Reforming Healthcare Part 1: Automating Health Insurance

Eliminating waste in healthcare, part 1 of 3

Introduction

Usually we talk about healthcare and health insurance in this space and today is no different.  Today we are going to discuss how to automate health insurance completely, and what the benefits and risks are.  No, this is not AI.  We usually present our case in a Problem and Solution format, but today we are going to veer off that path a little by stating the situation and the logical conclusion if the situation is allowed to continue, but both of these at a high level.  Then we will do the deep dive into numbers and proof.  This is the first of a three part series where we will take a look at three different ways to contain healthcare expenses.  

Healthcare is Too Expensive.

The situation is that healthcare consumes 17.6% of the Gross Domestic Product and about ¼ of government spending, $1.6 Trillion, the largest expense by far.

The Logical Conclusion

People are dying due to inadequate healthcare caused by excessive expense.  One cause of this expense is the waste inherent in the insurance process.  The big insurance companies consume about half your premium payments never to be seen again.  That means that for every $100 you spend in premiums you get back about $50 in benefits.  This number is not only unsustainable, but as the big payers seek more and more profits, they increase premiums because they can’t just keep a larger percentage.  This is wholly unsustainable and unchecked will cause the collapse of the entire system.

The Solution

The solution, if you didn’t read the title, is to automate the entire health insurance system, and almost all of its associated costs.  But how?

Electronic Medical Records

The payer, or insurance company, must provide the Electronic Medical Record (EMR).  This way the payer (no it is not payor) , or insurance company, can pick up procedures and pay for them in near real time.  Let’s put aside the difficulties of producing a viable EMR for a moment, that is not a trivial concern, and there isn’t a viable EMR on the market currently.  

To have a payable claim, we need a doctor, a covered patient and a covered procedure.  That is it.  If we have those three things, we, as the insurance company, should be able to issue payment as contractually obligated.  All the things that the big payers do that isn’t “pay for your healthcare” is wasted time, money and effort.

Here, here and here are descriptions of our Relational EMR

Benefits of Automating Health Insurance

Picking up and paying for procedures performed has several benefits, as we will list below.  Here is an article that details the overall plan, using the EMR, and here is a demonstration of the EMR itself.  We are going to focus on the benefits here.

No Medical Coding

There won’t be any.  Medical coding is a bad solution to a dumb problem created by the legacy insurance companies to cut down on their own workload.  Practices and hospitals are required to submit their work as Current Procedural Terminology (CPT) codes and supported with International Classification of Disease (ICD) codes, currently in version 10, in order to get paid.  

Let’s try a little metaphor.  You want to watch a movie on Netflix.  The movie is the benefit, your Netflix subscription is the premium.  In order to receive your benefit you have to hire a staff who looks up the name of your movie in a book three inches thick, to get a code that they then figure out a way to transmit to Netflix.  No, you are not done.  Then you have to go to another book and look up a code saying why you want to watch that movie.  This is what your doctor’s office has to go through just to get paid for the work they have already done.

The average practitioner spends $20,286 annually on medical coding.  The average patient spends $60.  The average visit burns $18, each time you interact with your doctor.  This is on top of the ~50% of your premium that your insurance company just wastes.

With automated health insurance, as detailed above, you don’t incur this expense.

No Adjudication

Your insurance company reserves the right to just reject your claim for the reason of “not medically necessary.”  They do this after the work has been performed.  Forbes claims that United Healthcare (UHC) simply denies about ⅓ of their claims.  They have armies of MDs who spend about one second each on claims and determine if they are medically necessary.  When we say they spend about one second, what we really mean is they bulk deny claims picked out by algorithm, and deny them all.  They can bulk deny 75 claims in under a minute.  

We don’t have an average for the cost this incurs. The MDs, staff, facilities and equipment they use to adjudicate your claim are lumped in with the 50% of your premium that they waste, however.  

We do know that with automated health insurance, adjudication will be a thing of the past.

No Preauthorization

One would think that since the big payers reserve the right to simply deny coverage, they wouldn't need to preauthorize any procedure.  One would be incorrect. The AMA estimates that

“...prior authorization costs payers $6 billion, manufacturers $24.8 billion, physicians $26.7 billion and patients $35.8 billion annually.”

