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Why Wait Four Years?

I was struck during President Obama’s health care speech before Congress several months ago that the reforms he advocates would not go into effect for four years, until 2014. This timetable, too, is written into both the House and Senate versions.

Why the delay? It is hard for me to imagine, even given the federal rulemaking process, that it should take four years to establish an insurance exchange from which people can buy coverage. This is the exchange that would eliminate the nasty practices of insurance companies: Denying coverage because of pre-existing conditions; limiting annual or lifetime payments; and rescission of policies. It is hard for me to imagine, too, why it should take four years to fully deliver targeted subsidies to lower income people so they can afford insurance.

As noted by Princeton Professor Paul Starr in an article in the  New York Times earlier this week: “By comparison, when Medicare was enacted in 1965, it went into effect the next year.”

This leaves me with a bad feeling. It looks like the Obama team does not want implementation of the health care bill to take place during their first term. Why? Perhaps they know that the cost of the plan is higher than they are saying. Or maybe they know that the options available to consumers will be less attractive than currently portrayed.

Maybe they are worried that if all this happens on their watch, re-election in 2012 will be in jeopardy.

I have yet to find a knowledgeable observer who does not agree that the cost of universal coverage will be high and that consumer choice will become more limited to the degree that federal policy tries to control costs.

I personally think the cost of universal access is worth it and an important public policy imperative; but the administration puts itself into a box when it downplays the consequences of the legislation. It is forced to postpone the effective date until after the 2012 election, so it will not suffer political backlash from a public that has been misled.

Let’s hope that Congress sees this otherwise and implements these important measures more quickly. (Wouldn’t it be ironic if the Republicans offered a floor amendment accelerating the effective date? How could the majority party oppose that?)

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81 replies »

  1. If the current administration waits four years to start the reforms they approve, they can all get re elected into office before the shit hits the fan and the people realize what I mess they have created. That is why they don’t want the reforms to start immediately.

  2. We really shouldn’t have wait 4 year’s for Obama’s health-care plan kick into action, some of us dont even have 4 year’s to live. We need this health-care plan to take immediate action for our live’s, my grandma is 97 year’s old, and without healthcare, she would have been dead by now. So join me in this protest on to make the new health-care plan take immediate acction!

  3. Your site is great! I’m just getting started on a new nursing website blog and I was wondering if we could exchange links. I’m so new to this, I just figured out how to work on my blogroll. My site addresses various topics for colleagues, patients, caregivers and the general public. I’m trying to share, through words, my 30+ years nursing experience. My name is Stephanie Jewett, RN, MBA from Iowa and I’ll leave my site for you to visit. THANKS!
    http://www.nursingcomments.com/

  4. Send Congress home for a year or more so they can’t do any more damage to our economy and country! These people and this administration have their heads in the sand. All evidence indicates the government’s involvement in any way will just drive costs up for everyone else (as in our subsidy of Medicare) and load more on taxpayers and business just when our economy can’t bear any more! Don’t enact health care legislation!! If Congress needs to do anything contract with a private company charged with reduction of waste in Medicare, Medicaid and any govt. function surrounding these programs. The only concern ought to be reducing govt. expense, reducing tax burden all aimed at getting our economy moving and consumers buying.

  5. Margalit as much marble and glass as the politicians can redirect from my paycheck. These hospitals are huge business and your local Democrat is going to take kindly to them losing 30% of their revenue. Large amounts of campaign contributions and many shared seats on non profits etc pass back and forth. Read up on Metro Health and their recent scandal and Cuyahoga County and the corrupt democrats falling one after the other there. Then jump out to Vegas and see what the Democrats did with UMC and the Chicago crook they brought in then run over to CA and see what the Democrats did with King “Killer” Drew.
    Healthcare is highly unionized and a major part of the liberal base, like acadima, so much of this has nothing to do with healthcare and its delivery and to much to do with politics and waste.
    Just rememebered another one the public hospital in Reno owns and insurance company that loses a fortune every year, the public hospital has to prop it up financially.

  6. Peter – I would like to see Medicare negotiate rates like everyone else rather than dictate them but I would also like to see movement away from the fee for service payment model toward an approach that rewards quality and not volume.
    The problem, as I see it, boils down to patient expectations broadly defined. Patients expect to receive imaging when they don’t need it, they want their doctor to prescribe a drug they saw advertised when they don’t need it, and they want way too much futile care at the end of life. They oppose eliminating the tax preference for employer provided health insurance in return for a reduction in other taxes. They expect to be able to sue a doctor or hospital if they have a bad outcome whether there is negligence or not. They want to go to any doctor or hospital and they expect someone else – taxpayers or employers to cover the cost of their care. Through their politicians, they don’t want Medicare to explicitly take cost into account in deciding what to cover and pay for. They don’t want the FDA to take cost into account in deciding what new drugs to approve either. Once again, if it were up to me, I would do the following:
    1. Eliminate the tax preference for employer provided health insurance and reduce other taxes to ensure the government does not collect any more revenue than it does now.
    2. Reform the tort system by replacing jury trials with specialized health courts.
    3. Move toward tiered co-pays to steer patients toward the most cost-effective (not necessarily the cheapest per procedure) doctors and hospitals.
    4. Require Medicare to explicitly take cost into account in deciding what services, tests and procedures to cover.
    5. Require insurers to develop a standardized claim form, simplify and streamline their offerings, and make contract payment rates available to both providers and the public to make price shopping easier.
    Reducing healthcare costs is mainly about reducing utilization of services. It’s not about hospital efficiency or insurers’ administrative costs. However, reducing utilizations requires the implementation of numerous strategies that the public seems unwilling to accept, at least so far. As I’ve said before, the enemy is US.

  7. What Peter said, plus, if what was said here is correct and the Clevelands and Mayos prices are really 20% to 30% above other regional providers, it seems that there is room to manage costs down. After all, how much marble and glass is required in order to provide excellent care?

  8. Barry, are you arguing for higher Medicare reimbursements so that hospitals can make money, if so Miami/McAllen would love that. How are we to get costs lower if we just continue to feed the beast, hospitals must become more efficient and lower costs, but that would mean a different economic model that rewards efficiency not over-utilization.

  9. insurance company adds 20% the federal government adds 40%. The most efficient method of payment is always to pay your own bills. If you want the Insurance company to do it you pay a little more. If you want your government then you pay a lot more. I am all for reducing the roll of insurance companies, but not so we can be less efficient and have the government do it.

  10. In an article in today’s Wall Street Journal regarding the proposal to allow people 55 to 64 years old to buy into Medicare, Jeffrey Korsmo, Executive Director of Health Policy at the Mayo Clinic, stated that Mayo lost $840 million treating Medicare patients last year. Yet, Mayo is supposed to be an efficient, cost-effective provider due to its use of salaried doctors, electronic records and relatively conservative (lower utilization) practice patterns. I’ve heard executives at other big name medical centers say that they could not continue to provide their current level of service and quality care if they had to take Medicare rates from all comers even if there were no longer any uncompensated care. Mr. Korsmo’s statement reinforces that viewpoint.

  11. “About Miami, do we know what are the most prevalent forms of Medicare fraud there? (just curious)”
    Margalit, the 60 Minutes program outlined fake medical companies buying stolen Medicare Benificiary numbers then billing Medicare for unprovided services, as opposed to legitimate providers billing for over treatment. Medicare is mandated to pay within 30 days of receiving the bill and has little resources to investigate – which when it does is usually too late as the fraudulent company has closed shop and moved to set up another operation. I don’t know how Medicare goes through the process of checking/approving providers (as opposed to how private insurance does it) before they receive bills but it obviously is not, maybe that’s mandated as well? When castigating Medicare you have to remember that private insurers use their own patient account numbers, so a fraudulent claim could not be used around the entire system. I doubt private insurers are mandated to pay within 30 days and they can simply refuse to pay the claim when in doubt and let the insured send justification. I’m also assuming they can dedicate more resources to fraud detection.
    I will say that the examples in the 60 Minutes report where Medicare recipients notified Medicare that they did not receive the services on their statement, and Medicare did not investigate, is undefendable.

  12. “Peter, if company currently offers $500 Ded 80/20 with 1000 OOP our clients will buy a $5000 Ded 100% no OOP plan. THe employee is still liable for the same $1500 they where before. THe company assumes the risk for the 80% between $500 and $5000 not the employee.”
    I figured someone was paying a higher out-of-pocket for deduced premium of HDHP; great if you have a generous employer that assumes the extra out-of-pocket risk of the higher deductible, oh if we all could get that benefit(subsidy).
    “Companies save money becuase insurance adds 20% to the cost of a bill, insurance companies are not very efficient and do a terrible job managing cost.”
    Kinda justifies my argument against insurance companies and sounds like they have lots if wiggle room to pad premiums. I will agree that having someone dedicated to micromanage your health plan will give you a better chance at reducing costs, but that doesn’t solve the problem of general out-of-control system costs that have backed people in the individual market into a corner with no room to reduce their payments.

