Who Has the Magic Wand to Fix Health Care?

If you went into Kmart (Costco, Target… pick your favorite retailer) filled up your cart and were expected to pay whatever was charged, would you do so? No! Yet, we do it in health care every day. I recently saw a funny video that spoke directly to my analogy. It’s fun and only 45 seconds long.

Another video ends with a customer tirade over frustration with the systems lack of coordination and transparency.

We all know that “reforming health care reform” is alleged to be the highest priority of the new administration. I am intrigued that no one is talking about one of the key features of the Affordable Care Act (ACA aka Obamacare). This is the Minimum Loss Ratio (MLR) provision.

This part of the law requires insurance companies to pay out 85% of all premiums in direct medical expenses. If they set their rates too high, then they must refund the excess to their policyholders. Most of us (or our employers) have seen funds returned since the law went into effect.

Agents have seen our compensation cut multiple times as insurers are trying to manage the 15% allocated to run the plans. They must also pay the claims and administration costs as well as excess risk insurance from the 15%. Those costs increase every time a new law becomes effective and requires a change in the systems.

Just one example: When the law changed to require small group plans to be rated based on the zip code of the individual employee, Blue Shield reported that it cost about $1million to modify the rating system! Then it was changed back to the rate being set on the zip code of the employer. Another expense!

Yes, they still pay exorbitant salaries to key executives, but that is a topic for another time. So, for the moment, let’s presume that the insurer has squeezed most of the fat out of the administrative costs. That’s only 15% of your premium dollar. What about the other 85%?

The insurer tries to manage that by negotiating discounts with providers as well as restricting unnecessary care and directing patients to lower cost pharmaceutical choices. Because costs and outcomes for many surgical procedures vary dramatically based on geography within the US, they define and encourage the use of Centers of Excellence for procedures such as knee or hip replacements.

Most physicians I know are complaining that they are not adequately paid. Hospitals lament that they need more, making insurer negotiations adversarial. The insurer or hospital cancels a contract only to kiss and make up later. Hospital “charge masters” that list hospital prices are pure fiction. (No one pays that price, but it does look good when one wants to write off uncompensated care against their “rate”).

Big pharma pleads that they must make up their costs for Research and Development (R&D) yet a look at their financials shows that marketing costs outweigh the actual investment in R&D. They don’t account for the work that is done by government funded entities like the National Institute of Health or universities. Predatory practices like buying up total supplies of cheap generic drugs and tripling the price are not uncommon.

Much of our health care system is “fee for service”, meaning it is transaction oriented. Each encounter is billed with multiple separate components. It’s a bit of a fallacy to call it health care. There is no incentive in a fee for service system to keep you well. In fact, it’s the opposite. The more encounters you have the more the provider is paid. (This is not necessarily the case in a closed system such as Kaiser, where care is coordinated and the plan is incentivized to keep you well.)

Obesity is a huge (no pun intended) problem in the US. Heart disease, diabetes, substance abuse, and many cancers are often caused by our own personal choices. Yet, we don’t want to change, we simply want to be fixed and we want our insurance to pay for it!

Meanwhile the monthly cost to insure a family can easily exceed a house payment! The ACA defines “affordable” as between 8-9.6% of income. Without employer supported premiums or the individual subsidies created by the ACA, that would be impossible for most citizens.

The point is to say that we have a very complex system. When the ACA was crafted many intelligent and experienced individuals set a goal of affordable universal access to health care. Over 20 million Americans were added to the insured population. But the problem is so much bigger. I wish we could point to one simple solution. But that is just not possible. So, we wait for the next “fix”. The ACA implementation started in 2012. Where will we be in 2021? It’s not that far away!

Margaret R. Beck
Margaret Beck  CLU, ChFC, CEBS started her insurance practice in Redding in 1978. As an insurance broker/consultant,  she represents businesses and individuals as their advocate.  She assists in choosing proper products, compliance with complex benefit laws and claims issues once coverage is placed. All information in her column is provided to the best of her knowledge, subject to final regulation by the respective agencies. Questions to be answered in this column can be submitted to info@insuranceredding.com.  Beck's column is also published in the Redding Record Searchlight.
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9 Responses

  1. Rod says:

    “One simple solution”?

    Easy, put insurance back to it’s original position—-illegal.  The current batch of organized criminals who profit from insurance have grown a giant corrupt system.  It’s not based on helping people who need it, it’s about the illusion of  getting everything fixed that one does wrong.

    Insurance makes people act cavalier and irresponsible about their own health.  I don’t need to bother with a healthy lifestyle when I have 100% corporate insurance.  Everything about me is covered.  I’ll call my agent and add some more, just because, well, you never know.

