A hidden cost of health insurance "efficiency"

As regular readers know, I take a dim view of those who tout efficiency because they use it as a code for lower obvious costs.  They ignore that lowering costs may reduce effectiveness or may increase costs elsewhere.

A recent case was that someone thought that Medicare Advantage participants getting health club memberships was a cost that could be eliminated.  I'm sorry that I didn't note where I read it.

However, a health club membership can cut costs elsewhere.  Granted that not everyone who has such membership gets any real gain.  Some show up for the sauna or the hot tub and get no real exercise.  Probably sufficient numbers show up and do exercises that increase bone mass, muscle tone, and cardio-vascular function so that they will be less likely to be hospitalized than those who don't show up.  In other words, the cost of the health club membership can offset the costs of major medical intervention.

Businesses live within their means? Really?

Over and over again, letter writers and some politicians complain that governments should live within their means just like families and businesses.  But do families and businesses really live within their means?

Consider that the current crisis was not caused by government overspending, but family and business overspending.  Many people went in way over their heads with credit card and mortgage debt.  Financial gurus created debt instruments of debt repackages over and over in a great Ponzi scheme, all in the name of free markets.  The whole mess collapsed of its own weight and took down the guilty and the innocent alike.  Unfortunately, the captains didn't go down with their ships, but were first in the lifeboats carrying their safes.

I got to thinking about what kind of corporate debt does exist.  Well, I am a small beneficiary of corporate debt; we own shares of some market-traded bond funds that give us a few hundred dollars of income every month.

Now is the time that semi-annual shareholder reports come out, and I checked one fund's holdings.  Below is a sample of some of the businesses whose bonds are held by DWS Global High Income Fund (LBF) with the rate and due date.

HCA Holdings, Inc. offers health care services in the United States. The company owns, manages, or operates hospitals, freestanding surgery centers, diagnostic and imaging centers, radiation and oncology therapy centers, rehabilitation and physical therapy centers, and various other facilities.
- From Yahoo! Finance, http://finance.yahoo.com/q/pr?s=HCA+Profile

No wonder health care costs are so high.  Many health care conglomerates can't live within their means.

Of course, these rates are low compared to credit card rates.  By comparison, home mortgage rates are around 4.50 percent for thirty years.  Treasury bonds are currently about 1.50 percent for five years and 4.25 percent for thirty years.  Either certainly beats current bank savings account rates of less than one percent.

I would say that families that have only fixed-rate mortgage debt and the federal government are living within their means far better than some large corporations.

Don't worry, insurance will pay for it!

How often have you heard this remark?  This leads many people to see a doctor for even small problems that may go away on their own.  This also leads many providers to not be cost conscious of the work they do, at least not as cost conscious if the patient was paying out of pocket.

People rarely ask the follow-up question: who pays for insurance?  The answer is that we all do, directly or indirectly.  If we pay the premiums directly, it comes out of our pockets.  If our employer pays the premiums, its money that could go into our pocket instead or its money that has to come from the price of the goods or services sold.  If the government pays, it comes out of our taxes.

Since there are so many payers of health care, there are no real controls on the costs.  So, no controls, no limit on costs.  Up and up they go.

For some more thoughts on this, see "What Happened to U.S. Health Care Costs?" Megan McArdle, The Atlantic, 2010-12-01.

She has an interesting graph showing how U.S. health care costs diverged dramatically from the costs in other countries.

Personal responsibility is a two-edged sword

"Personal responsibility" is a mantra coming from the Republican and Independence parties.

Personal responsibility is something most of you reading this generally live by. You pay your bills on time, you keep your yard tidy, you eat healthy foods, you avoid doing things that annoy other people, etc., etc.

But political calls for personal responsibility often have another message than just being a good citizen.

One is that we should take personal responsibility for our own health care and not rely on some government program. Never mind that many who have good health insurance have it through an employer program; doesn't sound very personal to me. Never mind that for those who don't have access to employer insurance generally don't have enough money to buy equivalent health insurance and generally don't have enough money to even pay for one night's stay in a hospital. How many people earning $20,000 per year or less have $2,000 in savings? (It could be even more than $2,000 given how various hospital charges add up.)

A second is that we should take personal responsibility for our own education, especially advanced education. I doubt if all but a few have done that. If we don't have rich parents, we often cobble together part-time work, scholarships, grants, and loans.

Depending on personal responsibility for health care, education, and much else reduces the common good. If we have people getting and keeping "old economy" jobs just for health insurance, we won't have as many people working on creating a "new economy". See "Forget jobs, create opportunities". If we limit advanced education to only those with great economic resources or willing to go deep into debt, we will have fewer people getting an advanced education. One of the justifications for high doctor's fees is that they need the money to pay off their medical school debts.

Hm! Higher medical costs make it harder for many people to pay for health care. Sick and poor people can't get advanced educations. Fewer people getting advanced educations means few doctors. Fewer doctors mean higher health care costs. Higher health care costs mean...

"No man is an island, entire of itself." John Donne, http://www.poetry-online.org/donne_for_whom_the_bell_tolls.htm

Health care - really a question of winners and losers

One of the objections that conservatives (Republicans and Democrats) have against government health care insurance is "it could force many private insurers out of business." - "GOP senators warn Obama on health care", Yahoo Finance, 2009-06-08

But, the current health care system is already forcing some companies out of business. Was it Waggoner of GM who said he started out making automobiles but wound up running a health care insurance business?

Not only are many companies at a competitive disadvantage to companies in countries with extensive government sponsored health care, many companies aren't started because of health care. First, many people don't go off on their own because they don't want to "lose benefits". Second, if are willing to go off on their own, they are wary of the need to provide benefits, a drain on their cash flow and on their time.