  13. Miami has turned Medicare Fraud into an art. DME suppliers that don’t even exist buy HICNs and bill Medicare for people they never deliver anything to. HIV treatments never given to patients. Treatments that are billed but never done but the memebr actually gets a cut. I think 60 minutes did a real good show on it a month or two ago. They are pulling scams so obvious you have to close your eyes not to see them. They also interviewed people that had been calling Medicare for 7 years saying fake claims where being submitted and Medicare did nothing about it. That is why fraud is 5-10 times higher in Medicare and Medicaid then private insurance. Private insurance at least tries to stop it and if someone calls and brings fraud to their attention they don’t ignore it.
    It’s illegal to fire someone for their health, what little you save in claims pales in comparison to how much you lose in a lawsuit. In all the interviews Ihave done I don’t think I could ever tell which person was going to get cancer and cost me 5K a year later. It’s not like you get health apps with the resume. Younger workers cost you more in training and lower skill set which in some industries offsets any potential health savings, unless they are young and hot then that is a different interview.
    COBRA enrollees are entitled to the exact same benefits as active employees.
    No many employers do it themselves in house. We charge $5-10.50 depending on plan design and work involved, per employee per month, PEPM
    Not more then once or twice have I seen a worker fired becuase of health, usually those in bad health tend to have other problems that get them fired first. I have seen employers keep an employee that has health conditions so they don’t lose their benefits. That is very common. A good worker can easily more then make up for any health expense they cost the company.
    Peter, if company currently offers $500 Ded 80/20 with 1000 OOP our clients will buy a $5000 Ded 100% no OOP plan. THe employee is still liable for the same $1500 they where before. THe company assumes the risk for the 80% between $500 and $5000 not the employee.
    Companies save money becuase insurance adds 20% to the cost of a bill, insurance companies are not very efficient and do a terrible job managing cost. If you ask an insurance company what they need to charge you they will gladly tell you a number higher then they need. If you know for a fact you have $x per year in claims you are in a better position to shop. If employees are going to Walgreens when Wal Mart sells the same drug $20 less insurance companies will never call the member and tell them, I will.
    wow great dialogue with Peter and bev, is it Christmas time?
    I agree if we carved out all the replacements and other elective procedures and such most public hospitals would go BK. That would be a great thing. A large number of them run terribly inefficient ERs just like they are terribly inefficient at replacements and other procedures. They hide behind the threat of closing to blackmail us into allowing then to continue to suck. UMS here in Vegas is a great example of a hospital that shouldn’t exist. It has been as poorly managed as possible for decades. with the 30 million+ annually we prop them up with we could build one heck of a great ER. Instead we have terrible ER, terrible hospital, and perputual bailouts. With the money we could save by taking work to other hospitals we could easily pay for quality ERs. Let them fail, from their ashes will rize better ones.
    Bary’s comments are very true, most employees never think about it but when we do a roll out meeting and point out insurance premiums are deducted from their wages 100% either diredctly or reduced raises they get it. They know if their employer pays 16% increase for insurance the chance of them getting a big raise are less. We take pians to tell people don’t ever ignore treatment you should get but as well all know there is plenty of waste we can cut without hurting anyone.

  14. About Miami, do we know what are the most prevalent forms of Medicare fraud there? (just curious)
    About the employers that self insure for the first 5K, would those employers be very tempted to hire healthier and younger workers and maybe even get rid of the sicker employees once they decide to self insure?
    If they fire an employee and he selects COBRA, does the employer still pay for the high deductible, or is it up to the ex-employee now?
    Also, how much do they pay for services like you provide, Nate? And do they always use a TPA?

  15. Peter – My comments regarding Medicare costs in Miami were indeed comparing the cost of serving Medicare beneficiaries there vs. Medicare beneficiaries elsewhere. Regional differences in practice patterns have long been documented by researchers at Dartmouth in what is now an annual publication called The Dartmouth Atlas of Healthcare. You can learn more about this at http://www.dartmouthatlas.org.
    The medical cost situation in Miami is an extreme case and is caused by something of a perfect storm. In addition to the very aggressive (high utilization) practice patterns, providers there receive well above average Medicare reimbursement rates vs. elsewhere including even New York City. Finally, Miami is widely considered to be the Medicare fraud capital of the U.S. Why this is I have no idea. Regarding Medicare payments, as I said in a prior comment, Medicare providers in Minneapolis are paid only 70% as much on average as those in Miami. Even within the five boroughs of NYC, providers in the Bronx are actually paid more than those in Manhattan even though everyone knows that costs are higher in Manhattan. Politics plays a more significant role in county level rate setting than I previously realized. By contrast, in many rural counties, Medicare reimbursement rates are very low. So, the variance in Medicare spending across geographies is greater than the variance in utilization because some of the high treatment regions also have higher than average reimbursement rates per procedure.
    Separately, regarding Nate’s discussion about employers self-funding a higher deductible, perhaps a concrete example would help. Suppose an employer can provide his employees with a $500 deductible health insurance policy for $300K per year. Alternatively, if the employer wants to take on the risk of paying for his employee’s expenses between $501 and $5,000 leaving the insurer responsible for paying only for claims beyond $5,000, the premium shrinks to $200K for a gross savings of $100K. According to Nate, insurers deliberately overprice this piece of the risk because they can. So, if actual expenses for claims between $501 and $5,000 come in at say, $50,000, the employer comes out $50K ahead while the employee still enjoys, in effect, the benefits of a $500 deductible policy. Remember that for a workforce of average age and health, the majority of employees will have no claims at all or very few in any given year. If the employees know that the second layer of risk between $501 and $5,000 is being paid by their employer and not the insurance company, they will probably spend healthcare dollars more carefully in order to help their employer save money, stay profitable, and afford to give them a decent raise next year.

  16. Nate;
    interesting video but of course these are the same surgery centers that general hospital CEO’s complain skim the cream off the top (e.g. the moneymaking procedures) and leave the ER’s and other money-losing departments to the general hospitals. They claim eventually this will lead to the demise of hospitals and of course the taxpayer will foot the resulting bill for the nonsurgical, multiple-medical-problem train wrecks who spend weeks to months in the hospital draining resources. Any comment on that?
    ps I have no ax to grind as I am retired. It’s just that you can’t take part of the system in isolation.

  17. Barry, I won’t defend Miami’s health costs, but are you trying to compare paying health costs for 65+ year olds against private sector under 65s? costs? I guess we’d also have to know the age and health mix in Miami. By the way Florida has tort “reform”.

  18. “The employee has the same deductible they did before the employer bought the high deductible.”
    Nate, are not the employees out-of-pocket higher with high deductible? If not then how does employer save money with high deductible?

  19. No Mayo and CC could not survive as is without low level care and services. CC is freaking HUGE they consume entire blocks and are one of the largest employers in NE OH. If I redirected, as if I could, basic services to the more affordable facilities they would be done.
    Healthcare would be double what it is now if Mayo and CC ran everything.
    I’m not posting this for the canada bash but for the domestic medical tourism aspect. Little facilities like this hand CC and Mayo their back side on cost efficiency. http://www.youtube.com/watch?v=iRPhltjPSFs&feature=player_embedded
    This is the type of competition that could knock 20% off the HC tab in 12 months.

  20. Lisa — McAllen’s Medicare spending per beneficiary is 2nd highest after Miami.

  21. Oh, boy; when BARRY starts getting sarcastic, I know the country is really in trouble! (:

  22. I’m still having a problem with those excellent clinics. Would they remain financially solvent if patients did not use them for routine care? Let’s assume for the sake of argument that the advocates of these delivery models are successful and we have nothing but Mayos and Clevelands everywhere in this country (no more solo docs and tiny hospitals), would health care be more/less expensive in total?

  23. Medicare costs per beneficiary in Miami run over $16K or close to 3X the rate in the lowest cost counties and, by far, the highest in the country. Even more amazing is just 25 miles to the north in Fort Lauderdale, average spending per beneficiary is $9,800 or almost 40% less than Miami. As Nate says, Miami is in a class by itself when it comes to fraud. Add in high reimbursement rates per procedure and a culture of aggressive treatment and we have astronomical costs. But hey, administrative costs are low.