    It’s a crime to require American citizens to pay into the system.

    I’m hoping this new governmental movement will address this major flaw in America.

     

  2. Beverly Stafford says:

    I truly admire Margaret Beck and her articles here on ANC.  However, we should be paying for health care not health insurance.  I have no idea how to accomplish that.

    • K. Beck says:

      Simple solution? Single payer. The Insurance Companies fought against that tooth and nail. It works in Canada and it works in England. It could work here. The MDs hate that idea and so do the insurance companies. That will probably NEVER happen here.

      As far as Kaiser is concerned, that was a company medical plan conceived by the Kaiser Company. Its whole premise is to keep medical costs down. Sounds like a good idea. However…what this amounts to is not providing medical care unless they absolutely have to provide it. When I worked at Stanford University they offered 4 different health insurance plans. Kaiser was the least expensive and if you chose that option your co-premium was zero. If you chose a different option the employee had to pay an ever increasing co-premium cost. The highest was the choice of going to any physician you wanted. After a short while the University removed the choose any physician option since that was the option most employees chose. They then went to HMO plans. All my co-workers loved Kaiser because it was free, however, when something happened to them and they needed medical care that story changed substantially. When open enrollment rolled around in November they bailed on Kaiser and went with one of the HMOs. You get what you pay for. Kaiser is NOT the answer!

      https://en.wikipedia.org/wiki/Kaiser_Permanente scroll down to the History section.

      Paying for health care and not insurance? Well, we had that at one point. Then the MDs ran amok. I grew up when every woman HAD to have a D&C. Does anyone ever hear about that procedure any more? There was no brake mechanism to stop MDs from performing unnecessary medical procedures. I worked with a man whose significant other was an ObGyn. One day he was telling us about their impending vacation plans. Then he said, “…she only needs to do 5 more hysterectomies and we will have enough money to take our trip.” There was dead silence in the room, which was primarily full of women. He was lucky to get out of there with his life!

      The answer to that problem was insurance companies stepping in. Insurance companies have a corner on greed.

      Anyway the person needing medical care is always the last one considered.

      America Home of the Brave, Land of Greed.

       

      Didn’t California make zip code premiums for auto insurance illegal?

  3. JeffG says:

    Single payer works as long as there is at least 1 developed nation in the world paying market prices so medical advancements can continue.  Canada & many European countries are currently getting a free ride off Americans.  For as scientifically advanced as Soviet Russia was, can you name 1 contribution to medicine the Soviets made between 1918 and 1989?

     

    Yet even the poorest person in America in 1989 had better health care than the wealthiest man alive in 1918 (not true for Russia).  So while it may have been more “fair” to lock everyone in to equal access to health care in 1918, but the world is better off because we didn’t.

     

    The real problem with Obamacare is that you can’t have it both ways — you cannot let companies set prices if you are going to guarantee that every person has access to the product.  Yet once you start setting prices, innovation ends.  And the supposed compromise, setting profit targets, just encourages waste (regulated industries are the only businesses that make more money by redecorating the boss’ office).

  4. Joanne Snyder Joanne Snyder says:

    I appreciate reading what an expert has to say about health care and health insurance.   Margaret, you have a more global view than the rest of us.

    In particular the “fee for service” issue is troubling, because patients can be referred from one physician to the next without one individual doctor taking on the responsibility to find out what is wrong and what can be done to alleviate symptoms or fix the problem.  I’ve watched a couple friends struggle through this process for months.

    I was alarmed when I read the book “Coronary” to realize how much money was earned by investors of a local hospital. Health care for profit was something I was not aware of.

    Like you wrote, this is a complex problem.

    Thank you for the article Margaret.  I’m going to share it..

     

     

  5. Mark Miller says:

    Perhaps IBM, Google, Apple and other tech companies hold the magic wand. Beyond the technologies, especially Artificial Intelligence (AI), that these companies bring, they are by their nature/culture prone to be disruptive companies. As they do not have a stake in the current insurance arrangement and they have the resources, these companies are in a position to make things happen. In particular, I find IBM’s Watson computer/endeavor with healthcare to have amazing potential to improve healthcare and reduce cost.

    I suspect the reason the technology companies are so interested in driverless vehicles has more to do with the frustration and waste of traffic congestion than seeing a new market to be exploited. And so I think it is and will be with health care. It is their frustration with the existing system that will motivate and drive innovation for a better health care system.

  6. K. Beck says:

    Regarding getting rid of the ACA:

    http://www.sacbee.com/news/politics-government/politics-columns-blogs/dan-walters/article119188408.html

    Obamacare repeal would hit California’s Republican districts hardest

    If you don’t want to read the whole article just scroll down and read the last 6 paragraphs.