quinnscommentary

My wife had a ear infection a few weeks ago, she went immediately to a ENT specialist who charged her $260 for an office visit.  He gave her some drops to see if that would work, it didn’t so she returned and he then examined both ears with some type of high tech device and gave her a hearing test.  The charge for this check of her ears was $750 for each ear.

He then recommend that a drain be inserted in her ear (just like they do with small children who have repeated ear infections), because she was reluctant to have general anesthesia, she tried more medication first, but it did not work and the minor surgery was done.  When I say minor it was ten minutes start to finish and done in an out-patient surgical center.  The doctor charged $550 for the ten minutes, actually not too bad these days (but remember he had already received over $1700 for what did not work). The anesthesia was $900

Today I received the explanation of benefits from our plan administrator for the surgical center.  The center charged $13,300 for the total of one and half hours that my wife was in the building.  You should also know that the facility is owned by fifty doctors. A nurse at the facility told me they do 40-50 procedures as day.  If that is correct we are talking in the neighborhood of a half a million dollars a day.

So, if you want to talk about health care reform talk about it in the context of what is really wrong, the cost, the cost, the cost.

That will be $750 please

There is nothing in the pending “reform” legislation that will change any of the above, in fact, I have yet to hear any discussion about costs in this context.  There is nothing in the above story that can be blamed on the “insurance company” 

Let’s say we do extend coverage to the 47 million Americans without it and we subsidize those who earn up to $88,000 a year as proposed and now we have a much larger pool of people with coverage and with a minimal financial stake in the cost of the care they receive and what if they all get an ear infection?

The President is on the road again to push for his version of health care reform only this time he is trying to hit a sore point with Americans, the big bad insurance companies.  Employers should listen to this message because for the seventy million workers with self-insured coverage through their employer employees will make no distinction between those plans and individual insurance.

Here are the health insurance reforms the President wants:

1. No pre-existing conditions
2. No excessive out of pocket expenses
3. No out of pocket expense for preventive health care
4. No dropping coverage for seriously ill people
5. No gender discrimination
6. No annual or lifetime coverage limits
7. More coverage for uninsured or underinsured young adults (presumably via parents coverage)
8. Guaranteed renewal

It is hard to argue with some of these points, especially if you want to expand coverage. However, at the same time, it is clear that these changes will add cost to the coverage for everyone with health insurance.  That’s ok too if the President and the politicians will explain the impact of the changes they seek.  Here we are not talking about the federal government’s costs; we are talking about the cost of coverage for the 160 million Americans with employer-based coverage and all those with individual coverage.  Massachusetts is finding out the obvious that if you eliminate the barriers to coverage people will simply wait until they need the coverage to buy it knowing they cannot be denied and in the process have saved themselves health insurance premiums (at the expense of all of the other insured people).  Let’s hope they get the rules right the first time in Washington because Massachusetts has both an employer and individual mandate and still is suffering from adverse selection.

It is easy to point at the insurance companies and hold them accountable, but the reality is that underwriting is common and necessary in all forms of insurance to keep the cost of coverage affordable for the entire pool of insured people.  And there is the rub, we are now at a point where coverage for health care related expenses is no longer insurance in any sense of the word.  While we appear to be striving to make coverage very affordable at the point of service for the individual, we may be missing the big picture of what is affordable in premiums and direct costs to the federal government.  As we drive up the cost of the coverage, we increase the need for subsidies, and the demand for more not less employer contribution toward that cost.

Items number 2, 3, 6 and 7 have the potential for a significant impact on employer plans and on the covered employees who pay a portion of the cost of that coverage.  I would be especially concerned with number 2 “non excessive out of pocket expenses” because excessive is in the eye of the beholder and in this case, the beholder is the federal government bureaucracy.

In an editorial in the July 28th Washington Post, Jacob S. Hacker writes in part, “In fact, such a plan (government run health plan), empowered to work with Medicare, is Congress’s single most powerful lever for reforming the way care is paid for and delivered.  With appropriate authority, it can encourage private plans to develop innovations in payment and care coordination that could spread through the private sector, as have past public-sector innovations”

I don’t know what public-sector innovations he is talking about, but I do know that a report from the CBO points out the inefficiency in Medicare and the lack of any management while it notes, Medicare just processes claims. It is true that years ago the federal government tried to jump start the HMO concept, but most of the federally funded plans failed, mainly because the people running them had no idea what they were doing.  I know that first hand, as I sat on the Boards of four such plans all of which eventually went under and none that met the goal of an HMO concept.  The Feds handed out money like drunken sailors and got nothing for it.

