Historically speaking, in the 1920s or 1930s there was no such thing as health insurance. Patients simply paid their physicians. With increasing technology, liability & other costs the average individual could no longer afford health care & the health insurance industry arose to fulfill a need. There were separate policies for hospital care & others for health care professionals. However, patients paid their bills & were reimbursed by their insurance company. This arrangement changed in the 1950s through 1960s when insurance premiums rose & insurance companies paid the bills directly. Copays & deductibles were introduced to prevent overutilization of services by patients. Most policies were independently purchased by subscribers.
In the 1970s the introduction of better computers allowed the codification of services provided by doctors & hospitals & the diagnoses of patients. Then services supplied by different health care providers could be compared including their fees. Much of this was government initiated to control Medicare and Medicaid budgets. The government set out to assign work units to different codes & say how much it would pay for different codes. The private insurance companies in general were paying 2 to 3 times the amount of the government’s corresponding fees. The amount paid per code was based on the usual, customary & reasonable amount in the area where services were delivered i.e. what the average doctor was charging. Simultaneously the government began forcing employers to buy health insurance for their employees & offer HMO plans to them. This has continued to the present so that currently an individual will find it impossible to purchase non-HMO health insurance on his/her own. The risk pool for individual plans has shrunk to the point where it is unprofitable for health insurance companies. Since the insurance companies now had very large portions of the patient pool under their control they began to influence healthcare to maximize their profits by controlling the delivery & cost of care. While the government based its payments on having a fixed amount of money to spend on healthcare & controlling this as a percentage of inflation & GNP the insurance companies thought differently. During the 1990s the government decreased it’s fee schedule for procedures dramatically. The insurance companies followed suit dropping from 2 to 3 times the government fee to 1.5 to 2 times. They have continued this to the level of 1.1 to 1.2 times the government fee. In some cases they are offering contracts of 0.6 to 0.7 times the government rate. Coupled with greater than 40% increases in premiums, corrected for inflation in the 1980s & 1990s they are making a bundle. They are picking fee schedules which they call allowed amounts that maximize their profits & pegging them to the government rate. This is particularly troublesome since the government rate relates to federal budgets & has nothing to do with how much it costs to deliver those services. Non-government insurance should not be pegged to government rates.
Calling the amount they think medical services are worth “allowed amount” on the explanation of benefits circulated by insurance companies is misleading if not an outright lie. The column should be labeled what the company will pay for these procedures in order to maximize profits & damn the doctor because we don’t care how much it costs him to maintain an office etc.. We also don’t care if he makes a profit.