  24. Barry,
    Did you read about the lawsuit Partners and BCBS got themselves into. It was discovered BCBS agreed to reimburse partners something like 1 billion more in exchange for a larger discount. Partners inflated their prices, offered a greater discount and still came out ahead.
    http://www.boston.com/news/local/massachusetts/articles/2009/01/23/partners_insurer_under_scrutiny/
    Margalit over all they are considerably more expensive local alternatives. They never recover the over charging for simple treatments. If we moved all the simple treatment to other facilities and only had them perform the complex and miricles we would save billions. Barry’s comment on tiered pricing is going to become very common. I’m working on a similar deal now with a hospital where they are trying to keep more of the local population in house instead of driving to the bigger facility for no reason. Only charging the people more will accomplish this. It is all about the case mix. It’s like treating a flu with a panel of experts it gets the job done but at an unaffordable cost.
    And Miami has a fraud rate you wouldn’t beleive. Medicare fraud has replaced the coke trade as the crime of choice.

  25. Peter how big of a moron can you be? Do you not understand the term self fund? If an employer is self funding the risk that means the employer is paying it. Are you really this big of an idiot you can’t read the difference between employee and employer, do you not see the “R” at the end?
    The employee has the same deductible they did before the employer bought the high deductible. Do you understand what the word same means?
    Thank you for reminding us Krugman is also an idiot to dumb to align basic arguments.
    “However, the Congressional Budget Office (CBO) has found that administrative costs under the public Medicare plan are less than 2 percent of expenditures, compared with approximately 11 percent of spending by private plans under Medicare Advantage. This is a near perfect “apples to apples” comparison of administrative costs, because the public Medicare plan and Medicare Advantage plans are operating under similar rules and treating the same population.”
    This is dishonest propoganda that only a dumbass would believe. First off Medicare is nothing like Medicare Advantage. MA covers Dental, Vision, and Rx which Medicare does not, you can’t even begin to argue they are similar. MA has disease management, wellness, and other programs Medicare does not.

  26. “If the group is self funding the risk under the new high deductible then what was transfered to the employees?”
    The high deductible, for which without it you could not achieve the lower premiums/cost, just like every other insurance company does when trying to convince you that less is more.

  27. Margalit – Regarding Mayo and the Cleveland Clinic, there are a couple of issues to consider. First, when the patient presents with a problem that needs to be diagnosed first, how many diagnostic tests and procedures needed to determine a diagnosis probably depends more on the medical practice culture in the area, which is partly influenced by the state level litigation environment, than on the skill of the clinicians. I was surprised, however, to read recently that Medicare beneficiaries in NYC actually have average healthcare utilization that is about in line with or even slightly below the national average. Medical prices, however, are considerably higher in NYC (even higher in Miami) than in Minnesota. Indeed, I recently learned that for a given procedure, Medicare only pays providers in Minneapolis about 70% of what it pays Miami providers for the same work.
    If the patient needs an operation like a hip replacement or back surgery, shared decision making and second opinions can help to reduce unnecessary procedures. For cancer treatments and the sophisticated heart surgeries, the centers of excellence do generally charge more per procedure yet still cost insurers roughly 10% less than other hospitals due to better outcomes with fewer complications and readmissions. Better outcomes plus more cost-effective care is a winning combination. That’s why most insurers try to direct patients who need these procedures to the regional centers of excellence. For the routine procedures like normal labor and delivery, periodic physical exams, colonoscopies, minor surgeries, etc., there are lots of cheaper alternatives to the famous medical centers. Care under emergency conditions is a separate category that needs to be dealt with at whatever facility is available and close by. The bottom line is that the simpler and more routine the medical needs should be not be handled by an expensive teaching hospital or famous medical center if much less costly alternatives are available as they almost always are.

  28. So are these Cleveland/Mayo/etc. more expensive per service, but altogether manage to provide better outcomes for less money because they figured how to provide only needed care and removed redundancy and unnecessary or ineffective therapies?
    If that is true(big if), then why would you want to steer people to other providers and risk ending up paying more because they will end up with more procedures, more testing and more unnecessary treatments in general?
    I thought we’re supposed to look at long term cost-effectiveness instead of per service costs. Something doesn’t add up for me here. Penny wise and pound foolish?

  29. To follow up, Partners Healthcare in Boston is paid so much more than its regional competitors because of its huge local market power and the fact that everyone wants them included in their network. The concept of differential co-pays to dissuade people from choosing these hospitals when there are less expensive alternatives offering comparable and sometimes superior quality is intended to create countervailing power and pushback against the market leader’s unjustifiably high prices. By the way, hospital systems like Partners, Cleveland Clinic and Mayo all accept Medicare’s dictated prices and cost shift to the private sector. Medicare gets away with it because there is still a large private sector to shift costs to. However, it is highly unlikely that the famous medical centers could sustain their business model if they had to accept Medicare rates from all comers. Economists call this the fallacy of composition.

  30. Nate,
    I thought your comment yesterday responding to my post was probably the best discussion of the breakdown between the first $5K of claims for a given insured and claims above $5K that I’ve ever seen. The discussion of strategies for mitigating claims costs was also quite informative and I would like to learn more about the concept of medical tourism within the U.S.
    Regarding the famous medical centers like Cleveland Clinic and Mayo, there was an article in the Boston Globe not long ago that said Partners Healthcare, which owns Massachusetts General Hospital and Brigham and Women’s Hospital in Boston, is paid, on average, about 30%-40% more than its local competitors for similar services even though its quality is no better and sometimes worse. A routine labor and delivery, for example, can probably be done for half the cost in a local community hospital vs. MGH or BWH. The only benefit the well known hospital offers that the community hospital doesn’t is a more sophisticated NICU in case there are complications, but when it’s needed, the newborn can usually be transferred there quickly and safely. Still, lots of people prefer to go to the famous medical centers for this routine stuff because it doesn’t cost them any more out of pocket. This is why I like the idea of differential co-pays to create incentives for patients to choose more wisely coupled with information from objective unbiased infomediaries to help them do so. At the same time, if you need cancer treatment or sophisticated heart surgery, you should be directed to a regional center of excellence and many insurers now do just that.
    At the end of the day, people will spend their own money more wisely than they will spend someone else’s. While HDHP’s may cause some people to forgo necessary care as well as unnecessary care, I’ve never seen any evidence that it leads to higher healthcare costs at the population level though it certainly may for some individual cases. Keep up the good work.

  31. No risk is transfered to the employee Peter, think through what I said before your liberal gag reflex kicks in. If the group is self funding the risk under the new high deductible then what was transfered to the employees?
    I’ll give you the benefit of the doubt that you haven’t read any of my other post, vast majority of groups that do this are the sick goups, when they get a 30%+ increase they can’t afford then they are willing to do the extra work. THe healthy groups with minimal increases don’t want to be bothered.
    How does a liberals brain work? Between you, Matt, maggie, and the other realiably wrong you come up with the most rediculous arguments that you try and pass as fact. None if it is even close to true, you just throw this crap put there and hope what? I never understood the logic of making up an argument. At best no one catches your full of BS and belives your lies at worst I embarass you.
    no savings is not more then one percent it is a very large negative number as I have schooled you many times. For all their flaws they are still 10 times more efficient then government.
    Medicare is such a low bar doing it better then the government is hardly something to brag about. You really don’t grasp anything do you?
    Peter employees are still free to see any doctor they want, this is not a closed panel, no one ever said it was, why are you beating strawmen?
    How does the boss have a talk with them fool when he doesn’t know what to talk to them about? If you are fully insured you don’t know how many generic substuitable drugs are being filled, how many wasteful ER visits there are, what would he talk about? I’m learning I can only take so much of your ignornance before I feel the need to intelectually kill you. Why do you post here peter, your a moron, your time would be much better spent learning some basics instead of arguing crap you make up.

  32. ” Kaiser proposed a rate increase of 18.8%. My friend’s company opted to accept a higher deductible, higher co-pays, and some reductions in their scope of coverage to keep the rate increase for 2010 to below 7%.”
    “We accomplish this by having our clients buy high deductibles and self funding the risk under that deductible. ” The first thing this does is lower the groups premium 30-50%.”
    Nothing new there Nate, just transferring risk to the employees. The company also separates itself from the general risk that an insurance company holds and is rolled into their rate calculation. Your business factionalizes the risk pool. Maybe that’s why we’re seeing such large rate increases from traditional insurance – they’re holding more high risk employees because all the low risk ones can afford to self insure.
    “They are bloated, their offices are to nice, and their CEOs make to much.”
    Just what I’ve been saying but you may find Actuary will disagree. Seems the savings are higher for getting rid of insurance companies than the 1% savings we keep hearing from insurance supporters.
    “Once we have access to all these small claims we identify waste, fraud, opportunity, and educaitonal opportunity.”
    Gee I thought the insurance industry was already doing this – “efficiently”. You’ve even said how private insurance ferrets out fraud way better than Medicare.
    “Next is provider steerage”
    So, the employees don’t get their choice of doctor? You judge on price, not qualifications? That doesn’t exist in single-pay countries. This is one of the arguments of the anti-reform bunch – the evil government will decide your doctor.
    “When we show them how they can save the boss money which in turns keeps their cost down they almost always get on board.”
    Weren’t they already on board with saving the boss money anyway? Either premium charges or self funded spending costs the “boss”. Don’t you think the boss already had that talk with them? You are attempting to ration based on fear and guilt as now the employees are taking it out of the bosses pocket – better not rock the boat and get on the rationing wagon, you could be looking for work buddy.
    “Our average client that makes even modest effort has flat trends the past 3-5 years.”
    Sure, as long as they don’t have any extra ordinary health claims. My personal flat trend has been 6 years now since I self insured.
    Nate, you’re no genius with cutting costs, mostly just the usual insurance tricks of tranferring risk to the insured while not having much effect on system costs.