So on average, every doctor in the US pays $29,700, each patient pays $119 and the cost of each doctor visit is increased by $35

No Denials

We discussed denials previously, in the Adjudication section, but denials are another thing that we simply won’t do.  How do we protect against doctors just making up procedures or giving everyone the same procedure whether they need it or not, and driving up costs for everyone in order to line their own pockets?  

Data science.

There are several methods to detect fraud and we have automated them all in order to catch doctors that document and get paid for fraudulent procedures or give everyone the same unnecessary procedure.  We will have a human looking at these reports, and when a doctor is found to document more than hard work might account for, we will transmit that doctor’s name to the FBI, route out patients to a more reputable physician and  revoke any payments to the fraudulent practice/practitioner until the FBI case is resolved.

We don’t have average costs for fraud since we don’t know how many cases of fraud are successful.  Here is documentation of Medicare being defrauded by the big insurance carriers that could have been caught with the abovementioned data science.  The automated system, however, has safeguards in place to catch and prosecute practitioners who drive up costs for everyone.

No Networks

Health insurance networks are supposed to be a money saving coalition of insurance and medicine to provide quality medical care to patients at an affordable price.  The insurance company negotiates the rate on behalf of the patient and adds the practitioner to the network, at reduced rates.  That would be great if that were how it works.  The reality is that networks were originally designed to limit the amount of care provided to the patient.  If an in network medical provider were an hour or more away, the patient is likely to just not go.  Here is an article detailing the ways an insurance company separates the patient from both the doctor and his money.

Further, doctors are forced to negotiate higher rates with the big carriers due to the added expense of having to deal with their delays (more on that later) denials, medical coding and all the other things insurance companies force practices to deal with.  

We don’t have average costs associated with networks, there is really no way to calculate them, but they are large in terms of both money and health.  The automated system does not have networks; the pricing is on a take-it-or-leave-it basis and pricing  is published to the internet as both a percentage of Medicare and a cash amount.

No Rate Negotiations

In the network section discussed previously we alluded to negotiations between the practice and the payer over rate.  These negotiations are a waste of time, effort and money in the fact that they waste the doctor’s time, the payer must hire someone to negotiate these rates and every one has to fly around the country and sit down in a conference room and as stated earlier, rates actually go up in all cases.  

Automated health insurance avoids these negotiations by paying 150% of Medicare.  If the practice or the hospital doesn’t want to accept that more-than-generous price, then we will find the patient a doctor who will, but we don’t negotiate.  As an aside, Medicare is low, and we know it, that is why we offer time and half payment.  It is however fair and we won’t quibble and make one practice or hospital the exception.  We at Sentia have other software that will help practices and hospitals run more efficiently and find and plug “cash leaks,” but that is beyond the scope of this article.  In fact, that is the subject of Part 3 of this series.

Avoiding rate negotiations streamlines the process saving the consumer money.  We don’t have exact numbers on these savings, but think about over 6000 hospitals and 330,000 medical practices.  Every single one of them has to be negotiated every year.  Every. Single. One.

Delays

In the 1980s, business consultants pitched insurers on a new source of 'pure' profit: float. When a claim is approved, there's a small period where the money officially belongs to the claimant but remains on the insurer's books. What's important to note is that this money still accrues interest. By stretching that period to a few days or a few weeks, insurers can earn interest on money that doesn't belong to them.  Delaying payments is how Elon Musk made his billions with PayPal and why we have to put up with his shenanigans today.

With health insurance it is different, however.  PayPal told you it was going to hang on your money for a couple of days.  They call this float.  If you as a consumer floats a check, you go to jail.  The big payers just hold on to money that isn’t theirs in order to increase their profits and may very well end up causing harm or death to patients.  Here is an article that details what is going on with delayed payments at big insurance companies.

We don’t have an estimate of how much money is lost due to delayed payments, the big payers would have to publish that, but it is large.  With the automated system, there are no delays.  Payment is issued to the practice in near real time as the patient encounter is documented.

No Salesmen, Brokers or Agents

We have the ability to offer Direct Universal Care (DUC, yeah, quack quack) through your local hospital system or service your account directly, through Sentia Health Insurance.  We will have policies available on the Health Insurance Exchange and directly through our website.  We can also act as a Third Party Administrator (TPA) for self insured and captive businesses.  Of course we also work with  Individual Coverage Health Reimbursement Arrangement (ICHRA) to provide coverage to employees who get a stipend from their employer to purchase their own health insurance.  

