Tuesday, September 15, 2009

Individual Health Care Accounts


The National Coalition on Health Care sports an impressive, bi-partisan list of members and supporters, including former Presidents George H.W. Bush and Jimmy Carter. Just a few excerpts from their site:

-National health spending is expected to reach $2.5 trillion in 2009, accounting for 17.6 percent of the gross domestic product (GDP).

-In just three years, the Medicare and Medicaid programs will account for 50 percent of all national health spending.

-The average employer-sponsored premium for a family of four costs is close to $13,000 a year, and the employee foots about 30 percent of this cost. Health insurance costs are the fastest growing expense for employers. Employer health insurance costs overtook profits in 2008 (!!!), and the gap grows steadily.

-Without health care reform, small businesses will pay nearly $2.4 trillion dollars over the next ten years in health care costs for their workers, 178,000 small business jobs will be lost by 2018 as a result of health care costs, $834 billion in small business wages will be lost due to high health care costs over the next ten years, small businesses will lose $52.1 billion in profits to high health care costs and 1.6 million small business workers will suffer “job lock“— roughly one in 16 people currently insured by their employers.

Frankly, these numbers are just plain unsustainable. But to me, the most staggering, reach out-and-slap-you-around statistic is this:

-A recent study found that 62 percent of all bankruptcies filed in 2007 were linked to medical expenses. Of those who filed for bankruptcy, nearly 80 percent had health insurance. (my emphasis)

I guess what this last statistic boils down to in plain English is that health insurance in this country really isn't insuring us from anything. Let's do the math. Almost 50% of all bankruptcies in 2007 were the result of excessive health care costs and were filed by individuals who had insurance, which presumably protected them from excessive health care costs! But guess what...it didn't. I checked the American Bankruptcy Institute and found the number of bankruptcy filings in the first half of 2008 alone amounted to over five hundred and twenty thousand. By extension, what this means is that last year, almost 650,000 Americans filed health care expense related bankruptcies, and of these, over half a million had health insurance. And to this half million you can confidently add several million more who underwent extreme financial hardships as a result of medical expenses. In my business, it has become virtually axiomatic that medical expenses are the number one cause of poor credit scores.

If this doesn't forcefully bring home how dysfunctional the health insurance industry in this country is I really don't know what else will. What we have here is a perpetual dealer-can't-lose game of blackjack and the only thing really being insured is the insurance industry's share of the take. This makes me so mad, as my dear mother was so fond of saying, I could just spit. Who could blame the Democrats in Congress for wanting to force a little civic responsibility on private insurers by offering a public option? Don't worry, I won't go there now. But it adds a little perspective to all the stupid tea bagging going on lately, which consists apparently of nothing more than a gaggle of intellectually challenged citizens demonstrating for the right to get screwed by private insurance companies. I don't think its over-reacting to say we are facing a national emergency here.

Skyrocketing health care costs are sapping American industry. However you care to look at it ideologically, we are looking at a massive paradigm shift: as revenues, profits and investments are rapidly drained from bedrock manufacturing industries and transferred to health care. I daresay no nation in history has ever been able to experience sustained prosperity without a solid manufacturing base - and ours is disappearing before our very eyes.

Now I will accept that free enterprise, driven by consumer choice, has the capacity to furnish society with all sorts of wonderful, affordable rewards. But health care doesn't seem to be one of them. How did we get to this point? Answering this question is absolutely crucial to defining a solution...

I see an interesting parallel between health insurance today and the domestic auto industry back in the sixties and seventies. Most people would point to this era as that during which the Big Three acquired the legacy costs which today have handicapped them in competition with leaner, more responsive foreign companies - particularly Asian. You will recall the constant UAW strikes of that period and the escalation of labor costs which were far out of line with other industries. Then, it didn't matter. All the Big Three had to do was raise prices and consumers had little choice but play along. A good friend of mine, whose career in auto sales spanned that period, cites it as where and when longer and longer term auto loans became commonplace: itself an interesting insight.

It seems to me the health insurance has undergone a similar economic evolution. 400 corporate mergers in the last 13 years have resulted in a market which is virtually dominated by 7 mega sized companies: United Health Group, Wellpoint, Aetna, Humana, Cigna, Health Net and Coventry. Controlling as they do individual marketplaces and with next to unlimited funds to influence legislation, these companies, just like the Big Three of 30 years ago, have been able to insulate themselves from any real form of competition and pass rate increases on to consumers without penalty. And, for their part, consumers have no choice but to play along. The only difference here is that there are no Toyota's, Honda's or Datsun's waiting in the wings.

From a Progressive States article:

"In 2000, the CEOs of the largest hospital system and largest insurance company in Massachusetts shook hands on a plan to manipulate the health care market and ensure each other greater profits and market-share, an extensive report by the Boston Globe has revealed. Under the wink-and-a-nod handshake deal, Blue Cross insurance agreed to raise reimbursement rates to Partners HealthCare - the largest hospital system and private employer in the state - in exchange for Partners' insistence that other insurers pay them at least the same rates paid by Blue Cross.

The agreement enabled Partners to secure higher reimbursements from all insurers and gave Blue Cross a competitive advantage in the market. Since the agreement, Blue Cross has raised its payment rates to Partners by 75%, far more than it pays to other hospitals, helping Partners hospitals earn 30% more than other teaching hospitals - resulting in hundreds of millions in extra payments to Partners each year, as the Globe reports. Blue Cross, for its part, dominates with 60% of the health insurance market and has seen profits soar from $82.7 million in 2002 to more than $200 million each year since. Consumers in Massachusetts have faced ever-rising premiums, with individual insurance premiums raising 9% each year, twice the rate of the late 1990's, before the handshake deal." (my emphasis...BTW: Progressive States is a "liberal" site - however all the facts and numbers here are independently verifiable)

What this all boils down to is the rapid escalation of price without any increase in value. In essence, consumers pay more and more for less and less because, unlike other industries, consumer choice has virtually no impact on health insurance. So, expecting that consumers, armed with government sponsored Individual Health Care Accounts, will rush out into the free market and effect genuine change is ludicrous. My solution is as follows:

First, along the lines of your suggestions, create government owned and controlled Health Maintenance Organizations, comprised of government and government contacted assets which deliver actual health care services and are available as an extended form of Medicare to all citizens for purchase with their HCA's. Second, if it is true, as The National Coalition on Health care says, that Medicare and Medicaid constitute 50% of health care spending in the U.S. - why then allow these programs to use this huge bargaining power go out and contract with individual medical professionals, hospitals, drug companies - even private insurers, and drive hard bargains to create managed care plans - again available only for purchase with HCA's. Third, allow private insurance companies to develop supplemental policies which can be purchased with HCA money only if they meet certain, definite criteria.

What my starting point here consists of is essentially the creation of a huge co-op of private citizens, organized on a scale to take advantage of its immense bargaining power to reduce costs and increase value. This contrasts with the current situation, where private insurers own the bargaining high ground and have no built in incentives to offer a better product.

As we are both aware, this starting point does nothing to address the question of supply and demand. I'll consider that in my next post. What do you think so far?


No comments:

Post a Comment