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HEALTH PLANS/POLICY: Underwriting–pernicious and ridiculous

Lisa Girion in the LA Times kicks butt and takes names, exposing the individual insurance market for the fake gong-show that it is. She found a member of the LA insurance commission rejected by all three major health insurers in the state because of asthma. Of course THCB readers got my own extremely personal perspective on this process last year when one insurer totally rejected me, while another gave me the best underwritten rate—while both were looking at the same information!  That’s even better proof that the current system is a lottery.

We need one pool.

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  1. Not that there is anything rational about Medicare Part D, but taking the point of view of a single individual, it will save money for anyone whose annual medication costs are greater than the base premium + 1% of the base premium for each month he delays enrollment past his first date of eligiblity + his deductible amount (including the infamous donut hole). The math isn’t that hard — even an acupuncturist could do it. Oh, wait!! Maybe not. Pity I can’t draw a picture here.ilike this site.

  2. Not that there is anything rational about Medicare Part D, but taking the point of view of a single individual, it will save money for anyone whose annual medication costs are greater than the base premium + 1% of the base premium for each month he delays enrollment past his first date of eligiblity + his deductible amount (including the infamous donut hole). The math isn’t that hard — even an acupuncturist could do it. Oh, wait!! Maybe not. Pity I can’t draw a picture here.ilike this site.

  3. Not that there is anything rational about Medicare Part D, but taking the point of view of a single individual, it will save money for anyone whose annual medication costs are greater than the base premium + 1% of the base premium for each month he delays enrollment past his first date of eligiblity + his deductible amount (including the infamous donut hole). The math isn’t that hard — even an acupuncturist could do it. Oh, wait!! Maybe not. Pity I can’t draw a picture here.ilike this site

  4. > I fail to see how this Prescription Plan saves an
    > American, Senior or not, any money!
    Not that there is anything rational about Medicare Part D, but taking the point of view of a single individual, it will save money for anyone whose annual medication costs are greater than the base premium + 1% of the base premium for each month he delays enrollment past his first date of eligiblity + his deductible amount (including the infamous donut hole). The math isn’t that hard — even an acupuncturist could do it. Oh, wait!! Maybe not. Pity I can’t draw a picture here.
    It will never save money for a non-senior: they’re the ones paying for it.
    t

  5. Tim,
    Wal-Mart is selling generic drugs at a loss on a fully allocated basis in order to build traffic for the rest of its store. It claims it is making an average gross margin of 50% on the pills, but outside experts estimate its cost to fill the prescription (salary and benefits for the pharmacists and techs), allocated rent for the space, sophisticated information systems that support the pharmacy operation, etc. add up to a fulfillment cost estimated by outside experts at $6-$10 per prescription. Walgreens, the most efficient operator in the retail drug space, has an estimated fulfillment cost of about $5.00 per prescription. I have been told by senior people at Walgreens that even if they were able to acquire the generic drugs at zero cost, they would have to sell a 30 day supply for about $10 in order to earn an adequate return on its investment. Indeed, Walgreens recently negotiated an agreement with the Louisiana Medicaid system to fill prescriptions for 5% above cost for the pills plus a professional or dispensing fee of $10 for brands and $15 for generics (to provide an incentive to maximize generic utilization). Thus, for a generic scrip that cost Walgreens (and Wal-Mart) $2 for a 30 day supply, Walgreens would be paid $2.10 for the pills plus a dispensing fee of $15 or $17.10 altogether. For a branded drug that cost $100 for a 30 day supply, it would be paid $105 for the pills plus a dispensing fee of $10 or $115 altogether.
    The key value added functions provided by pharmacists are the drug utilization review (DUR) to check for possible contra-indications with other drugs the patient may be taking and counseling or consulting with the patient. Retail drug chains and PBM’s have incentives to maximize generic utilization. Medicare has no infrastructure or capability to do this regardless of the per pill price it may be able to negotiate with drug companies. It would most likely have to hire a PBM to do this for them. How much could be saved vs the system already in place is highly questionable. For those who get their drugs from the VA, there are only about 1,300 drugs on the VA’s formulary vs close to 4,000 on the typical Medicare Part D drug plan and over 11,000 drugs (counting each dosage and form as a separate drug) in existence.

  6. So then Medicare is just corrupt and hoping people won’t figure out that a lot of generic drugs are available for much less somewhere else and easier to obtain as well? I get it now.

  7. “So Walmart is bigger than the Federal Government in terms of bargaining power?”
    That’s not what Enthoven said.

  8. So Walmart is bigger than the Federal Government in terms of bargaining power?
    I know that it’s all about patent protection. There’s a book out there by Marsha Angell that everyone should read. Big Rx is just as bad, if not worse, than the carriers and the State DOI’s.

  9. “Well then explain to me . . .”
    Tim, it’s Enthoven’s conclusion and here’s his rationale:
    “People often confuse market power with bargaining power. The thinking goes, the larger the share of the market that the buyer represents, the greater the bargaining power and thus the lower the prices negotiated. That line of reasoning fails with drugs however because the seller is frequently a monopolist with an exclusive patent. This means the seller cannot be threatened with replacement by a substitute. Instead, the only threat is that the two sides fail to agree and the drug is withheld from the market. Rather than market share, a party’s bargaining power is determined simply be the ability to say no – to walk away from the table without an agreement.”
    Regarding your comment re: Wal-Mart, less than half of all drugs have generic versions. Why not more? Patent protection, is why.
    Source of the comments from Alain Enthoven = National Center for Policy Analysis Brief #575, released 18 December 2006.

