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Study Seeks Win-Win for Insurance Coverage of Preventive Care

January 15, 2008 | by Pat Vaughan Tremmel
CHICAGO --- Obesity's links to serious health problems, high medical costs and significant loss of work are undeniable. As evidence of obesity's harms mounts, gastric surgery is increasingly being embraced as a rational answer for improving mortality rates for the overweight. Yet, from a cost-benefit analysis, bariatric surgery gives insurers the jitters.

The problem, under the present circumstances, is that insurers are unlikely to recoup the costs of the surgery, $25,000 on average. Because obesity is not considered to be a disease, insurers can opt out of covering weight loss. Many do.

Two lawyers, one from Northwestern University School of Law, tackle American insurers' reluctance to cover preventive care with a provocative theoretical framework for covering gastric surgery, including an analysis of the costs, benefits, politics, laws and economics that need to be negotiated.

The study offers a strategy that would result in a win-win outcome for the insurer and the insured and in a sense provide market-based universal coverage for gastric surgery and other preventive care, at least for those with health insurance. In a broader sense, the strategy addresses a central complaint about American health insurance -- lack of coverage for preventive care -- while employing market efficiencies central to competitive health care.

"The necessity of providing preventive care to help cure the health care system is being pushed by Republicans and Democrats alike this campaign season," said Ronen Avraham, associate professor at Northwestern University School of Law.

Avraham and K.A.D. Camara are co-authors of "The Tragedy of the Human Commons," recently published in the Cardozo Law Review.

The crux of the problem is hinted at in the title of the study. Dating back to the 19th century, the tragedy of the commons occurs when individuals overuse or fail to invest in improving a common resource such as water, air, forests or fisheries. Everyone is left worse off.

In this case, the common resource at issue is human beings. Health insurers fail to make long-term investments in improving the health of their common resource, the pool of insureds who switch among them.

Many insurers choose not to cover preventive care and other treatments that have high up-front costs, even though such coverage would result in substantial long-term benefits that would keep people healthier at lower costs. That is primarily because in the United States insureds switch insurers on average once every three years – or too soon for an insurer to recoup the savings from an expensive preventive treatment.

Gastric surgery, according to estimates, produces $5,000 in benefits each year, including reduced medical costs, increased productivity at work and high quality of life. To recoup the $25,000 costs for surgery, insurers would need the insureds whose gastric surgery they covered to stay with them for more than five years.

Health, the common good at stake in this framework, is a precondition to almost everything else that people take to be valuable. To counter the tragedy of the human commons, Avraham and Camara propose a mandatory-membership clearinghouse among insurers as the best solution to insurers' failure to cover prospectively efficient treatments. Basically, insurers would receive compensation for their losses whenever an insured who has received a prospectively efficient treatment switches to a different insurer. Then the incentive to not cover prospective treatments would disappear.

The health insurance clearinghouse would promulgate mandates decided on collectively by the insurer–investors and representatives of the insureds. Each mandate would specify the treatment that investors are required to provide -- for example, bariatric surgery for morbidly obese patients -- and the schedule of transfer payments to be made when an insured switches from one investor in the clearinghouse to another at various times. Payments could be made in real time as insureds switch insurers, or the clearinghouse could keep track of switches and then require the insurers to settle up periodically.

About 15 million people in the United States are morbidly obese. Morbid obesity is associated with heart disease, cancer, diabetes, stroke, arthritis, breathing problems and psychological disorders.

Bariatric surgery is just one example of insurers' failure to cover preventive treatments. A similar confluence of insureds switching insurers frequently, high transaction costs of individualized contracts, and medical-industry lobbying explain insurers' failure to cover other preventive treatments, the article concludes.

The article advocates for a system under which an insurer who covers a prospectively efficient treatment can expect to receive at least enough back to cover the cost of that treatment and a way to identify the treatments to which the system should apply. "This will make the system more efficient and reduce the high costs of health care in America," Avraham said.

Topics: Research