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Articles by Donald E. L. Johnson

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Rural health markets need restructuring

By Donald E. L. Johnson

Health Care Strategic Management, June. 2001, Vol. 19, No. 6

Copyright 2001 by The Business Word Inc.

The soaring cost of health insurance is driving many rural individuals and small businesses out of the insurance market. They are self-insuring themselves, especially in rural areas. They are joining the uninsured. Rural residents, physicians and hospitals are in distress.

As a result, Congress and state legislatures are subsidizing rural providers, often at the expense of urban ones. Over the years, urban hospitals have sought to establish networks with rural clinics and hospitals, and rural hospitals have worked hard to attract physicians and allied health professionals and to provide them with modern facilities. All of these activities have helped increase the cost of rural health care, but then without those efforts, there would be no rural health care services at any price.

Ways to contain rural health costs There are no easy solutions to the rural health care problem, but some things can be done to make health insurance more affordable and available to small businesses and individuals in rural areas:

  • Require rural physicians, hospitals, nursing homes and other providers to publish their rates for all classes of payers for as many categories of cases as they charge insurers, Medicare and Medicaid. This will shame those providers who are overcharging into charging reasonable rates.
  • Make it easy, not incredibly difficult for insurers to serve rural areas by eliminating cumbersome and difficult regulations. Complex regulations are doing as much as the costs of high risks to drive insurers out of many rural markets.
  • Allow rural residents to use urban provider networks, which are less costly than rural ones.
  • Mount a public education campaign that encourages workers to demand health insurance from their employers so that those who buy health insurance aren’t unfairly and indirectly taxed to pay for other people’s insurance through cost shifting.
  • Allow hospitals, urban and rural, to at least break even on Medicaid and Medicare, instead of cost-shifting part of those expensive programs to other employers, especially small businesses and self-insured individuals. It is unfair for state legislatures to cut their Medicaid budgets in the face of soaring costs and shift that cost to small employers and self-insured individuals (the uninsured).
  • Make it easy and profitable for physicians and hospitals to provide telemedicine services, including telephone and e-mail consultation. The latter should be an out-of-pocket expense for patients to discourage excessive calling by patients.

People live in rural areas because they were born there and they decided to stay. They are in rural areas because housing is less expensive (excluding the resort communities). They don’t like urban congestion or costs. They are loners and want to be away from people.

These are all good reasons to get or stay out of town. But like anything else, there is a price to be paid for the choices we make, regardless of whether we actively make them or make them by not doing anything—by just staying put on the farm or ranch.

The cost of living in rural areas in today’s economy includes the higher price of health insurance. Housing costs, auto repair costs, food costs, gasoline and transportation expenses also generally are higher in rural America. And there are fewer choices of suppliers, because it’s not worth it for many sellers of essential services to do business in small markets.

While rural residents seem content to live with fewer choices and higher costs in many areas of their lives, they also seem to think the rest of the country should subsidize their access to health care that is as good and as affordable (or shall we say as unaffordable?) as the insurance that is available to urbanites.

Rural health care is expensive Thus, one thing that is needed is a good public information campaign that warns urban Americans that when they move to rural communities, mountain hideaways and hobby farms, they will have fewer choices for health care and other services, and they will pay a lot more for many of those services, especially health insurance. Yes, this will discourage rural economic growth, but shouldn’t people buying the rural dream have all the facts before they make important changes in where and how they live? We need full disclosure on rural economics and lifestyles.

No one solution or series of solutions will satisfy consumers, physicians, hospitals and insurers. Consumers want low-cost health insurance. Physicians practice in rural areas because they grew up there and like the life style, because they don’t like the hassles of urban medical practices, because they want to make big bucks without dealing with health maintenance organizations and preferred provider organizations and because they won’t have to contract with HMOs and PPOs in rural areas. Each physician has his or her reasons for practicing in small towns. Rural hospitals overbuild and buy expensive equipment to attract these doctors, and many are more profitable than urban hospitals because they don’t have to contract with HMOs or PPOs.

Given the high prices physicians are charging their rural neighbors and the insurers serving rural areas, it is pretty clear that a lot of rural docs are in it for the money. Health care economists, administrators of rural hospitals and insurers all know this dirty secret.

But nobody wants to talk about it.

Insurers survive by minimizing and avoiding risks But some people do quietly deal with the problem, namely insurers. Rather than earn bad reputations for ripping off consumers and small businesses by charging them high health insurance premiums, they stay out of the market. And with premiums soaring again, several companies have pulled back from the rural market to avoid being blamed for what they can’t control—soaring drug expenditures and physicians’ fees. They also are pulling out of rural markets because they know that regardless of what the legislature or Congress does, they won’t be able to make a profit serving rural areas. Indeed, due to their own poor pricing strategies, they’ve been losing their shirts serving small businesses and rural areas. After conducting an eight-year sale to gain market share, the sale is over.

The risk of insuring rural residents is too great and insurers are in the business of avoiding risk. They are very good at legally minimizing and avoiding risk by:

  • Rate banding, or basing insurance premium rates on the risk presented by an individual or a group of workers seeking health insurance instead of community rating groups and spreading the risk over large groups. By definition, insurance is a pooling of risk; rate banding, or risk rating, eliminates risk sharing and turns insurers into bankers that pay no interest on your savings account. Ironically, offering lower premiums to healthy young folks and the small businesses who employ them does not bring more small employers into the health insurance market, according to health insurance scholars. All rate bands and risk rating do is discriminate against the old, ill and disabled.
  • Pricing high-risk people out of the market-people over 40 or 50 years old, cancer victims, heart attack survivors, people with terminal illnesses and the chronically ill. Insurers charge these “risks” such high rates that they can’t afford insurance.
  • Skimming the market by insuring only healthy people and by selling insurance with such high deductibles and co-pays that costly claims are minimized.
  • Redlining the market by not insuring people or small businesses in rural areas, where people often are older and sicker, or in inner city markets where people are poorer and sicker.

These strategies hurt rural providers and consumers. To even the playing field, consumers must accept that rural health care costs more. Rural providers must help insurers make money in their markets or lose the insurers, and insurers must take some risks.

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