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Incentive Alignment: How Health Insurance Companies Work Against Your Long Term Health

Samuel G Oltman, ND, RMSK

The road to hell is paved with good intentions. All it takes for bad outcomes to occur is for everyone to try to do good work within a bad incentive structure. A recent NYT article highlights how the bureaucratic structure of medical insurance in the US contributes to poorer health outcomes and disincentivizes people from seeking care. It really drove home to me why I chose the business model I did for Cascade Regenerative Medicine.

Incentive Misalignment

The basic picture of healthcare in the US is that it is highly fragmented and non-cohesive with a multitude of insurance companies, hospitals, and providers all in opaque relation to each other. With all parties trying to maximize their profit margins, a zero-sum game exists in which the patient is caught in the middle: often it’s best for these entities to provide as little care as possible, or to prioritize the short-term symptom fix.

Health insurance companies are profit seeking businesses (even if they’re “non-profits”) that seek to increase their bottom line. The United Healthcare CEO got paid $20 million in 2022. This is a publicly traded company, ticker UNH. That means their responsibility is to their shareholders, not their customers (you). There’s no problem with this generically, capitalism is the best driver of innovation we know of. However, is your health insurance company’s incentive of maximizing profit in line with you receiving the best care for your long term health? Very often it is not.

In Medscape, the mainstream medical news source, there was recently an article highlighting the influence of private equity firms on the rising cost of healthcare: because they’re investors in health insurance companies that want to see the stock go up. The stock price rising could very well coincide with the company providing better care, but fundamentally these objectives are orthogonal. They can go up and down independently of each other. Influential investors and executives prioritize the stock price over your long term health because that’s their measuring stick. They’re just doing their job.

There is no evil cabal. It’s not a conspiracy. It doesn’t need to be. All that needs to be in place are individuals doing their jobs within a structure of bad and opposing incentives. And that’s exactly what we have with US healthcare.

When a health insurance company covers the cost of your care for an office visit or procedure, they are paying the medical provider/facility. That is an expense on their ledger. When you pay your monthly premium, deductibles, and copays, that is revenue on their ledger. If a company wants to increase profit, they attempt to decrease expenses and increase revenue. For you, this means paying higher premiums and getting less care covered. Insurance companies are incentivized to NOT provide you care.

Administrative Roadblocks

Another strategy, as the NYT article highlights, is that health insurance companies will simply put up so much red tape that it discourages the patient from seeking care altogether. They will technically cover a service but make it exceedingly difficult to get the approval for it. They require so many hoops to be jumped through that patients are simply unable to get care because they fail to navigate the intentionally over-complex maze of referrals, preapprovals, and authorizations. This is a tactic to reduce expenses: make it really difficult for people to get care so they give up and don’t get it.

Higher revenue generation coming from raising premiums has become so normalized that people have just accepted it. Many are lucky enough to work for a company large enough that it mitigates the cost through collective bargaining. However, a lot of middle class people make too much to be on Medicaid but don’t work for a big company and pay hundreds of dollars every month to have insurance that is not aligned in providing care when it’s needed. What has also become common are high-deductible plans where you pay a monthly premium for "coverage", then are required to pay $5-10K out of pocket before the insurance company starts helping with any of the cost.

There is another layer of opposed incentives that is also unique to the US: because we have a hodgepodge of private and public health insurers, it’s more common than not for people to switch their insurance throughout their life, many people doing so many times. This creates a dynamic where even if your health insurance company could theoretically cover care that is in your best interest in the long term, they are not incentivized to because statistically you won’t be their customer in the long term. This creates a huge divergence of interests between insurers and patients where the insurer has no financial reason to prioritize the best long term treatment because that insurer won’t likely face the consequences of your diminished health 10, 20, 30 years down the line. They want to prioritize the thing that minimizes your care/expense in the short term. Their incentives are not in line with yours.

Out of this comes all of the unnecessary inefficient spending on administrative tasks, triple checking coverage, finding out that a doctor is covered by your insurance but not the hospital they practice in, taking time off of work to jump through hoops on automated telephone lines, and the other features of the hellscape we call US Healthcare. Surprise bills and unreasonable pricing is an entirely different conversation that stems directly from this dynamic. Read this excellent TIME article for a deep dive.

Potential Solutions

A single payer system is one proposed solution because by having the entire population under the same insurer, the competition for profit is eliminated. The downside is everything that you see in Canada and Britain and elsewhere with delayed care and lagging tech. Having the government run healthcare does not eliminate bad incentives and may cultivate more inefficiencies. Not to mention you’d have to eliminate several billion-dollar companies and take away those $20 million CEO salaries, which seems highly unlikely to ever happen.

We could try to make it more of a pure free market where prices are more reflective of true cost/value. Right now it’s a highly distorted market. You could scrap coverage for many categories of care (make it like car insurance) and go much more “invisible hand of the market” which would have some upsides for basic care but would almost certainly stratify medical care drastically along income lines and likely lead to poorer outcomes for the most vulnerable in society.

A Different Way

Cascade Regenerative Medicine is not going to solve this problem and we do not pretend to. We are an oasis of sensible, efficient, respectful, aligned, person-centered orthopedic care for you in a vast landscape of inefficient and short-sighted options. Our small size makes us independent, nimble and responsive. Our lack of reliance on health insurer reimbursement allows for creativity, customization, and convenience impossible to find at the big hospitals. My set of technical skills and deep commitment to a person-first approach allows for expert level care in the context of long visits with time to discuss your questions, your plan, and what works best for you.

I want my patients to be as fully informed as possible and that takes time. I am a guide and information interpreter through a very complex decision making apparatus and there is not perfect evidence for most things we care about. We have to move through landscapes with unknowns everywhere and take the most reasonable path given what we know.

At Cascade Regenerative Medicine, our incentives are fully in alignment with your incentives: What is the best course of action for you based on where you are today and where you want to be in the future? When you do well, we do well. We have removed the primary source of inefficiency by cutting out the middleman. We are the provider, the administrator, and the C-suite. Our business only works if you are fully satisfied with your care and we are fully confident you will be.

It’s all about incentives. Come experience what fully aligned incentives look like at Cascade Regenerative Medicine where our entire orthopedic practice is built around YOU.


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