  33. interesting service, everyone has probably heard about medical tourism, going to India or Costa Rica for treatment. I was given a presentation of someone that set up a Medical Tourism product using only US facilities. They have deals for different procedures at some of the best facilites across the country. The savings is unbelievable, not as good as India but not far off and still in the US.
    Plenty of great solutions out there we just need to open our eyes.

  34. “I thought they are one of those model organizations that figured out how to provide cost effective care…..”
    Sorry, they are just a poster child for politicians and liberals that don’t have any idea how healthcare is delivered or the system works. They are roughly 30% higher then UH. They give incredible discounts which helps their insurance company partners sell business and steer it to them but if you really know what you are doing and look at the bottom line they are an inefficient choice for routine servies. Now if you need the impossible done then they are one hell of a facility. This is another lesson that needs learned but is never discussed. For an ear ache or flu we don’t need to see a doctor, NP or PA will do just fine, or I personally like TelaDoc concept. To get our toncils out we don’t need the Cleveland Clinic, local facilities with a couple less awards do just fine.
    The negative financial impact from our demand for treatment is made many times worse by our demands on who deliver it. Us payors walk a find line when it comes to steerage. If we say go to UH they are 30% cheaper then CC and UH bothches the job we get sued as well. Until recently there was a lack of independent thrid party resources we could send people to. That is changing quickly. I suggest everyone check out https://reflectivemedical.com/
    I’m working on that Barry, I had a great study that did just that I can’t seem to find. I do a terrible job labeling data so I can find it a year later. Once I do I’ll share it. In the mean time I’ll share some interesting numbers with you all. From our book of business, we have been doing this 25 years roughly, if you calculate the maximum liability for a group that moves from a $500 to $5000 deductible on average only .22 of it will be realized. i.e. if the group has 10 single and 10 family and pays 100% they take on $4500 and $9000 in risk or 135,000. Actual claims between $500 and $5000 are only 30K though. Under current rating though that represents roughly 30-50% of total premium.
    We have a report that does that based on plan payment it excludes cost sharing, but it shows brackers of 0-2500, 2501-5000, 5001-10,000 on up. Roughly 80% of the group falls under 5K and account for 20-30% of claims.
    20% of your lives still drive 80% of your claims. Carriers way over charge for small claim “insurance” because they can. people insist on having it and don’t think they have insurance if it isnt there, carriers know this and mark it up as much as possible.
    Case mix is the problem at the reknowned facilites, if they only provided treatment to the exceptional case it would be cost justified, sadly people want that level of care for all services though.
    We have a client in Dayton that works very closely with us. When ever we have new ideas he is always one of the first to try them out. They are paying less today then they where in 2003 when we took it over. We have a number of clients that are paying less then they where years ago before working with us. Sadly the success sories never get printed. That is why reform always polls so well when it is first discussed. All people hear are the horror stories so they think it is much worse then it really is. Once people start talking to each other they see the media and politicians are full of it and things aren’t nearly as bad as they where lead to believe.

  35. Nate,
    I think it would be helpful if you could shed some light on the percentage of healthcare costs that are accounted for by, say, the first $5K of expenses incurred by any given insured member. So, if you tallied up the total medical costs incurred by a group of your clients aggregating 10,000 covered lives, listed each person’s total medical costs whether paid by insurance, the employer or the insured, ranked them and then totaled all medical costs for those with expenses of $5K or less plus the first $5K of expenses for those with more than $5K of claims (at contract rates), how much would those small claims, as I defined them, add up to as a percentage of total medical expenses incurred by these individuals, irrespective of who actually paid them? I know of catastrophic cases that have literally run into the low millions of dollars plus others that cost several hundred thousand dollars or more each. Most insurers tell us that the 10% or so of their most expensive cases account for 60% of total claims costs or thereabouts. If insurers are willing to price high deductible plans 30%-50% lower than comprehensive plans as you suggest, it should imply that comparatively small claims account for 30%-50% of total costs which doesn’t square with the notion that a small percentage of cases drives the majority of claims costs.
    Regarding the Cleveland Clinic and the Mayo Clinic for that matter, my understanding is that they command much higher prices than other lesser known facilities for the procedures that they actually perform. Where they supposedly save money is in diagnosing a patient’s problem with fewer tests and performing fewer unnecessary procedures. So, if the state of the art science says that you don’t really need a stent, you probably won’t get one at Cleveland Clinic or Mayo thereby saving the system money. If you do need one, it will probably cost the insurer 30%-50% more than if it were done at a less well known hospital.
    Finally, I thought I would share a positive anecdote regarding health insurance costs. A friend of my wife is a professor at a small college in southern Ohio. For at least the last year, they had a high deductible plan with a $2K per person deductible. They are switching carriers for the upcoming year moving to Mercury of Ohio from Humana. Since they went to the high deductible plan, their claims dropped dramatically and their premium is decreasing. So, apparently not every small and medium size group client is subject to a double digit increase in their health insurance premium for 2010.

  36. Yeah, I’m curious about that too. And your overall comment was very informative, Nate. I even read it.

  37. Nate, did you just say that the Cleveland Clinic is 30% more expensive than other providers in the area?
    I thought they are one of those model organizations that figured out how to provide cost effective care…..

  38. Peter,
    The first rule to controling HC cost is know what you are paying for. We accomplish this by having our clients buy high deductibles and self funding the risk under that deductible. The first thing this does is lower the groups premium 30-50%. If you want to really hit the insurance companies hard cutting their revenue in half is a great start. They are bloated, their offices are to nice, and their CEOs make to much. All the legislation in the world will not change this, it will make the politicians rich threatening legislation but it won’t accomplish anything. The best way to reduce CEO pay and carrier bloat is to never give them the money in the first place. Just like corruption and washington.
    Once we have access to all these small claims we identify waste, fraud, opportunity, and educaitonal opportunity. There are millions that can be saved just by changing from one pharmacy to another, same drug just a mile further down the road can be 20-30% or more cheaper.
    Educating employees on what drives their premium cost and how to help works much better in small business then in large. THe employees know the owner of a small business and usually see him every day. When we show them how they can save the boss money which in turns keeps their cost down they almost always get on board.
    Next is provider steerage, in Ohio Cleveland Clinic is 30% more expensive off billed charges. For routine and een most major services there is no sound economic reason to pay this. Change providers, care is just as good and everyone saves.
    There are tons of little things we can do to educate the owner and consumers on how to take control of their cost. Our average client that makes even modest effort has flat trends the past 3-5 years. It can be done they just need to make the effort and get the data. Allowing the government and insurers to hide everything is a sure fire way to drive cost through the roof.
    Margalit HIPAA is a great example of how Washington destroyed healthcare. THe basic system works great and could work great once again if we eliminated politicians. We don’t need to start over we just need to clean out all the gunk Washington poisioned it with.

  39. “Barry, tell me how this is not rationing?”
    Peter – It is a type of rationing but a relatively benign form. I don’t know what specific scope of coverage reductions apply to my friend’s case or the size of the increase in the deductible and co-pay. Nobody, of course, is precluded from spending their own money for previously covered services.
    People who lack access to health insurance because they can’t afford it is a serious problem that needs to be addressed. Other countries, including Canada, restrict the supply of services like imaging which forces people to wait considerably longer for appointments than they would in the U.S. In the UK, drugs and some procedures may not be covered by insurance because they are considered to be too expensive. Some end of life care options may not even be presented to patients in other countries because of differences in how good sound medical practice is defined and applied. Personally, I would support the latter two approaches, but both would be tough sells in the U.S.
    The whole patient expectations issue in the U.S. has gotten far too little attention, in my view. Too many in our society expect to receive any medical service, test or procedure that has even the tiniest chance of benefitting them and they expect someone else to pay for it. The propensity to sue in the event of an unfortunate outcome pushes doctors to do more rather than less, especially on the diagnostic side, just to protect themselves from potential lawsuits. Getting rid of insurance companies will do nothing to change either patient expectations or the litigation environment, both of which are necessary to bend the medical cost growth curve over time.
    Margalit – As we’ve discussed before, a single (tax) collector, coupled with a voucher approach might be a better way to go if we were starting from scratch. Since we’re not, we probably have little choice but to build on the current employer based system that most of us know, like and accept. If we lose our job or our employer stops providing insurance, we need an affordable health insurance option to fall back on, especially if we are older than 50 and/or have a pre-existing condition. All 535 Representatives and Senators have constituents and there is a wide diversity of views among them. Hopefully, they can pass a bill that will help millions of currently uninsured and underinsured to acquire health insurance and to start to address the cost issue. I think that’s the most we can realistically expect.

