can do.”
Later that day
Doctor- “Sally I just saw Mrs. Jones and she doesn’t have the money for our fee and her insurance only will pay us $100 which is 50% of what we need to get to be profitable. Maybe we should bill out differently this time and see if we can get the insurance company to pay us more money.”
Sally- “How about I bill out for the x-ray separately let’s say $200, then Exam $200, and follow up $200. That would total $600 and then when they pay 50% we will get back $300 which is even more than our regular fee. And Mrs. Jones won’t mind as long as she is not paying anything.”
4 years later:
Big wig Insurance executive at shareholders meeting: “ We are not making as much money as we used to I think the doctors may be manipulating their fees so they can get more money and furthermore they are not collecting the patient portion. We need to change the rules. First of all we can’t trust the doctors to set their own fees, and then we must make it illegal for doctors to waive the patient copayment. Make a note to give money to all politicians who are willing to pass these new regulations and then we will make doctors join our network and not allow patients to see anyone other than them. We will decide the treatments we feel are necessary for the patients. Once the network doctors are dependent on patients coming from our company we can then dictate all aspects of the healthcare they deliver.”
Jr. Insurance executive: How will we get the patients to agree to this?
Big Wig Insurance executive: “Go to the companies that they work for, tell the bosses of those companies we can offer their employees health insurance and they will see this as a great benefit to work for them. The bosses can then take out money from their check to cover some of the costs and the money the bosses contribute can be deducted as business overhead. As for the bosses, they can have health coverage too, and of course for them we will give them the better plan, so they can continue to see the doctors of their choice and have extra procedures covered that we won’t cover for their employees. Soon, unless you work for a big company, people won’t be able pay for health care and so they will work for a lower salary provided health benefits are included.
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