  10. Well then explain to me how Walmart and other sources can offer a myriad of generic prescriptions for $4, and still make money. Seems that Medicare has the same market as Walmart for those age 65 and up, who take the majority of the medications.

  11. “Until Medicare is allowed the same kind of bargainig power as the major carriers, their drug plans will be somewhat of a joke.”
    That’s one opinion. Alan Enthoven has a different opinion. Enthoven says
    “empowerng the government to negotiate with pharmaceutical companies is not necessarily equivalent to achieving lower drug prices. In fact, neither economic theory nor historical experience suggests that will be the outcome.”

  12. There are a few exceptions out there with the Medicare drug plans. My parents are two of them. My mom just gets what she needs from Canadian Rx, and my dad has the VA plan. It costs them more to get on the plan and buy the drugs through Medicare, than it does to just buy them elsewhere. Also, since Walmart and others have introduced the generic drugs that they have for next to nothing in cost, many people can take advantage of that as well.
    The problem is, as they continue to get older and have a need for more meds (knock on wood that they don’t), there will eventually be a time when it will make more sense to have the drug plan, even with the penalty imposed.
    Until Medicare is allowed the same kind of bargainig power as the major carriers, their drug plans will be somewhat of a joke. Unless you have some super expensive prescription ( like Humulin or Embrol ), it’s really not that much of a bargain.

  13. “I fail to see how this Prescription Plan saves an American, Senior or not, any money! ”
    Well if a person is not a senior Medicare will save them nothing. Please disseminate.
    Also, two examples and two drugs, is not very persuasive. But if you want to drop the program, please do. After all, you found a better deal, all by yourself. Congratulations. Please disseminate.

  14. January 3, 2007
    To Whom It May Concern:
    Just refused to buy my first prescription under the new Medicare Rx Plan. Why? I pay $25.10/mo to have this plan (Annual Cost: $301.20).
    ADD the cost of the medication itself = $189.00 (Cozaar, 100mg, #90)
    That totals $490.20 (and $189. x3 additional; the Rx must be refilled three more times this year).
    I can walk in or order by mail the same product for $119.00 elsewhere, NO MONTHLY CHARGE EXTRA, NO MEDICARE Rx PLAN! Enother example: this same plan, same monthly cost, and my Insulin is $1.less than a walk-in price! That is not helping me when I must pay $25.10/mo to save $1. on my insulin.
    But if I don’t take insulin, go into a hospital, or have complications, Medicare will pay many tens of thousands of dollars to cope with the problems of not taking insulin. Is this fiscal responsibility, let alone humane?
    I fail to see how this Prescription Plan saves an American, Senior or not, any money! I’m anxious to see how AARP and the new Congress will change to a Prescription Plan that realistically helps American citizens.
    Your feedback will be appreciated and disseminated.
    Thank you for your kind attention in this matter,
    Dr. How

  15. I’m not sure how it works in every state, but in Indiana and Kentucky there is the State Access plan for those who can’t get individual insurance. Ohio’s a little different with their HIPAA plans. In many cases, it’s better coverage and less expensive premium than some group plans I’ve seen.
    What do you think would happen if we DID all belong to one pool? I’m just curious as to how you think that would help the situation. Where I live, each carrier has a countywide pool for individuals. Groups are groups. I think something that would have to happen in order for the “one pool” approach would be to get rid of group health altogether. We already have individual plans ( larger pools than any group ), and for those that can’t get in there are the HIPAA and other alternatives (unhealthy pools). I think having one pool would do two things.
    1) make the healthy people pay more and the unhealthy pay less. It’s all going to cost the same in the end.
    2) make it even easier for the carriers to brainwash people into false reasons for their rate increases. “Well, since everyone’s in the same pool, we have a ton of risk and expenses now.”

  16. Tim–there is lots for health insurers (or payers) to compete about OTHER than avoiding the coverage of sick people. They’ve just forgotten about that and need to be reminded by legislation.

  17. I guess it all depends on your point of view.
    Here, MMO will sometimes rider off certain things. I have had MMO rider off certain high cost drugs even on GROUP before. Anthem Individual is the most leniant but they have you fill out an awful lot of paperwork for certain things if you answer “yes” on particular health questions.
    I don’t really see it as being untrue. It’s just that some carriers are more willing to work with you. Not everyone underwrites the same. The same could be said for group insurance as well. Why else do they all come back with different rates?
    It’s all about how much they want the business, and how much risk they foresee you adding to their pool, whatever that pool may be.
    Take group insurance for example. I had a group with one carrier, and they got a hefty rate increase. We shopped around, and switched to another carrier with a comparable network, with a lower deductible, and got a better rate. A year later, they went back to the old carrier after shopping again and got a rate lower than their first time with them. The group’s census didn’t change, except for getting older, and they got a better rate with the same plan. Talk about “new busines rates”. 8^)
    Underwriting per se is fine, it’s just that when they all do it differently they all get different results, it’s no big deal. If everyone did underwriting the same way and got the same results, there would be no competition in the marketplace. Chrysler and GM build similar cars, but they cost different amounts of money.

  18. Tim. You’re second paragraph proves that your first is not true.
    Underwriting per se is a bad thing. I appreciate that we can’t get rid of it without universal pooling and insurance reform, so that is why we need ONE pool for EVERYBODY.

  19. Just because one company doesn’t take you and another does, doesn’t mean individual underwriting is a joke. I deal with all of the major carriers in this area.
    Some will rider off conditions. Some will accept just about anything. Others are very strict. They all have conditions that are “autodcline”. Asthma is not one of them. They don’t HAVE to take you. You have to qualify to get into the pool. Once you are in, you are in, regardless of how sick you are or become.

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