  40. Nate, first of all, I like you a lot :-). I did not contact you because the circumstances have changed and there was no point anymore.
    I am aware that there is a small group of professionals in the insurance industry that understand every gory detail to perfection. I think one of them, from Cigna, went public with some inside information not too long ago. The public by and large has no clue what they’re up against, and I don’t mean the HR director at Walmart.
    So basically, I am not advocating changes to a system that is purposely convoluted. I am advocating eradication.
    Maybe government screwed it up over the years by trying to provide partial solutions. Maybe greed and advances in science caused it to become so expensive. Maybe comforts and excesses in modern lifestyle caused consumption to increase. After all, all developed nations are seeing increases in health care costs.
    One thing is certain, you cannot keep patching something with small nails and duct tape forever. It’s time to toss it and get a new one.

  41. “They won’t accept the rationing of services…”
    “My friend’s company opted to accept a higher deductible, higher co-pays, and some reductions in their scope of coverage to keep the rate increase for 2010 to below 7%.”
    Barry, tell me how this is not rationing?
    “I don’t know how you would apply global budgets to hospitals or to doctors currently practicing solo or in small group practices. There would probably be much narrower drug formularies and, probably, significantly less innovation in the development of new drugs and devices. If doctors’ incomes shrink materially, more of them might choose to retire or otherwise leave the profession sooner than they would have otherwise. We would still have our more litigious culture than exists in other developed countries. We would also still have more demands for futile and other high cost, low payoff end of life care. We would have long term coverage decisions made on the basis of politics (abortion, mammography) rather than on what people are willing to pay for either themselves or through their employers.”
    Maybe we should look outside the U.S. box of health cost failure and see how other countries are able to do it. But that would mean admitting that our healthcare ideology is a failure – ever hear the song “Waist Deep In Big Muddy” by Pete Seeger?

  42. “My friend’s company opted to accept a higher deductible, higher co-pays, and some reductions in their scope of coverage to keep the rate increase for 2010 to below 7%.”
    “After a certain number of 20-30% rate increase you will call and I or someone nicer then me will fix your problems.”
    Ok Nate, how would you magically fix Barry’s friend’s insurance problem?

  43. one more thing Margalit, in todays system there are various levels of transparency. 99% of it is by choice. Large self funded plans are 100% of all aspects of their plans, that is becuase they demand it. Small employers 90% of the time are not. The liberal reaction to that is to completly ignore the facts of why that exist and pass some legislation you foolishly thing will change it. I have offered my services to you, Matt, and Peter’s friend, to date not one of you has taken me up on it. With my services you would get roughly 95% trnsparency, you would know almost everything that is going on and why. By choice all three of you have choosen to stay in the dark. There might be an argument made that youc can’t stand me but I have explained what I do so you could have found someone else to do it. All of you had made the choice to pay higher premiums for no reason other then you don’t want to bother demanding something better. Legislation can’t fix this malize. The exact problem you say needs fixed is compounded by your proposed solutions. Our current system has a built in ignornance tax, if you don’t demand more info and transparency you will pay more. That is the way it should be. After a certain number of 20-30% rate increase you will call and I or someone nicer then me will fix your problems. The rest of us that have already made that effort shouldn’t pay the price for your refusal to.

  44. tcoyote great recap, I would add cost shifting from government plans to private plans via regualtion. There is the silent cost shify from underpaying providers and the direct cost shift, like when states pass a law saying private insurers must cover unmarried “dependents” to age 29.
    Adverse selection is a huge problem, it is always th healthy ones that drop out first. Most states have passed on small group reform which caps the rate the sickest groups can pay, they have no incentive to control cost since they are max rated anyways so the healthier groups get a disporportionate increase which is all the more reason to exit the system. Government managed to legislate the less sustainable systems possible. They have an amazing abaility to build failure on failure.
    “Now why is it so complex?”
    Top 3 reasons
    Federal Government
    State Government
    Attorneys/Legal system, the result of poor government
    After admitting you don’t understand it should you really be advocating changes you also don’t understand? That is how liberals made it the mess it is, people that don’t understand the system making changes they don’t understand then being shocked things didn’t work like they planned. Don’t get me wrong I think it is a huge step to admit you don’t get it, now we need the next step, stop getting in the way of those of us that do.
    Everyone dies, seldom by accident and that is very insurable. I would refer you to your prior paragraph, you don’t understand. Healthcare was very insurable for decades before congress got involved and private self funded plans with minimial government oversight work great and are some of the best plans in the world. Why can’t you see the obvious, 45 years of government has failed not insurance.
    “People need to understand that we are all paying for this system”
    so ironically you propose more government plan which is the most opeque of them all. Medicaid and Medicare members are the least aware of true cost, so to increase awareness you suggest we get rid of the semi transparent plans….Margalit this is a complete break down of logic.

  45. Barry,
    All four items you mentioned at the beginning of your post are valid and need to be addressed. I am not at all disputing that. However, it would be much easier, in my opinion, to address them once we remove the artificial fog that is obscuring the field right now.
    People need to understand that we are all paying for this system, whether you call it tax, or premium and lower wages, is pretty much irrelevant and creates the illusion for some that health care is free, and for others that it’s both unreachable and intractable.
    I am not necessarily in favor of one payer and I have no problem with private insurers staying in business. All I would like to see is one collector and one regulator of this entire mess. The system is obviously broken and the argument that if government just stepped out, it would somehow miraculously fix itself, is a bit simplistic.
    I am having misgivings and a hard time trusting that government, in its current state, is actually going to act in the best interest of the people. However I am 100% certain that corporations (not just insurers) will not.
    So the lesser evil would be to empower the “necessary evil” to do our bidding in this case too.

  46. Margalit,
    Even if we could impose a single payer Medicare for all system, it would still be very expensive because of (1) patient expectations including expectations related to end of life care, (2) much higher incomes earned by doctors here than in other countries, especially specialists, (3) the litigation system and its associated defensive medicine costs, and (4) the high cost of drugs and devices that will be required to sustain the innovation that feeds back to patient expectations.
    Suppose, for example, that people can expect to incur median medical costs over their lifetime in today’s dollars of $300K or thereabouts. Some will incur several million of costs while others may only incur $20K or less. Based on average life expectancy of 75-80 years, we would have to charge $4,000 per person per year assuming all premiums collected each year are paid out in claims plus modest administrative costs and deductibles and co-pays are modest. I’ll ignore the fraud and abuse issue in order to simplify matters, though fraud is a meaningful issue for both the Medicare and Medicaid programs.
    Administrative savings from getting rid of the private insurance sector will be far less than the left estimates and, in any case, it will be a one time savings that does nothing to bend the underlying medical cost curve. For the record, my estimate of administrative savings from a single payer system is $40-$50 billion at most which could be easily offset and then some by increased fraud. Moreover, what makes you think that the government can come close to getting medical prices sufficiently right to achieve a rough balance between supply and demand for many thousands of services, tests and procedures across 3,100 counties in the U.S.? Some services are bound to be overpaid while others are underpaid creating both surpluses and shortages. Explicit rationing is inevitable which is unlikely to be received well while the tax burden necessary to finance a single payer system will be considerably higher than most people think as I’ve written numerous times in the past. Even assuming we just try to replace private insurance and leave the current Medicare and Medicaid programs intact, we would either have to impose a payroll tax comparable to the current FICA tax or enact a Value Added Tax (VAT) that would require a rate of 18% by my estimate if it is as broad based as those typically used across Europe or we would have to increase the current income tax by 70%-75% or some combination of the three.
    The bottom line is that if fixing healthcare were easy, we would have fixed it decades ago. As Rahm Emanuel aptly stated, their objective is to develop a bill that can pass Congress, not the Board of the Brookings Institution or the Aspen Institute. Since nobody wants to give up anything and everyone wants to solve the problem at someone else’s expense, the challenge is daunting.

