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!