This eliminates the need for expensive agents, brokers, TPAs and salesmen in general. Insurance Informant states:

“A health insurance agent can earn between $273. 60 and $547. 20 in commissions per policy in the first year, depending on the type of insurance. The Kaiser Family Foundation (KFF) reports that the national compensation for health insurance varies significantly depending on the type of insurance, with health insurance brokers earning between 4 to 6 and life insurance brokers earning between 7 to 15. An average annual premium of $1, 644 with an initial commission rate of 22% means each Medicare Supplement policy could earn $362. Health insurance agents can earn commissions ranging from 2 to 8 of the premium, depending on the insurer and plan complexity. Employers pay an average of $7, 034 for health insurance for individual workers, while private industry employers typically cover 59 to 80 employees. Private industry employers pay agents a very low commission of $20 per employee per month. In 2023, the average annual cost of employer-sponsored health insurance premiums per employee was $23, 968 for family coverage.”

We didn’t do the math to figure out the savings, but it looks to be several hundred dollars per year per individual.  Automating health insurance avoids payments to salesmen completely.  

No Third Party EMR

According to Grand View Research, the electronic medical record market size in 2023 was $32.23 billion.  With compound annual growth rate (CAGR) of 4.43%.  The number of practitioners in the US is about 900,000 (897,151).  The number of insured patients in the US is about 304 million.  The average number of patient encounters or visits per year in the US is about 1.0 billion.  Here is a breakdown of ancillary costs that drive up the costs of healthcare.  Thusly we can calculate

• The average practitioner spends $35,925 annually on electronic medical records
• The average patient spends $106 annually on electronic medical records
• The average patient encounter or visit cost for electronic medical records alone is $32

These are huge and largely unnecessary numbers.  These are all based on 2023 numbers as well, by 2030 the average spend on EMR is predicted to be $43.65 billion, a 35% increase.

With health insurance automated through the use of our EMR, we don’t incur these costs at all.  This saves time, money, resources and lives.

Other Unnecessary Expenses

The big payers collectively have hundreds of thousands (UHC has 150,000+ by itself) or maybe a million employees.  There is at least one and sometimes several big, insurance owned skyscrapers in every major city in the country.  Think about all the wasted resources for power and equipment and infrastructure for all those employees.  What exactly do they do?  

Conclusions

We don’t have reliable estimates of the true costs of all the things the insurance company does that you as the consumer pay for.  The Affordable Care Act (ACA) mandated that the ratio of premiums to benefits was to be 80% for small companies and 85% for the big carriers.  This is called the Medical Loss Ratio (MLR).  That means the insurance companies must return 80-85% of your premium as benefits.  Since the information to calculate this number is nowhere to be found on the internet, and we have tried, we have to assume that it is being suppressed.  The only reason to suppress this information is to hide the fact that the big payers are cooking the books and wasting about half your premium.  Yes, that sounds like a tinfoil hat theory until you find out how our healthcare system compares to the rest of the world at about twice as expensive.  The cited article was written based on 2022 data and it has only gotten worse. This dovetails nicely with our assertion that 50% of your healthcare dollar is being wasted.

We have shown a way to completely automate health insurance, and with the exception of one data scientist to look at the automatically generated fraud report, do it completely without people.  This one system will save the average patient about half on the cost of healthcare.  We have shown how the big payers waste money with medical coding, pre-authorization, insurance networks, adjudication, delays, denials, rate negotiation, sales/brokers/agents, the cost of a third party EMR, skyscrapers in every major city in the US, and the hundreds of thousands of employees.  Elimination of these wasteful practices will save about half from the cost of health insurance, not affect care or payments to doctors in any way, put us on an even footing financially with the best healthcare in the world and still provide best-of-breed, United States healthcare to patients.

This is the only way.

We have only detailed the benefits here, but the full documentation of the arguments and the solution are in the links provided.  

I challenge each and every one of you to show me why this system won’t work in the comments.  If you come up with a valid argument, I will change my assertion to include a solution to your concern.

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