  47. Nate, you are so right. This entire insurance thing is completely beyond my understanding. Maybe it’s because I am a liberal, or maybe it’s because the entire thing is too complex. Now why is it so complex? Is it inherent in the nature of providing health care, or is it by design so the average Joe cannot make heads or tails of what they are buying and how much it really costs?
    How much money is being spent on obfuscation in this industry?
    Here is the deal: health care is not something that should be insurable. It does not fit the “accident” pattern of other insurances. Health care is a service that everybody will be availing themselves of during their life time. Some more, some less, and there are very few predictors.
    The major error in thinking here is that we look at age groups, gender groups and other temporary statuses. The evaluation should be made based on life time totals, but since no insurer is going to have to deal with the whole person, this measurement is irrelevant in today’s system.
    No matter how much tinkering we do, and 2000 pages of tinkering are no better than none at all, we will not be able to fix the problem as long as the current fragmented system is basically left in place.

  48. So, what accounts for the mysterious difference between the 8-9% medical cost trend health insurers are seeing and the mid to high teen rate increases?
    A small portion of it is cost shifting from increasing numbers of uninsured- we’re losing illegals while gaining newly unemployed people so there will be a small, not massive, increase in uninsured in 2009 and 2010. I don’t think that’s where it’s coming from.
    Bigger cost shifting piece: Medicaid payment cuts to hospitals and increases in Medicaid enrollment due to stimulus spending. Nate’s right that health plans are digitizing but not fast enough to offset their commercial enrollment losses.
    Another contributor to the spread between cost and rates is simply trying to float their overhead, which is only being whittled away at rather than energetically cut, on a smaller base of (profitable) risk business. These plans have lost, like, 8-9 million risk customers in the past two years. If it weren’t for Medicare Advantage enrollment growth, a lot of these plans would be in deep trouble!
    I think adverse selection has accelerated in the midst of enrollment losses because the people dropping coverage are those who do not expect to use it and the people keeping it are those who expect to need it. That would contribute a piece of the spread between cost trends and rates.
    Further contributors: big plans are bidding harder to keep their largest accounts (e.g. below cost trend premium quotes) and are covering the losses by increasing their rates on small group and individual accounts.
    Finally, I think many are trying to rebuild reserves damaged by last year’s crash and trying to build up their rate base in case someone starts talking about rate controls via the health insurance exchanges, the obvious place to turn if the feds, as expected, have underestimated the cost of all those premium subsidies in the health reform bills. It’s what I’d do: squirrel away a little cash before winter comes.
    What have I left out?

  49. people like peter will never understand basic logic and reasoning and thus never grasp insurance. That is why liberal idiots have made such a mess of our healthcare system, they don’t understnad the basics and thus nothing they pass works.
    When liberals want to buy votes they have no problem deviding us into pools, why doesn;t that bother you peter? Are you also going to demand 60 year olds with a clean driving record pay the same auto insurance premium as a 16 year old male? Same principals peter young males are greater risk so they pay more, why should it be different for health insurance?
    The issue is and always has been claims cost. Rx use to go up double digits every year now it is hospital charges. Even if you where to eliminate insurance that doesn’t have any effect on the inflation in claims. In fact the cost of insurance and administration in most aspects is getting cheaper as it gets more electronic. Until government gets out of the way and lets us addreess the cost it will continue to rise faster then inflation.

  50. 4 to 1 or higher. 6-10 to 1 wouldn’t be out of reason when you hit mid 60s before medicare. If your comparing to a young male the premium for a good plan is only $80 or so.

  51. Margalit,
    I don’t think I can answer your question very precisely regarding the number of uninsured. I can pass along the following, however:
    First, the large insurers continue to project medical cost growth of about 8% for this year and next plus or minus 50 basis points (one-half percentage point). That’s an average per member concept. They say that their hospital inpatient costs are increasing north of 10% with most of that accounted for by higher prices, not higher acuity or utilization of services. Hospital outpatient costs are growing at a high single digit rate. Physician and clinical services are increasing at a mid-single digit rate. Drug costs are growing at about 6%-7% with a significant piece of that for the ultra expensive specialty drugs to treat cancer.
    Second, as a rule of thumb, the insurers tell me that each one percentage point increase in the unemployment rate translates to a loss of one million commercial members, including family members plus former employees, while Medicaid rolls increase by 1.1 million people. COBRA benefits are most likely to be taken up by people who know they need some expensive care during the 18 month period that they are able to purchase the coverage. As I said, the insurers pay out 150%-200% of premiums collected on this business. It’s a classic example of adverse selection. The small group market is largely experience rated. If just one employee has a medical catastrophe in his or her family or just unusually high costs, it can cause a significant increase in the company’s insurance premium for the following year. The individual market consists of mainly the young and healthy as well as people opting for very high deductible plans. That’s why the average premium on that business is only a bit over $200 per member per month. We have a friend in Ohio, for example, who was able to buy a separate policy for her healthy college age son for $50 per month. That would not be possible under reform that included community rating and guaranteed issue.
    Finally, I have a niece and a nephew who work for the Social Security Administration. They tell me that the weak economy resulted in a very significant increase in the number of people who are applying, and often qualifying, for Social Security disability benefits. Once they go on disability, regardless of age, they qualify for Medicare two years later. If I were to lose my job, even if I were 5 or 10 years younger than my current age of 64, they tell me that I could probably qualify for benefits because of my history of heart disease even though I’m perfectly capable of working. Many people who are initially turned down for benefits are approved on appeal because Congress has increased pressure on the staff to reduce the time to rule on appeals and the easiest way to do that is to just approve everything or almost everything. This is another sad example of a well intentioned safety net program being taken advantage of by people who don’t deserve to be on it. Indeed, when I asked my niece and nephew for their estimate of the percentage of people going on Social Security disability who don’t deserve to be on it because they are capable of working, their answer: about 50%!

  52. Peter – I know we have a fundamental disagreement on this, but I just don’t think dictated prices and global budgets can produce a healthcare system that Americans would be willing to accept and able to sustain. They won’t accept the rationing of services like imaging and hip and knee replacement surgery. I don’t know how you would apply global budgets to hospitals or to doctors currently practicing solo or in small group practices. There would probably be much narrower drug formularies and, probably, significantly less innovation in the development of new drugs and devices. If doctors’ incomes shrink materially, more of them might choose to retire or otherwise leave the profession sooner than they would have otherwise. We would still have our more litigious culture than exists in other developed countries. We would also still have more demands for futile and other high cost, low payoff end of life care. We would have long term coverage decisions made on the basis of politics (abortion, mammography) rather than on what people are willing to pay for either themselves or through their employers.
    The primary drivers of higher healthcare costs in the U.S., I think, are hospital costs and drug costs. I don’t think there are more hospital inpatient bed days per thousand people in the U.S. Indeed, there are probably fewer, but much more happens to patients in hospitals here and the prices for those services are astronomical. In round numbers, on the order of 5 million people work in hospitals to staff about 1 million beds. Roughly 13 million or so work in healthcare altogether including 400-500 thousand in the insurance sector. As for drugs, other countries that use price controls are, in effect, free riding on U.S. market pricing. Drug spending per capita is less than half the U.S. level in the UK and a bit over half of ours in Germany according to Medco Health Solutions. The main reason is drug prices, not utilization. Price controls carry a significant risk of reducing innovation going forward, however.
    We’ve debated the impact of the litigation system many times already so I won’t do it again here accept to reiterate my view that defensive medicine is a significant cost issue, especially as it relates to imaging and other diagnostic tests.
    There are also huge differences between the U.S. and other countries related to how good sound medical practice around end of life care is defined and applied. Personally, I think it is unfortunate that people are often encouraged to “fight” rather than “give up” instead of to think in terms of sensible stewardship of finite resources that have many worthwhile alternative uses. It’s one thing for a family to spend its own money on futile care or ultra expensive cancer treatments that may buy another month or two of low quality life. It’s quite another to expect taxpayers to pay.
    Finally, the impact of the quality of healthcare the population receives or has access to have much less impact on life expectancy than personal behavior, genetics and socioeconomic status. Even if we started to cover the entire uninsured and underinsured population with a comprehensive insurance plan tomorrow and assuming they could actually see a doctor when they needed to, I doubt it would move the needle on U.S. life expectancy anytime soon.

  53. Barry, I’m not sure I understand. Are you saying that the double digit increase in insurance rates is due to massive increases in the number of uninsured (unable to afford insurance) who are largely young and healthy? If so, what is your estimate for the projected numbers of uninsured in 2010 to justify such increases in premiums?

  54. Barry, you talk as if the pool of people needing healthcare changes, it does not unless you are an individual insurance company able to rate depending on age. As a country we are one pool not a collection of pools ripe for insurance company rate picking. Why should companies have to hire based on age because health costs are out of control? Again the mistaken premise that if we could just find that magic insurance solution (My friend’s company opted to accept a higher deductible, higher co-pays, and some reductions in their scope of coverage to keep the rate increase for 2010 to below 7%) we can solve health costs, when in fact insurance is part (the first part) of the problem, not part of the solution. The solution starts with eliminating private healthcare insurance for all but maybe 10% of luxury coverage, only then will we be able to start to force costs lower instead of just allowing insurance companies to pass costs on and take their % + exec bonuses and pointing to the rest of the healthcare industry as driving costs.

