Why Are Insurance Companies Reluctant To Cover Preventive Care?

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Pink and Blue Piggy Banks

Dr. Michael Kirsch, a practicing physician and newspaper columnist, has lamented that he can never answer certain questions satisfactorily for his patients. Like many doctors, Kirsch doesn’t like Obamacare and would like to see it repealed.

We’ve done a series to propose some answers to his questions. Our responses to his first two questions on why drugs are cheaper drugs in Canada and the exorbitant fees charged by hospitals for small items can be found on our blog.

We now examine his third question: “Why did it take so long for colon cancer screening to be a covered benefit when colon cancer was always paid for?”

The short answer is that screening tests rarely, if ever, save money.

A screening test looks for a disease when the patient has no symptoms. And because of the lack of symptoms, nearly all of these tests offer no medical benefit.

For a screening test to save money, the costs must be very low, the benefit long lasting and the potential for side effects unlikely.

It is easiest to make a case for vaccination. The costs are low, the benefit is relatively permanent and the potential for side effects, although devastating to those that experience them, are extremely unlikely.

Making an economic case for colonoscopies is much more difficult. Colonoscopies are both a routine screening as well as a diagnostic tool when there are symptoms. And they are also a treatment procedure to remove polyps that may be precancerous.

The procedure is expensive for multiple reasons.

In the United States, the government added a regulatory burden that pushed the procedure into outpatient surgical centers. Unlike in Europe and Asia, sedation is now required that increases the chances of complications. Costs are pushed even higher due to the effects of the third-party-payer system.

As many as 6% of colonoscopies on patients with existing colorectal cancer fail to find the disease. They also fail to find adenomas larger than 1 cm that become cancer about 15% of the time.

Colonoscopies also have serious risks. Most common is an adverse reaction to the sedation. Hemorrhaging can occur at the site where a polyp was removed. The wall of the colon can be perforated.

Complications like these put 1 in 200 patients in the hospital. Other common negative effects are considered normal. For example, one in three patients reports transient gastrointestinal symptoms such as bloating or abdominal pain.

We are not suggesting you avoid a colonoscopy. We are not qualified to assess the medical risks and benefits for your specific situation. Colonoscopies are just one of several potential colon cancer screening methods. Each one has its own risks and benefits.

But failing to find existing cancer or polyps and potential costly complications must be taken into account when looking at the economics of cancer screening.

Screening has a greater average benefit for certain patients, such as those with inflammatory bowel disease or a genetic predisposition.

But efforts at prevention have significant costs when massive numbers of healthy people are screened who require no treatment and often receive no benefit.

It is unclear whether we should incentivize every healthy adult over 50 to have a colonoscopy. And it isn’t certain that covering colonoscopies will be a wise bet for health insurance companies. The verdict is out on whether colonoscopies save money. But the evidence is stacking up that, for healthy adults, it costs them more.

Of course it would be presumptuous to dictate your health care decisions based on our personal preference. And yet that is exactly what Congress is doing by taking control of our health care insurance.

Obamacare mandates that health plans must cover 100% of preventive care without cost sharing when provided by an in-network provider. So there is absolutely no charge for a costly set of test and procedures on the all-you-can-spend preventive care buffet.

In 2009, the Congressional Budget Office studied preventive care and ultimately found that “for most preventive services, expanded utilization leads to higher, not lower, medical spending overall.”

A 2012 article in the New England Journal of Medicine specifically analyzed prevention of colorectal cancer deaths. The authors found that of 2,602 patients who had advanced adenomas removed during a colonoscopy, only 13 people were saved from dying of colon cancer.

David Hogbern of Investors.com conducted a cost analysis and found that $192 is “what the average colonoscopy would have had to cost just to break even” on prevention savings. However, “the average amount Medicare pays for that procedure in 2012 is $482. That means Medicare would have to spend $1,245,164 (2,602 multiplied by $482) to achieve a savings of $499,590. Which, of course, is no savings at all.”

Multiply this study of 2,602 patients times the U.S. population and then times the number of newly covered preventive care screenings. The added costs for no savings at all are multiple millions of dollars.

People argue that if preventive care isn’t covered, the unhealthy people who need it most won’t pay for it. Thus as a service to national health, we should make preventive care a covered benefit.

However, everyone had a better chance of affording colon cancer screening and other preventive care when it was not a covered benefit.

David Goldhill, author of “Catastrophic Care: How American Health Care Killed My Father–and How We can Fix It,” said it best: “So, preventative care was developing as a very competitive segment because, under most people’s high deductible plans, they were paying for most of their preventative care. So you saw minute clinics growing all over the country. . . . The reality is that the cost of performing most of tests is almost zero. And there’s a lot of technologies that will bring it down closer to zero and, more importantly, let you do it at home. Why? Well, they had a chance to succeed because you were paying for it.

“The administration–or at least the supporters of the Affordable Care Act, to be fair–think that preventative care should be free, to make sure that nobody nowhere doesn’t get the total amount of it. Well the problem with that is that all that incentive to price preventative care cheaply went out the window the minute you said anybody who is insured should never have to pay a penny for preventative care. The incentives to keep prices down was gone. And I think it is actually an interesting example for what has happened in all of healthcare.

“Look at Medicare: In 1965, the average senior spent 10% of his or her income on healthcare and they were paying for all of it! So we fast forward almost 50 years of Medicare, the average senior pays only 5% of their total healthcare bill, 95% is paid through Medicare. That 5% is now almost 20% of their income. They are no better off financially. The extremes are less–fewer people have extreme examples–but all you’ve done is enabled . . . my providers to push up prices.”

Preventive care that requires regular screening (e.g., mammograms, colonoscopies, and pelvic exams) are not the catastrophic, extremely expensive events that insurance should cover.

As we’ve written previously, “Insurance only makes sense for extremely expensive and unlikely scenarios. It is never advisable for everyday events. . . . Insurance should be used to limit catastrophic risk, not to pool everyday expenses. Affordable medical insurance should have a high deductible. Then out-of-pocket expenses below the deductible would provide sufficient negative feedback to prevent skyrocketing insurance costs.”

This blog post is part of “The Economics Of Healthcare series“.

Photo by Ken Teegardin used here under Flickr Creative Commons.

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.

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