I focus on a single year of insurance operations, considering insurers' revenues and costs, when all insurers and health care providers operate as efficiently as possible with current resources, and insurers randomly select policyholders from the same population. Efficient health care providers engage in continuous patient monitoring, early diagnosis and treatment, treating patients at minimal cost by using the latest technology, proven treatment protocols, the most appropriate drugs, and appropriate referrals to specialists and alternative resources. Efficient health care does not mean there are no variations in costs. Patients still ignore recommendations, fail to recognize the significance of symptoms, delay seeking care, have multiple co-morbid conditions, and most high cost care is due to unexpected illnesses and accidents.
One negative effect of efficient, protocol driven care is reduced innovation. Providers avoid deviating from protocols that may trigger negative utilization audits and delaying potentially cost beneficial protocol revisions while providers wait for others to initiate clinical risk taking leading to protocol modifications. In efficient health care (finance) systems there are unavoidable variations in the costs of treating patients, and these are precisely the costs that are managed through efficient insurance mechanisms.