In reality, it is large employer plans that have tried every type of innovation in providing health care coverage and paying for care (who killed capitation?) and employer plans that have been frustrated by costs in part because of the arbitrary fee setting practices of Medicare.  Many employers have gone beyond merely tweaking the benefits, but have become heavily involved in disease management, case management, patient advocacy and of course health and wellness efforts. Some observers, including myself, have questioned if employers have gone too far intervening in the health care of workers. Nevertheless, employers have taken these steps because they are frustrated with the escalating cost of health care.

I continue to be amazed at the people who think health care reform is centered on what Medicare pays physicians and hospitals and thus there is a demonstration of the efficiency of that system.  This is presented under the guise of affordable health care and yet, with a modestly close look one sees little of an affordability factor.  Affordable health care is comprised of the premiums one pays and the out of pocket costs that are part of the plan.  The current plans from Congress move money from here to there, claim to lower costs (for the federal government) and yet in the final analysis there is much to drive up the premiums for the private sector, encouragement to shift costs to employees and nothing to lower the rate of health care inflation.  But who am I, a recent report from the White House Council of Economic Advisors claims that government can lower health care spending by 15% over the next ten years, by providing fewer services, not by lowering payments or the quality of health care.  Sound like the “R “word to me.

On the other hand, there are some very good ideas in the report and very clearly identified steps that need to be taken to actually control health care costs.  Read it for yourself, it is worth the time

The real problem is that health care reform as currently constituted is more about expanding the current system than changing it and the American people are unaware of the type of change that is necessary (and apparently so is the AMA).

It is important for employers and every American to understand what it means when the President and other politicians talk about paying for health care and reducing costs.  To put it simply they are talking about lowering the net cost to the Federal government for expanding health insurance.  The major ways they plan to do this are to lower payments to Medicare and Medicaid providers, and in one form of the other to raise revenue for the Federal government, that means higher taxes or lost tax benefits now in place.  The 160 million Americans with employer-based coverage mainly enjoy those benefits.

On the other hand, the various legislative proposals will raise the cost of health insurance and health care. Some of these proposals are necessary to expand coverage to individuals, other changes are not necessary and questionable at best, things like providing certain preventive services with no out of pocket cost. But even without specific legislative language, cutting payments to Medicare providers means cost shifting to the private sector.

So, now you have to ask yourself, how does all this add up?  The answer is that it does not add up.  Some Americans will gain coverage and have the cost subsidized, but most Americans with coverage, including Medicare, are very likely to pay more for that coverage, have some benefits lessened and see no change in the medical inflation trend which continues to be several times general inflation.  Moreover, while all this is going on, the problems of Social Security and Medicare are still with us.

Do you think it all adds up to better health care for America?

I recently retired after working in corporate employee benefits for over 47 years, much of that time spent managing, designing and administering employee health benefits.

Like many employers in the US, my company first offered health benefits in the 1940s, back then it was hospitalization and medical surgical coverage.  It pretty much stayed that way until 1961 when the idea of major medical coverage was first introduced.

The hospitalization provided full coverage up to a limited number of days.  Medical-surgical coverage paid for physician services rendered in the hospital, but the fees were based on a fixed schedule.  I recall when my first child was born the allowable fee was $350 for the obstetrician.  The basic coverage also provided limited and fixed benefits for x-rays and a whopping $25 for laboratory work.  There was no financial incentive to run test after test and the patent had a clear stake in the cost.  Hey, it was “insurance” after all. On the other hand, there was also a strong incentive to provide services in the hospital (unintended consequences).  We became a bit smarter and later provided basic coverage for outpatient services.

With the introduction of major medical coverage with a deductible of $100 (which should be $712.10 in 2008 general inflation dollars), the plan paid 80% of charges up to an annual out of pocket maximum of $10,000.  Coverage expanded to include office visits, services not covered or limited under basic coverage, medical supplies and prescription drugs.  Note, no co-pay for prescriptions, just part of the overall mix. While an office visit was only $5.00 back in 1961 (which would be $35.61 in 2008 applying general inflation), utilizing co-insurance made sure that the patient had a stake in the cost.  Not maintaining the deductible in parity with inflation resulted in other unintended consequence, but even back then the typical viewpoint was that health care bills were someone else’s responsibility (an idea that is even stronger in 2009).

