How Do You Train an Insurance Company to Salivate and Heel?

We know what an insurance company wants. They want profits. Profits are their reward for having succeeded at accomplishing one of their various activities that produces the profits.

So you would think that even Congress would know how to induce the Insurance industry to drive the medical and other costs of the health care system down. But if you look at their biggest and best example: Medicare, they don’t seem to have achieved any outstanding or even lackluster success. They don’t reward anything productive, and they don’t negatively reinforce anything undesired. And the Government has set up Medicare (and its ilk) without regard or consideration of how it could motivate Insurance companies to become more efficient and less costly? And why have public oversight boards or committees that regulate the insurance industry paid no attention to creating regulatory environments that induce the industry seek improvements in the system rather than just ways to profit from it, no matter the consequences to the health care and services provided.

What could the Government do? They can’t be expected to be that smart and know how to run the entire health care system, and it would require to many government employees to be involved in all the medical services to be able to render it affordable. So what’s a Government to do?

Maybe it would be best if we compared to approaches: The current approach versus a reward-based approach.

Currently the Government is largely uninvolved in commercial health care insurers’ activities. They regulate and monitor these companies to guarantee that they are fulfilling the services that they have promised their customer base. They may mandate various services that the insurers have to provide if they are to do business. But all in all, the Government does not particularly care about how the insurance industry goes about making their profits. And the Government is completely satisfied with taxing the profits made by these companies. Consequently, the Government does not provide any incentive or reason that the insurance industry would focus on anything that lowered the cost of health care. The Government is content that insurance companies will find ways to reduce their costs and increase their profits, and that a fair portion of those savings will be trickled down to the customers.

Suppose the Government focused a little more attention and legislation toward providing a reward to those insurance companies that provided better and lower cost services to their customers. Maybe even a negative reward for companies that fail to achieve some comparable measure of achievement. Let’s speculate that if you were an insurance company that delivered payments for medical care to your clients for 10% less than your competitors that the Government would give you a 1% reduction on your tax rate. Further if you were an insurance company that paid out a cost for equivalent medical care at a rate 10% more than your competitors that the Government would impose a 1% increase on your tax rate. Now given this approach to rewarding the industry, what would insurance companies be focused on? Would they look to find ways to raise their rates? Would they look for more expensive ways to treat the same illnesses? I don’t think so!

And what would the board of directors of these companies start rewarding their executives for? Increasing profits by raising rates? Finding more costly procedures to include in their rate base or in their business’s cost base to try and off-set taxes? If your company is paid to lower costs, you find ways to lower costs.

Extend this same principle to effectiveness of treatments. If the company can provide more effective results for their lower cost treatments than their competitors, give them another tax reduction. Help them to be actually more profitable if they provide better and cheaper service. Turn their accountants to finding ways to lower costs rather than denying coverage.

Change the reward system to promote the results you want and you don’t have to know how to get there, nor do you have to force or compel businesses to work toward those objectives. You just have to monitor and assess their successes (or failures) and respond with the appropriate reward. The Health Care System will have at least one cog that is turning in your desired direction.

And if you want to motivate the insurance companies more, then you can add some additional incentives to train them to do better. The Government gets to deliver the Health Care system that America deserves, and Congress doesn’t have to know or understand any more than they do (or don’t) today.