The Democratization of Health Care: Private Insurers and the Diabetes Epidemic

Few would disagree that a systemic shift in our approach to the diabetes epidemic is in order. The challenge demands that we find more consumer friendly, effective therapies and make them broadly available. But is the American health care financing system up to the task?

The twin pillars of this system are government-sponsored social insurance and an employer-based insurance market. In recent years there has been considerable consolidation in the industry, but competitive forces still inform business practices. As I described in a previous post, private insurers are essentially banks in which a portion of employees' wages are deposited to enable purchases of medical care that is made affordable by the risk-pooling effects of insurance. The negotiations between employers and insurers that result in benefit design cause insurers to view the employer as the principal client, even though the employee in fact pays the insurance premium. Since premiums are wages and higher premiums mean higher wages, in the competition for employer-clients, competitive advantage goes to the insurer who can demonstrate an ability to restrain increases in premiums.

Typically, when a beneficiary covered by employer-based insurance needs medical care, he or she presents an insurance card to a purveyor of medical products or services, who in turn submits a bill for reimbursement to an insurer. Insurers, as agents of employers, review the bill with an imperative to control expenditures. They establish pricing schedules, decide which products or services are reimbursable, encourage the use of less-expensive therapies, and initiate strategies to shift costs to employees through coinsurance and copayments. Given the transient nature of the employer/employee relationship, and the competition within the insurance market for employer-clients, insurers also assess the value of therapy within a limited time. Insurers are less inclined to make significant investment in a therapy whose return on investment, improved outcomes, will be realized after the employee has left the risk pool.

It is appropriate to ask whether we can or should rely upon the employer-based insurance market to finance our nation's collective response to the national disaster of diabetes. Private insurance has been the banking institution in our economy through which consumers have been able to purchase medical care. This ability to pay is an attractive force that has encouraged capital investment in health care, though a dynamic tension has evolved between insurers, who are motivated to constrain consumer demand and the concomitant increases in health care costs, and the businesses that provide products and services to meet that demand.

Even with the tension, employer-based insurance has contributed to the flourishing health care market in this country. A case can be made that the growing prevalence of diabetes is a measure of this success. Insurance has enabled people living with diabetes to access medical care, thus extending their lives. But the needs of millions living with impaired health now threaten to overwhelm the system.

If we are to produce more consumer-friendly, effective therapies and make them broadly and rapidly available to meet rising demand, significant capital investments in diabetes care will be required. The diabetes epidemic presents opportunities for businesses to create new products and services to serve an expanding customer base. As businesses innovate and compete for positions in the market, it is likely that diabetes outcomes will improve, prices will eventually fall, and efficiency will prevail.

The millions of people living with diabetes who need medical care constitute a dynamic force that is demanding improvement. They need products and services that can extend and improve their lives, that complement how they live, and that are affordable. Any effort that frustrates these demands will be counterproductive and will leave us without the tools necessary to manage the crisis.

Diabetes is a national disaster, and private insurers and their clients do not have the capacity to respond to it. They have a role to play, but government is the only structure in our society that can design market stimuli on the scale required. As government approaches the problem, it should operate within the framework of a consumer-oriented healthcare system that enforces transparency; arrests fraud and abuse; guarantees the safety and efficacy of medical care; encourages investments that address unmet medical needs; supports efforts to find cost-efficient solutions for therapies that currently fail to satisfy consumer demands; and reviews and removes legislation, regulations, and policies that frustrate consumer demand and discourage investments in the development of innovative products and services.

The storm may have struck before we were fully prepared, but with the judicious use of market forces our health care system will adapt and respond. We will emerge matured by the experience, with success ensuring a new era of prosperity and well-being.