Health and Wellness 101

In 1970s, we (and I use the word “we” collectively for much of the employer community) made the biggest mistake of all; we moved from a fee schedule for physician services to what then were called reasonable and customary fees.  Most plans paid at the 80^th or 90^th percentile meaning that eight or nine out of ten physicians billed within what was allowed.  Of course, that also meant that since there was no fee schedule the increase in allowable fees was in the hands of the health care providers.  Another unintended consequence of trying to insulate patients from costs.

We then moved into HMOs in the late 1970s.  The idea was appealing, better coverage in exchange for better control and management over the costs and services provided.  The problem was that the choice of provider was limited and telling Americans they cannot have something always means it must be bad.  The idea was to have limited networks of participating providers to control costs and better manage the services rendered.  In response to the lack of choice, HMOs essentially stopped screening providers and everyone was allowed into the pool.  We were left with a high level of benefits and virtually no management of the health care services.  The HMO concept morphed into open access plans and into the Point of Service (POS) plan with both in and out of network services.  Once again, we experienced the unintended consequences of watering down management of health care services; management of health care is something Americans seem to abhor. Instead we encouraged health plans to negotiate the best fees possible with physicians and hospitals, an idea that merely shifts costs around the system and does nothing to control utilization, dare I say unintended consequences (I bet you are tired of hearing that).

Along this journey from the 1960s we tried pushing second opinions for elective surgery, flexible benefits, outpatient services, health and wellness programs, pre-admission testing and much more and yet health care as a percentage of the economy continues to grow.  Ummmm?

Considering all of the above, look at the pending “reform” legislation and see if you can find anything that will actually control the overall cost of health care in America.

Today we appear to think that the government will provide unlimited health care with no management of services but with cost control.  It has not worked in the past (consider Medicare) and it will not work in the future. On the other hand, the new catch phrase in Washington and elsewhere is “accountable” health plans and the concept of physician capitation for payment and a primary care coordinator, which sounds a great deal like an HMO.  Stand by for the implications of this one.

Do we wonder why health care costs have gotten out of control?  We have moved from a system of “insurance” with a financial stake in the process for patients to total entitlement.  Today Congress debates a new health care system and yet we appear to ignore lessons learned.  The guidance in the pending House legislation to the Secretary of HHS is to try to avoid coinsurance in designing the required benefits package going forward in favor of co-payments.  This is exactly the kind of thinking that got us into this mess.  Pending legislation states and the message to Americans is that medical decisions are between the patient and the doctor.  That may be fine when you are buying a TV, but in health care with all its variables and misdirected incentives, it simply does not work.

So now it is health insurance reform, the President changed his words last night no doubt in an attempt to tap into the anti insurance company message.  He also pointed out that the cost of Medicare is a drag on the economy.  He is right about that, but unfortunately, the reform proposals do not control costs, at best, they shift them around.

The President’s focus is on spending by the federal government, not the overall economy.  They are missing the point in all this, it is that simple.  Saving money on Medicare by shifting costs to the private sector whether it is via health care or in taxes does not solve the problem.

To save money, we must reduce the per unit cost of services, reduce the number of services provided and reduce the services provided to the least intensive and costly possible.  The President alluded to that, but I doubt Americans get the message of what that all means.

Things are moving fast in the world of health reform (oh, how I love that word). Here is some of the latest coming from the Senate Committees:

A proposed ERISA waiver for states that set up a single payer system, here you go, while we are supposedly trying to simplify the system, consideration is being given to having employers again comply with a myriad of state laws if they have employees in more than one state.

And the nay's better forget it.

Over the counter drugs may be gone from the FSA, the HAS and HRA. Only a few years ago eligibility for these products was added to the FSA which made sense, now Congress wants them gone presumably in some convoluted quest for money which of course will not occur if people put the same amount in their FSA and spend it on something else.

Here is one employers will like, extending COBRA beyond the normal 18 months all the way until the new health care exchanges are in place sometime in 2013 or beyond.

Here is very special goodie for employers to help pay for reform, a new premium tax. What is the big deal you say, self-funded employers are not subject to premium taxes, they will be subject to this one if passed. By gosh, you thought health care reform meant saving money. What it means is finding a way to pay for the subsidy to families earning up to $88,000 per year.  So, is the problem the cost of coverage or the availability of coverage?

 And one we can all live with, extension of the tax-free status of benefits to enrolled domestic partners, if a plan provides such coverage.