Another complaint against government health care has been the cost. Most critics talk as that is an additional cost to Americans that they didn't have before. The real question is how much will the costs be offset by other savings - existing insurance premiums, the cost in goods and services due to health care costs for employees, and the cost of uninsured going to emergency rooms. Does anybody even know if the savings could be even greater than the cost?

Explanation of rising health care costs in five words

Insurance will pay for it!

How often have you heard in response to a broken bone or a dented fender: "Insurance will pay for it"? People say this as a way of saying the cost of fixing a problem is no problem; it won't be out of their pockets.

But it is out of their pockets in higher premiums and even higher taxes.

People go to the doctor for things that might go away on their own, but "insurance will pay for it." People go the doctor for minor conditions for things that aren't very serious and with which they aren't bothered that much, but "insurance will pay for it."

Doctors will perform procedures on minor conditions because a patient doesn't have to worry about the cost. In fact, doctors often don't ask if a patient wants the procedure done; they say, "I'm going to do such and such". After all, "insurance will pay for it."

Often, insurance doesn't pay for it. Insurance pays part of the stated cost. Big insurance companies negotiate prices as discounts. "We'll include your health care facility in our coverage if you give us an xx% discount." So it is in the interest of health care providers to keep their official prices high in order to be sure their actual prices give them an adequate compensation.

Of course, the more people use insurance, the higher the premiums become. The insurers have to raise enough money to cover all the claims and still make a profit.

You can argue about how insurance executives are overpaid, how doctors are overpaid, and how many inefficiencies there are in health care, but the basic fact is that the less people really make price-benefit choices, the higher the costs will be.

This latter point is the argument that promoters of health savings accounts and patient choice make. If people buy their health care on rational economic choices, the costs will be brought under control.

Unfortunately, rational economic choice for health care is not like rational economic choice for a new TV or car or for what kind of vacation one will have.

If you are injured in a car accident and rescued while unconscious, health care providers are going to give you the best care they know. Even if you are conscious, will you be thinking clearly?

What if your child suddenly becomes gravely ill? Are you going to spend the time to research what doctors can give the most cost effective care? No, you are either going to see the doctors you already know or you are going to see the closest doctor.

We are not going to solve our "health care crisis" until a sufficient number of hard-hearted patient choice advocates and a sufficient number of soft-hearted "damn the true cost" advocates discuss all of these issues rather than grandstand.

Will McCain's health proposal cost most people less?

I find it hard to believe that McCain's health proposal will cost most people less. McCain is proposing to discourage employer-sponsored health insurance in favor of individually purchased insurance

Employer-sponsored health care is group health insurance. True, this could be more expensive for the young and healthy. Until they are married and have kids. Group health insurance is a better deal for people who are not so healthy. People who have some health issues in their family are going to pay a lot more for individual health insurance.

Group health insurance can be cheaper than individual health insurance because of sales costs. If you get health insurance online these costs may be very low. However, if you get health insurance from an agent, that agent may get a cut of your premium for as long as you hold your policy. This is also called a performance award; the more policies an agent sells the bigger his or her award.

(We should pay teachers the same; as long as their students are getting an income, the teachers should get a cut of the students' income taxes.)

McCain's five-thousand dollar tax credit is a joke. My wife and I are paying $6,941.40 per year for Medicare B, Medicare Drug Plan, and supplemental insurance. What would a family of four or five with known health issues pay?

Health savings accounts are also a joke. A single night in a hospital now costs $1,000, each time a doctor sees you in the hospital could be $200 or $300. How many people are going to have that much money in their health savings accounts?

There is already a tax deduction for all health expenses over a small percentage of income. Why not make it a tax credit?

If you would like to read more about both candidates' health plans, see "Health Care Spin" at factcheck.org.

Shortchanging education leads to big bucks health care

We too often look at parts of our society as unrelated to other parts. We link property taxes to education and do not properly support it to give our children a truly superb education. For example, we focus on reading and computation, but neglect art, music, and critical thinking, skills that promote and lead to much better thinking abilities.

As a result many of our children do not develop the skills that are in demand in our economy. For these, we spend an inordinate amount of time and money subsidizing corporations to create jobs.

But many jobs are going unfilled because there are not enough people to do them. This leads to higher demand for those who can do these skilled jobs which leads to higher wages for these employees.

A prime example of this is the shortage of doctors. Recently St. Mary's Duluth Clinic said it needed 139 doctors. You know that those doctors who are available have a long list of employment choices. To get them, SMDC is going to have to pay a lot.

Since health care organizations have to pay a lot for doctors they are going either pay others less or raise their fees, often both. As fees get higher and higher, health care premiums go higher and higher, often outstripping inflation. As premiums go higher, fewer people can afford health care.

When children don't get adequate health care they don't do as well in school. Therefore we need more money for schools to adequately educate these students. But we don't want to pay the taxes to do so because our health care premiums are so high.

An unnecessary health care cost

I recently learned of a ridiculous health care cost driver - unnecessary paperwork!

I've worn contact lenses for over thirty years. I remember that the eye care people always want to be paid for the lenses before handing them to the patient; they never bill for them and insurance never pays for them. Such was the case when I picked up a new pair from an opthalmologist's office in a clinic.

I was therefore surprised when I received a notice from CMS (Center for Medicare & Medicaid Services) that the claim was denied and being sent to my Medigap insurer. I called the clinic billing office saying this claim should never have been sent because I had already paid it. The representative told me that it was being sent so they could have the denial. She didn't really want to hear that they should have already known the cost lenses were not covered.

This kind of legalism is adding costs to three entities: the clinic, Medicare, and my insurance company. Maybe if it only costs five dollars per claim per entitity, that adds fifteen dollars to the cost of the service. How many tens of thousands of these unnecessary transactions occur each week? Pretty soon we're talking real money!