  55. I learned something interesting just in the last couple of days that I think explains, in part, why insurance premiums in the individual and small group (ISG) market are rising so rapidly.
    A friend of mine has a family owned business in CA with 40 employees. The company provides insurance for all of the employees plus a handful of family members through Kaiser in the San Francisco Bay area. For 2009, their premium was $160,000. If they wanted to maintain the same coverage for the same group in 2010, Kaiser proposed a rate increase of 18.8%. Keep in mind that many, including some top officials in the Obama administration, are touting the Kaiser model with its salaried doctors, electronic records, its own hospitals and the providers and insurer on the same team, as an important pathway to quality healthcare at an affordable cost. My friend’s company opted to accept a higher deductible, higher co-pays, and some reductions in their scope of coverage to keep the rate increase for 2010 to below 7%.
    It turns out that it costs significantly more to insure employees in the 50-59 age bracket than those below 50 and dramatically more to insure those over 60. My friend is the only person in the company over 60, but they have 4 or 5 who are moving into the 50-59 group. In this economy, younger workers with the least seniority often bear a disproportionate share of the layoffs. In the individual market, young workers, if they were buying insurance previously, are more likely to drop it as rates increase, especially if they are comparatively healthy. The COBRA uptake rate also moved from 1.5% to something over 2% of eligible employees because of the subsidy provided as part of the federal economic stimulus package. On this piece of business, insurers are paying out 150%-200% of premiums collected in medical claims. The bottom line is that insurers, due to the combination of the weak economy with a 10% unemployment rate and more COBRA members, now have an older and sicker membership pool.
    Perhaps Nate or Actuary or one of the other insurance experts out there can tell us the typical relationship between the premium paid by people in their 20’s to the premium charged members in their 50’s and 60’s in a large underwritten state like CA, TX or FL.

  56. Actuary proclaims that “private insurance keeps your precious Government programs afloat by absorbing the cost-shifting from Medicare and Medicaid.” In reviewing the adequacy of Medicare payments for inpatient and outpatient hospital services, MedPAC found that hospitals under financial stress that are required to reduce costs make money on Medicare at current rates.

    The findings of cost shifting often rests on the [dubious] assumption that hospitals minimize costs (they are not affected by revenue) but do not maximize prices they receive from insurers. …Commenting on the reduction in “cost shifting” in the 1990s, one actuary recently stated, “what happened there in the ’90s was not that Medicare and Medicaid increased their payments to reduce the losses on Medicare and Medicaid. It was that the commercial private payers reduced their payments. There was a lot of competition. And the hospitals and physicians managed to lower their costs” (Fox 2008). In sum, costs are at least partially under hospitals’ control. Therefore, increases in Medicare payments may lead to increases in hospital costs rather than to decreases in the rates they charge private insurers. …Increasing Medicare payments is not a long-term solution to the problem of rising private insurance premiums and rising health care costs. In the end, affordable health care will require incentives for health care providers to reduce their rates of cost growth and volume growth. MedPAC, Report to Congress: Medicare Payment Policy, March 2009, pg. 63-64.

  57. I stand corrected Actuary, I will get down on my knees and thank the health insurance industry for holding rate increases to 43% and 22% along with the 6%-10% compounded standard rate increases every year as well as the denial of care, recissions and pre-existing exclusions that work for everyone being able to afford and get coverage. Thank god the industry forces providers into cost controls that really cut prices in healthcare so that we can spend double what other nations do – we should be the model for the rest of the industrialized world.

  58. Peter, you are clueless.
    Insurance companies have ferreted out BILLIONS in fraud – and prevented BILLIONS more with the sentinel effect. Also, due to outcome-based payments (bonuses and withholds) to hospitals, have forced hospital systems to improve their performance. Finally, private insurance keeps your precious Government programs afloat by absorbing the cost-shifting from Medicare and Medicaid.
    As I have shown before, taking away all health insurance company profits (many Blue Cross plan are member owned) would lower costs by less than 1%.
    But the upward cost trends will continue as more people use more expensive services. This is exacerbated by physicians performing unnecessary tests to avoid lawsuits (or some say to pad their fees).

  59. “his rates are going up 43%”
    “My catastrophic premium went up 22% last year and another 9% this year”
    “That is the principal of insurance.”
    Yes Actuary, it seems that just passing on never ending and unconscionable rate increases is the principal, along with executive bonuses in the millions. Too bad those principals don’t include system cost controls which would at least add some value to the function of insurance instead of just sending out premium notices.

  60. Nate, I live in Houston and I might still have the paperwork around here somewhere. Incidentally it was the same just as recently as a month ago when my husband went to the doctor with case of hives. An office visit and RX total out of pocket $378. And we waited the hives out and tried home remedies for a really long time before going to the doctor but they wouldn’t go away.
    Let me tell you something else, Nate. Several years ago throughout this lifelong green-nose saga of my son’s, I couldn’t take him that day in 2002 because we had just gone to the dr for green nose 6 weeks prior. Normally when my kid is sick I call the doctor, that’s how it’d always been. Green nose was back and I realized I didn’t have an extra $400 it would have to wait a week or so. Not so terrible but that’s not the point of this story. This chronic problem eventually took us to an ENT specialist, who determined via MRI he had a pocket of infection at the base of his brain that had been there “for years.” In spite of this child having regular medical treatment for green nose his entire life. She wanted to treat it very aggressively and look at it again in 30 days. If it didn’t clear up it would have to be surgically cleared up. Brain surgery on my kid? I followed her aggressive therapy to the letter. We went for our 30 day MRI and it wasn’t completely cleared up. She wanted another 30 days of the same aggressive therapy. 2 weeks later the kids, who had insurance through their father’s employment, no longer had insurance because their father no longer had employment. I had seem the claim and it wasn’t that terrible…the MRI was nominal, maybe $75 or $100 I’d just pay for his 2 week MRI directly because I couldn’t get him on my policy that fast.
    Imagine my surprise 2 weeks later when, at check out, I was presented with an astronomical bill, again it was just under $400. When you don’t have insurance you pay considerably more for the same procedure you just had a month prior. That was all we went for was the MRI (infection gone by the way).
    PS ultimately my son had his tonsils and adenoids removed and we never saw green nose again. Turns out he never had allergies or asthma as had been diagnosed previously in his life.
    I do not support these insurance mandates. I think we’re all getting taken for a big ride. I don’t want to be ordered to pay for the 92 million dollar vascular insitute. I don’t want to be ordered to pay for dual flat screen tv’s in every patient room, or the custom glass waterfall in the children’s hosptial. I didn’t want the insurance company to pay for all of the egregious treatment (I can’t call it “care”) my husband got in 2003. But we keep financially rewarding a broken system. I’ve done my part. I’ve more than done my part, and have spent over 6 years and tens of thousands of my own dollars trying to right some health care wrongs, it should be as insulting to all of you as it is to me to now be told “Well, Lisa, we know you didn’t screw this up, but guess what, we’re coming after your paycheck now, you have to pay for all of this.” Sorry for the rant but I’m just good and damn mad now.

  61. Peter have your friend call me, I can fix his 43% rate increase no problem.
    Lisa where do you live, I checked my data and if you see a PPO provider there is no place in the country where an office visit cost $400. It sounds like a case of bad consumerism. Any of the take care or minute clinics would treat that for $100 including Rx even if you didn’t have insurance.
    Paul if I translate some of the terms into smaller words maybe you will understand better;
    “nasty practices of insurance companies: Denying coverage because of pre-existing conditions;”
    This means requiring people to buy insurance before they have the claim, people that need it really simplified look at it like this, would you allow someone to buy auto insurance after they crashed their car? not so nasty when you say it right is it?
    “limiting annual or lifetime payments;”
    Putting a ceiling on friviolous and experimental care. Please tell me your math skills are sufficient to know if every person had $1,000,000 in care then every person would need to pay $1,200,000 for that care. If you don’t cap it then a handful of people can bankrupt the entire system. One of those common sense requirements you sorta gotta have.
    “and rescission of policies.”
    Holding people accountable for bold face lies and commiting insurance fraud to get lower rates. Personally I wouldn’t go with any insurance company that didn;t do this. Otherwise that means I am paying more then I fairly should so people lieing can pay less then they should.

