If your auto insurance worked the way your health insurance does...

It was quite some time since the front left bearing of my car was trying to rhythmically trying to tell me that it needed care. And so last month I finally decided to replace it. I ordered the replacement bearing online and when it arrived last week, I went around looking for repair shops to do the job. Some shops flatly refused to work with customer supplied parts - mostly with Italian accented sentences like - "you gate your parts, I don't touch your car"!! (While it left me fuming, I will cover that aspect in another blog).

One shop said it was impossible to give me an estimate on how much it will take until they got on the job - it could cost anywhere from $100 to $300 - as they might have to - take off the wheel, take off the rotor, take off the brake shoes, the steering column will need to be disconnected, the bearing hub will need to be unmounted.. etc. etc.. and so they will not be able to tell how much each of the tasks will cost until they get down to it. (To me it sounded more like IT consultants talking to a customer to work on a system for the first time and playing it safe when the customer asks for effort estimates by talking about hypothetical details).

And then I came to this third shop - the owner there glanced at the car, took a look at the replacement bearing that I had and said he will charge $89 for the job. And he could do it right away. Given that the hourly labor rate is around $90 in this area and the confidence of the shop to get it done, I awarded my contract to this shop.

Being somewhat interested in how things work, I stood by closely to observe what is involved in a front wheel bearing replacement.

Somewhere along the process, while I watched the mechanic unassemble the wheel assembly, it stuck me that if my auto insurance worked the way my health insurance works, instead of a 5-min discussion, a 45-minute job and a 5-minute payment and settlement cycle, it would have required something like:

• Me calling up my auto-insurance company to determine if Wheel Bearing replacement was a covered service
• If it was covered, what would be the copay & coverage limit
• Find out the "In-Network" mechanics in my area
• Call up the "In-Network" mechanics in my area to fix a service appointment
• In-case it was a breakdown situation, I would likely have to go to a repair shop that had an "emergency repair" facility (and pay a higher co-pay along with waiting in line while the mechanics repaired cars with more urgent problems - like engine or transmission problems)
• At the mechanic's shop, there would be very limited means for the mechanic to verify my coverage and copay
• If the auto-industry was regulated as heavily as the health industry, there would likely be an "Auto Insurance Portability & Accountability Act" - AIPAA
• The Auto-shop itself will be either an independent auto-shop, or a location in a network of auto-shops or a multi-facility auto-shop
• The mechanics working in the auto-shop would also be most likely be independent legal entities, at par with Auto-shops themselves
• At the time of actual repair, leave the car completely at the mechanic's discretion
• The mechanic would have performed thirty five different " diagnostic tests" on my car before touching it. They would charge the insurance company for each of these tests separately, charging for each test
• Based on these test results, they would have performed 45 different "procedures" on my car, again charging for each procedure
• Each wipe, each tool, each gasket and each washer would have been charged for, including every drop of grease/ oil used
• The auto shop would have filled-in a claim form to be submitted to the the insurance company
• AIPAA would mandate that mechanics submit the claim in an EDI format. So my small, poor mechanic would have to use the services of a "Web-AD" as an intermediary to submit the claim
• In-addition, the auto shop would have to keep all my repair records confidential and encrypted, so that no unauthorized disclosure can take place.
• At the Auto Insurance company's end, the claim would be received and checked for format compliance first. If it was non-compliant, it would be rejected and no payments will be made until the claim is resubmitted in a compliant format
• After receiving the format compliant claim, the claim would be adjudicated and the insurance company will make a determination on the amount that needs to be paid out against each line item in the claim, based on the fee schedule agreement between the auto shop and the insurance company
• The auto-insurance company would run the claim through their Fraud-And-Abuse detection system to determine if this claim looks suspicious
• Based on the how this mechanic is set up in the insurance company's systems, a determination will be made if the payment for the claim needs to be made to the mechnic directly (the servicing mechanic), or to the auto shop (the service renderer) or to the Billing entity or to the legal entity
• Based on the adjudication, the Auto insurance company will issue an EOB to me, detailing the amounts that the auto-shop had charged and highlighting how much I saved because the Auto-Insurance company saved me, because of their negotiated preferred rates.
• If there is item that that is only partly covered or not covered, then I will be responsible for paying the auto-shop directly for that service
• Assuming that there is no mistake in this whole claim-to-settlement cycle, the entire process should be completed within a month.
• If there is an error somewhere, this whole cycle repeats itself all over again.

Does the absurdity of the current health insurance system become clear to you? Just like Auto insurance is to pay for specific, exceptional situations and not for every repair and maintenance that the car needs, Health Insurance should be to pay for exceptional health events and not for routine health maintenance.

The current attempts to "simplify" and "improve the process efficiency" merely focus on how to execute the process (outlined above) faster and better. The need is to remove this administrative overhead altogether from the system for most of the routine transcations by allowing patients to directly deal with the providers and pay for the services directly, without going through the insurance route. Patients will be better off because the providers will charge for an outcome, or a bundle of services, allowing patients to make a comparison between various provider services; charges and settlements will be direct reducing the overhead from the system and lowering the costs. There would be numerous other changes that would simplify the system and lead to a transformation of the industry and its players.

Will continue on this thought in the next posting, but please do share your thoughts on this..