Health Insurance Drives Sky-Rocketing Health Care Costs

Health Insurance Drives Sky-Rocketing Health Care Costs

My girlfriend, Sandy, and I had our first springtime “spa-day” last week.

Being “girls” we talked about our travels, our families, and fashion while enjoying a pedicure.

Sandy worked in the health care industry before her recent retirement, and I have consulted extensively to large health care organizations over the years.

Not surprisingly the conversation quickly turned to health care – the Republican proposal to repeal and replace “Obamacare” and the just published Congressional Budget Office analysis of that proposal.

Beyond our professional experience, we are consumers. We are experiencing the increasing cost of health care insurance, co-payments, drugs and other expenses.

Spending Other People’s Money

Over our sun-drenched lunch, Sandy and I talked about the growing role of government into our health care system and about some of the unintended consequences.

During his very wonky Power Point press conference, Paul Ryan accurately pointed to the spending of “other people’s money” as a powerful driver in the alarming rise in the cost of health care. http://www.cnn.com/videos/politics/2017/03/09/paul-ryan-full-health-care-bill-powerpoint-presenation.cnn

Let’s break this down.

  1. Obamacare requires that every American citizen must be covered by health insurance. Americans are required by force of law buy to insurance from a private insurer if they are not covered by an employer plan and have an income above the Federal Poverty Line.   That insurance must include benefits you or I might or might not want.
  2. Your individual premium is calculated on age, number of insured in the family, and the average cost of all the mandated benefits – whether you may use them or not – because someone else insured by the same company may – indeed – use those benefits. That is called sharing all the risks.
  3. If you do not buy insurance, the Internal Revenue Service will impose a penalty (i.e. a tax on you) that is used – in theory – to help pay for health insurance or Medicaid for your neighbor whose income and family size qualify them for help paying their legally required insurance premiums.
  4. All insurance payment premium payments for health insurance are paid into the insurance companies’ premium account(s). Premium accounts  are a pool of money in which your individual contributions can no longer be identified or separated out for your specific use.

Once our dollars are pooled with every other tax payers’, we have no control over how they are invested or spent.  They become someone else’s to spend on any person or any benefit – at any price the insurer agrees to.

The more services the government mandates insurers to cover from first dollar or after a minimum co-payment, the less sensitive the consumer is to how much that service costs.

For example, last Tuesday my allergy doctor suggested a vapor treatment for my pollen-driven chest. I said okay. It never occurred to me to ask how much does the treatment cost because I won’t get a bill. The charge will merely be an object of curiosity when the insurance company sends me an explanation of benefits they paid.

If I had to pay the bill for that treatment, I would have asked more questions about the cost and efficacy.

Are government bureaucrats creating an almost irresistible temptation for the health care providers? In a word, YES!

If the insurer is required to pay – no questions asked – for tests and treatments, the profit-making health care eco-system is going to prescribe more tests and charge more for them.

The Affordable Care Act (Obamacare) mandates for first dollar coverage of preventive and diagnostic testing exaggerate these consequences.

The more services are mandated without adequate cost controls, the more the insurers must charge in premiums and co-pays.

Faced with exploding insurance costs for all of us, is it time to change the assumptions about personal responsibility for your own health care and government’s power to mandate that responsibility be underwritten by the taxpayer?

The Purpose of Health Insurance

“Sandy, I think I remember paying bills from the pediatrician when Craig was a kid – like his well-baby care? What do you remember from your children?”

“Yes”, she replied “I remember paying the pediatrician”. Sandy was living in the mid-west at that time and remembers she took her children to community childhood immunization clinics that were “much less expensive” than the pediatrician.

When Craig was born, insurance paid for hospital costs for both of us – but I paid a contracted amount – directly – for my obstetrical care – spread over the pregnancy.

I was in graduate school and working for the University of California’s Statewide Office of Administration at the time. That meant I had really good (state employee good) health insurance.

What I experienced was normal practice in the 1970s.

I don’t remember when the practice changed and I stopped paying doctors’ bills and started paying only a co-payment – and it doesn’t matter. The point is health insurance started out as hospitalization or serious illness insurance – not the primary vehicle for obtaining routine care.

Health care coverage, today, is not only protection against major illness, major accident or hospitalization. It is, also, really pre-payment of anticipated routine services – an indeterminate number of services each at an indeterminate cost. Indeterminate is driving rising premiums and deductibles.

Necessity is Driving Innovation

While Congress is debating how to insulate more people from a price and service model no longer affordable for either the American tax payer or the individual middle class consumer, a few health care practitioners are developing real solutions in real time for real people.

Here are two examples I found – without even trying – that are working in local practices today.

As of January of this year, my dentist is offering patients an annual contract for care. For a monthly fee paid automatically via credit card, the dentist will provide all preventive care and fillings. Other services are paid by the patient at a discounted price – determined before service.

The monthly expense is two-thirds of what my previous dental insurance company charged for a smaller benefit. If I were to need a crown, I would still pay less, out of pocket, than the previous premium plus co-pays.

Not only is this a good deal for the patient, it is a good deal for the dentist. If a majority of his patients subscribe to his plan, it smoothes out the cash flow peaks and valleys of a traditional small business and it allows him to schedule his employees – hygienists, dental assistants and office staff –efficiently.

This efficiency removes time consuming disputes with insurance companies.

Taken as a whole, the dentist can grow his practice while, at the same time, controlling his payroll costs. In other words, he can make a larger profit on same or lower revenue.

While we were talking, Sandy remembered a friend whose family practitioner has a similar program for healthy patients not yet eligible for Medicare. That doctor charges a flat fee of $2000 a year for all routine and sub-acute office visits plus annual preventive care – including blood draws and other routine laboratory testing.

That patient must still purchase major medical (i.e. hospitalization and catastrophic illness) coverage. But, according to my quick Google search, those policies start at about $600 a year. https://healthplans.com

This approach is definitely a money saver. It’s less than the cost of Medicare plus a Medicare Supplemental Plan for someone who meets the health criteria implied in the contract.

Here, too, the regular payments help to smooth the doctor’s cash flow and simplify insurance claims processing – benefitting the bottom-line.

Both of these patient/provider contracts are treated equally with employer-based health care premiums for tax purposes through the use of Health Savings Accounts – an objective of the GOP sponsored plan. http://www.hsacenter.com

Could these be early signs of return to a health care model more typical in the 1970s? A model middle class Americans and their health providers can afford.

When routine health care was something consumers paid out-of-pocket, we paid attention to how much it cost. We shopped around for the best deal.

Old fashioned competition is the elixir of innovation – a tonic the American health care system urgently needs.

Graphic — screen shot by author.  With all thanks to MSNBC and my Samsung Smart TV

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