The recent Affordable Care Act (ACA) in US has taken an approach of standardizing health insurance policies around a comprehensive health care model.   This is a single policy that covers a wide range of health conditions including both routine health maintenance and rare catastrophic events.

To cover the entire range of conditions including routine health maintenance, the premium costs are high.  The law is explicit about what must be covered, with some common routine care not requiring deductibles or co-payments.   This exhaustive list approach leaves out certain concepts that insurers can exclude from coverage or that providers can begin to add to their bills.

A recent NY Times article describes this problem where new expenses are appearing.   Providers are adding additional items to the bill that were previously provided gratis (optician refractory services), or new concepts (room charges).  These are not covered by the insurance and do not count toward deductibles or out-of-pocket maximums.   However, the patient will not receive the service unless they pay these fees.

These fees can be very substantial.  The promise of the health insurance is that the combined cost of premiums and annual out-of-pocket maximums will be predictable.   These added fees must be paid directly from the patient, and the fees must be paid in order to receive the service.  In many cases, the fees will be presented to the patient after the services were rendered when it will be too late to decline the service.   These present to the patient cost burdens on top of the anticipated premium and out-of-pocket maximums guarantees and this can push some people into financial problems.

One of the objectives of the ACA is to prevent bankruptcy resulting from health care costs.  Given that most ACA individual policy plans are barely affordable as they are with very high premium costs even for high deductibles, the added uncovered but essential-for-service fees can easily result in financial problems or even bankruptcy.

I recognize this risk in my own planning for worst case annual expense of total of premiums plus maximum out of pocket expenses.  The promised maximum out of pocket expenses only apply to covered expenses.   For any condition that results in such high costs during a year, there are bound to be many other uncovered expenses.   The insurance is does not assure me that I can afford health care when I need it.

The article gives the example of a sling for a broken arm.  This is not covered by insurance because it is a durable medical device, but it may be necessary for treating a broken arm.   Actually, this example does not surprise me.  I would expect to pay for my own sling if I needed one.   But it does give an example of the complete treatment requiring an expense that insurance will not cover.  I would not buy a sling if I didn’t have a broken arm, but may have to spend my own money to buy one if I did.

The sling cost does not worry me as much as the other fees that are appearing as facility charges, activation charges, room charges (for out-patient services), and material charges.   These can add up.

I am reminded of a car maintenance example where I would take advantage of a coupon for some service deal only to be confronted with additional charges for shop rags and disposal fees that were not part of the coupon.  These added fees greatly exceeded the coupon cost.   At least for the car, I learn to expect this.   But I cringe to imagine similar fees creeping up after receiving medical services.

A medical procedure will require consumable items like disposable gloves, needles, ointments, or what ever that are essential for delivering the procedure but are outside of what would be covered.   What if these start to appear on bills with similar markups as the auto maintenance shop?

Drawing blood requires a rubber band, a disposable needle, some cotton and adhesive band, and a glove (or two).  The covered expense is for the laboratory expense of the sample, and the patient may be responsible for paying for the expendable items perhaps billed at marked-up costs of $10 for each item.  ACA covers routine lab tests, but the patient has to pay $100 for the incidentally used materials.

In recent posts, I have been discussing the Ebola crisis and the health care issues surrounding it.  Currently, there is a debate about what kind of quarantine procedures we should have for asymptomatic Ebola contacts.   The debate is primarily centered on the risk of contracting or spreading the disease.  The primary concern is the number of people who may suffer the diseases.

I do not see much discussion of the community risk of costs.   Even if I have virtually no risk of contracting the disease, I will be at risk of having to pay for it through higher premiums or perhaps having my insurance provider becoming bankrupt covering the few cases that do emerge.

There are some reports that the care of the first Ebola patient to die in USA ended up costing at least $500,000.  The required intensive care costs were about $1,000 per hour.  Even if that is covered by insurance, it will not take very many similar cases to bankrupt the insurer or at least the policy’s risk group.

Ebola care involves many additional costs not directly medical related.  The disposal of hazardous waste from one patient required multiple trailers where the hazardous waste was first treated and then packaged in multiple layers of packing material.  Then there are the costs for cleaning up living quarters, where the costs for cleaning a small apartment was over $100,000.  I suspect cleaning an entire house would be even more.   These are the type of charges that could become itemized separately and be declared outside of covered costs.   Although this Time article suggests that these costs should be covered if the government or a licensed physician formally declares the expenses to be medically necessary, I can still imagine additional fees being introduced such as labor for carrying containers, or the costs for packaging the material.   The patient will find these fees in bills that arrive much later and at that time be confronted with bill-collectors demanding immediate payment.  I do not fully believe the assertion that these costs will be covered by insurance, even today.  I suspect the coverage will depend on the policy and that may change in future policies.