  62. While I think that there are a lot of partial truths in every theory proposed, I suspect that a huge portion of this delay was introduced to give the government time to develop a solid infrastructure through which to administrate this bill. We all know the government moves very slow, and even slower when they introduce increasingly bureaucratic measures…

  63. Some items will be in place immediately, specifically the $6.7B tax on insurers. Luckily that’s “free” because no business ever passes along taxes to the consumers (said the blind horse).
    LISTEN UP PEOPLE!!!
    Health insurance rate increases are based on claim costs — and claim costs are based on a combination of increased charges from hospitals and physicians and increased number of services provided by hospitals and physicians (also Rx, lab, X-ray costs).
    Peter — I’m surprised you didn’t tell your neighbor to just keep his $$$, thereby denying the evil insurance companies the satisfaction…
    Also, to Bev MD – “Ditto, Peter. My catastrophic premium went up 22% last year and another 9% this year due to “increased costs of claims.” (none of which were my claims).”
    Bev — and if you had large claims your premium would have gone up the same. That is the principal of insurance.

  64. Delays in trying to pass legislation reflect on inefficiency of politicians. It the Congress can not get this major health care bill passed soon, it is going to be another frustration for Obama and his allies.

  65. I always thought this was happening in 2010 now we have to wait for 4 years. It seems Obama isnt keeping up to his promises. Interesting blog, i will bookmark this. Thanks

  66. In an effort to be “budget neutral” or save money per the CBO ten-year budget window, they need the early years to bank money via provider payment cuts and revenue provisions to offset the delayed cost provisions of healthcare reform in the out years. the more

  67. R Quinn that’s actually true but I don’t know that it makes us better consumers. As like everybody else my ins premiums have steadily increased, coverage got worse and even with insurance we can’t afford health care. We never go to the doctor if we can help it. I first noticed this phenom around 2002. My son suffered from chronic sinus infections since he was born. I’d say every 12 to 18 months. In 2002 he had another one and I realized I couldn’t afford to take him to the doctor, by now an office visit and RX, even with insurance, was almost $400. I remember clearly standing in the garage of my house seeing his green nose again, realizing I couldn’t afford to take him to the doctor and thinking “there’s really something wrong in this country when somebody like me can’t take my kid to the doctor.” Does that make us good consumers, R Quinn? Avoid seeking medical attention when needed? This mandated insurance is nothing but a big fat slap across the face of the American people. And Nate before you tell me what a lousy mother and financial manager I am, other than a modest mortgage and one car payment, we didn’t have any other debt. We both worked, had always worked and avoided debt. No credit cards. Why can’t I afford to take my kid to the doctor? BECAUSE IT’S TOO EXPENSIVE.

  68. Yes, placing more financial burden on patients/consumers will indeed cause them to purchase less health care services, thus reducing the overall utilization and costs associated with it.
    This will also have the the unintended effect of reintroducing some Darwinian evolution patterns into our society. Obviously the folks that cannot afford their high deductibles are not as well adapted to their natural environments as the ones that can easily pay $5000 per year for health care (on top of the premiums). So if they, or their offspring, die prematurely for lack of care, or at least don’t multiply easily, we will dramatically improve the species (not sure what species that is).
    Ditto for those genetic failures that are totally uninsured or uninsurable.
    The trick will be to hold the line and not engage in expensive, but useless, treatments when they reach a final health crisis.

  69. I rarely post, but I wanted to say thanks for sharing this information. Anyone familiar with bone activating proteins aka bone morphogenetic proteins
    and their use orally? Just wondered if there were any opinions.

  70. This is a massive change which I suspect requires a massive new bureaucracy as well (I’m kidding). The real reason may well be to give time for Congress to do further incremental tinkering over the next three years (assuming the 2010 elections go well for the Democrats).
    There is one critical issue in all this that drives most of the thinking and I would like feedback on that issue. Simply put many economist believe that by placing more cost burden on the patient, they will use less health care and become better consumers thus driving costs down. That’s what the economist who wrote a letter in support of the Obama plan said.
    Who agrees with that? Here is my view (based on 47 years of experience working with employees and their health benefits).
    http://quinnscommentary.com/2009/12/03/wanted-an-informed-health-care-consumer-300-million-openings/

  71. There’s generally a waiver process relating to a great number of the federal programs that provide health care in the states. Senator Sheldon Whitehouse said the Senate bill has an opt-in provision where states can come online earlier by waiving certain start dates.

  72. I continue to be amazed by the lack of responsibility and ignorance regarding healthcare. Reform is needed, but the direction current reform is headed will not remedy our problems. While everyone is focusing on and bashing insurance companies and screaming about rate increases, very few are pointing out that the cost of medical services and prescription drugs have increased far above the level of inflation. If insurance companies are the only problem, then why is Medicare headed for insolvency? Insurance companies cannot be blamed for all of our healthcare problems. We have to begin to address the fraud, greed, and inefficiency in the system, and refrain from childish attacks.

  73. By the time this miserable excuse for non-reform goes into effect rents in New York will be at least $2-3000 for a small, modest apartment.
    By this time the private health insurance inudstry will have raised the rates and a basic policy for a single person will cost $10,000.
    As it is asking hard pressed people to pay 12-17% of their salary for coverage is taking a big chance that there won’t be a backlash against the plan.
    Jobs are disappearing and the economy is changing. Old jobs may never come back.
    There is also a utopian naivete about the Democrats that is removing them further and further from reality. Just because there will be wellness programs and educational programs doesn’t mean everyone will suddenly be interested, care or want to take advantage of this benefit.
    Good eating habits develop in the home environment. Also heridity and culture influence how one eats, cooks and shops. There are so many variables about obesity, health and weight. It’s very naive to think that the government can legislate personal responsibility so that everyone is suddenly fit and trim, just because the government says so.
    I am not making that much money right now. Even with a subsidy it’s going to be hard for me to pay around $2000 a year for insurance given that my average salary is about $1300-1600 a month. I will not be able to pay rent, or buy a new computer or do other things. I know I’m taking a chance but I’d rather bank my own money and buy a plan for catastrophic coverage and a life insurance policy on my own.
    This is not reform. It’s corporate welfare on the backs of the taxpayers. Karen Ignagni of AHIP must be very, very happy at all the bonus money she’ll receive courtesy of We The People.
    I’m praying very hard that this bill dies a very early death and that none of the Dems pushing it get reelected. This is not what I thought it would be and I’m now very much opposed to it.

  74. I’m sure the administration is banking on the economy improving in time for the next Presidential election.
    He can run for re-election pointing to the wonderful plan that got enacted in his first term, that conveniently hasn’t actually been implemented. Kind of like Bush running for term #2 and telling people to stay the course on the war.
    Since the first years of the plan will undoubtedly be full of trips and falls which will be over-reported by the media it’d be better not to have that too fresh at election time.

  75. They will wait so they use the new revenue and say they have reduced the deficit as they run for re-election. After they commit the flimflam again, the wheels come off as debt warps into the stratosphere. The revenue will be linear but the costs will be exponential.

  76. Ditto, Peter. My catastrophic premium went up 22% last year and another 9% this year due to “increased costs of claims.” (none of which were my claims). I have no doubt they will raise it as much as they can before the bill takes effect, just as the credit card companies did prior to the new credit card law restricting them. And maybe even more after the bill takes effect, since the bill restricts them on pretty much everything BUT premiums.

  77. “If you make car payments for 3 years before taking delivery, then you “only” owe a little more once you get it! Isn’t that great?”
    Common Sense, but you get a car – isn’t that great? And your debt to value is lower – isn’t that great?
    “This is a really lame effort by Washington to hide the true cost.”
    Do you know the “true” cost of our present healthcare system? We certainly know the prices – but not the costs.
    I really don’t care about the delay as this legislation will cost me more with no benefits for the added prices/taxes. I’m not one who will get a subsidy and doubtful that so called insurance exchanges will really give me any significantly lower premiums, especially when the insurance industry has four years to pad the rates. My neighbor, who runs a small business of 17 mostly young employees, just got notice from BCBS (you know the not-for-profit insurer) that his rates are going up 43%. For the last several years I’ve been self insured so the extra 4 years will allow me to put more money away in my health account (not tax free) to use either for paying the fine for not purchasing expensive coverage or for buying some coverage. I do agree that the delay looks suspicious and not what I expected from a usually honest Obama. As I said earlier, Obama has more to fear from stupid Democrats than even more stupid Repubs.

  78. I thought any reform would begin to go into effect more or less immediately. If the reform doesn’t begin until 2014, how long will it be until Americans begin to see changes “on the ground” in the health care system?

  79. Because it’s a shell game. We pay and build reserves for a few years before real cost of insuring millions of new people kicks in. Then it looks “deficit neutral.” If you make car payments for 3 years before taking delivery, then you “only” owe a little more once you get it! Isn’t that great?
    This is a really lame effort by Washington to hide the true cost. Call it what it is and debate the merits in the open!

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