Covering open-ended cleanup costs will be very expensive and do not directly contribute to the outcome of treating the patient who already has the disease.  It will not take very many Ebola cases covered by insurance to get insurers to clarify what is a valid covered medical expense.  Cleaning an apartment does not appear to be a medical procedure.  Even the hazmat disposal of used and contaminated medical garments is not obviously a medical procedure.

The current debate about policies for quarantine of high-risk contacts before they have symptoms should include consideration of the financial costs to the entire community when suddenly dozens or hundreds of Ebola patients appear.   These costs will financially strain insurance policies and this strain may constrain access for other medical procedures completely unrelated to Ebola.   I strongly suspect the uncovered costs will also bankrupt the new patients and their families.   As I mentioned, it appears the debate currently centers on the inconvenience of individuals and their low probability of infecting.   The debate should instead consider the fact that we simply cannot afford even a small outbreak of this disease.

In my last post, I suggested that this may be a good time to consider an option to separate hospital-type medical services from routine medical services.  I proposed a disruptive approach based on a new house-call model for routine medical services.  This approach leverages modern mobile communications and big data technologies to realize cost savings.  Although the costs may be higher than fixed site delivery (where patients much arrive at clinics or offices), this type of service is much better suited for treating and controlling contagious diseases.   In many cases, treating such diseases can be as effective at home as in medical facilities.  Home treatment provides better control against spreading the disease to new patients.

In the above introduction, I noted that there are non-optional costs for certain health services where these costs are not covered by comprehensive health care plans.   These new fees give a hint that there is already a form of disruption by creating a two-tier medical model of covered expenses that are intrinsic to a treatment and uncovered expenses that may be essential for the service but not for the treatment.   Services such as the purchase of refractory services for prescribing glasses, or purchasing a sling for a broken arm are not intrinsic to the covered procedure but are essential to complete the service to the customer patient.   These services will have to be paid by the patient, often in the form of cash up front.

Disruptive new markets are often created by fragmenting existing services or markets that are overly broad.  I think about residence sharing where anyone can offer a spare room or a spare house for short term rental without the normal hotel burdens of paying full-time staff, regular housecleaning services, or access to management to address complaints.   If all that is needed is a bed, then providing just the bed is disruptive to the more comprehensive business model of running hotels.   Something similar is already happening in health care through the new charges for service that insurance will not cover but the patient will have to pay full price.

The concept of the mobile house-call delivery of routine health care takes a bigger chunk of health care than the small-added services.   In effect this proposal fragment the existing health care model into two (if not more) completely different systems.

The health-care that centers on hospitals concern chronic care of functional diseases like cancers, heart disease, strokes, etc.  Hospital-centered care will include external screening clinics and test labs but specifically on the diseases that need treatment in hospital settings.

In contrast the hospital-centered services, there is a separate system for delivering routine health services, doctors visits, and treatment of acute infectious diseases.  This system may be reinvented on a mobile model to deliver these services to homes instead of fixed facilities.   The cost benefits are especially realized during contagious disease outbreaks such as dangerous strains of influenza.

Compared to the hospital specialty in managing chronic individual diseases, there is a fundamentally different set of economic consideration for routine or preventive care including management of infectious diseases.  The benefits for a separate medical system for routine care and managing acute contagious diseases are realized by the entire community by reducing the number of patients.  The economics for routine care involves medical costs for the entire community while the economics for hospital chronic condition care involves cost per individual patient.

A disruptive opportunity is to separate these two economies into two different payment models.   One model may be for treatment of chronic disorders like cancers, heart diseases, and many conditions associated with aging.   From my limited awareness of the debates around the ACA primarily involve consideration of the catastrophic consequences of diagnosed with individual non-communicable chronic diseases.   Hospital procedures for treating these conditions are expensive, and preventive screening procedures for these conditions can be cost effective.

Many of the cost-burdens on health care such as strict requirements for patient privacy (HIPAA restrictions) primarily are motivated by chronic conditions affecting individuals.   Meanwhile routine care and especially management of acute contagious illness is not usually a secret.  Generally, the community is informed of reasons for absences due to doctor’s visits and staying home with the flu.   Nevertheless the current model imposes the same expensive patient record burdens for both chronic and routine care.

There may be a disruptive opportunity to separate health care into two systems with separate providers, payers, and rules.  The existing health care defined under ACA is best suited for chronic conditions that usually involve one occurrence in a person’s lifetime (if they occur at all).   This type of care was previously covered in what was called catastrophic health plans.   Limiting coverage to the prevention, management, and cure for these chronic conditions could help to limit the costs.

This is like a pre-ACA era allowing for catastrophic high-deductible coverage for chronic once-in-a-lifetime type disease and a separate payer for routine healthcare.  The disruptive opportunity occurs by using the new technologies to enable the creation of house-call based health services for routine and communicable disease care.   These services may start off like the fees mentioned at the start of the post: uncovered by insurance and fully the responsibility of the patient.

There could be completely separate system of providers, payers, and rules for the second health system that focuses on routine healthy-patient care and treatment of temporary acute illnesses from communicable diseases like common-colds and flu, perhaps even including diseases like Ebola.   As stated in an earlier post, although Ebola can be more deadly, due to the increase infection risks of later stages, the additional extraordinary life-saving capabilities of hospitals may be too risky to perform.   Overall, even for Ebola, it may best to keep the patient at home and apply practical procedures (such as maintaining hydration) at home.

Already there exists plans to help manage these routine costs outside of comprehensive health care plans.  One option is the health savings accounts (HSA) that allow setting aside untaxed income to pay for any health-related costs including those for routine health care and management of illnesses like the flu.   HSAs are offered for high-deductible ACA-compliant health insurance plans.    The other option are fixed benefit plans (see for example this one) that usually work with networks of providers who agree to provide specific services for set fees that match the fixed payment benefits for the plan.  For example, the plan may offer a fixed benefit for lump-sum cost for a doctor’s visit and the participating physician agrees to charge that amount.  Even if the patient chooses a different doctor, he still will receive the same lump-sum payment and then have to pay the difference out of pocket.  Such plans frequently have no deductible although the fixed benefits may not be large enough to cover the cost from many providers, especially those that do not participate in the plan.  Fixed rate plans do not comply with ACA standards and thus will require also obtaining a ACA-compliant plan (that supposedly provides redundant coverage) or paying the substantial penalty for failing to comply with ACA.   However, the plans do exist and they can represent a reasonable payment mechanism for routine health services.

In addition, there may be future plans would work similar to dental plans that cover expected twice-a-year checkups plus the rare needs for more extensive services.   Dental plans work different from catastrophic medical plans in that most of their costs are prepayments of services that the patients will certainly receive each year.

In contrast, catastrophic medical plans are more like insurance in that the patient may never receive any benefit from plan.   It should be insurance for financial security in the unlikely event of a once-in-a-lifetime chronic condition comes up.  Limited to only such catastrophic conditions, these plans may be more affordable than the current ACA plans.

The health care market may be separated into two markets with one focused entirely on catastrophic care for rare chronic conditions and the other focused entirely on routine care including management of contagious diseases at home.   There may be a third market that focuses entirely on trauma and sports medicine where the injuries require services at facilities and are not contagious, but are of more easily treated conditions that tend to resolve quickly.

Each of these markets can operate independently and concurrently.   They could have separate sets of rules best suited for the different nature of health-care services involved.  They could have separate payer models such as ACA-compliant plans that specialize entirely on catastrophic conditions like cancers, fixed-benefit plans for routine health care.   I have not thought as much about trauma care but that may be a combination of a catastrophic plan for major injuries and a fixed benefit for minor injuries.

Separating the markets can free up the markets to optimize for the costs unique to each type of medical needs.   Off-loading the routine care to fixed benefit plans can allow ACA-style plans to be cheaper in premiums because they will concentrate on paying the rarer catastrophic needs.   Meanwhile, the fixed-benefit plans can grow and attract larger pools of doctors who understand their services are limited to routine and short term self-healing illness treatments.   They can offer services cheaper because a separate ACA-participating doctor will have the responsibility to deciding and delivering major medical procedure that are prone to higher risks and require more extensive training and costs.  Even if two policies would be required, their prices may be optimized for the different types of services so that the combined costs are lower than the present comprehensive plans.