Health System Challenges
A very candid personal report by SPBA President Fred Hunt
January 2006
Background: A state legislature committee is doing a comprehensive study of the health care situation, costs, and especially to determine why there are so many uninsured. Since a leading member of the legislative committee is a personal friend of mine, it was suggested that I share 30 years of personal insights into the issue as well as the wealth of insight gleaned from the real-world expertise of SPBA members. Also about half a dozen nations have sent official delegations to consult with SPBA about how they can improve or convert their health & payment systems. Being a friend-to-friend personal letter to the legislator, I could be much more blunt, and pointed out that the true driving factors are usually a couple of layers below the apparent reasons & rhetoric. The report was candid and in no way lobbying, since SPBA is non-political and non-partisan.
Below are listed the root factors in that letter. When possible, there is a common sense anecdote or example. These thoughts are provided for you, here, to help as you deliberate the issues.
(1). The general public have a very unrealistic view and set of expectations about health and health coverage. This shows itself in two general ways:
(a). First, everyone wants to buy the absolute cheapest health coverage (insurance or employee benefit option). However, they expect the most expensive treatment & payment. We don't do that in any other purchasing transaction. For example, if someone bought the cheapest car from a dealer, but then complained because it didn't have leather seats, fancy stereo, etc. etc., we'd think they were nuts. However, that's precisely what plays out every day. For example, President Bush is learning this right now with the new Medicare Part D. Complaints are pouring in from seniors who expected free prescriptions.
(b). A parallel problem we do to ourselves is that many of us have lousy health habits, but expect medicine (and those paying the bills) to routinely work wonders to make up for years of misuse of our bodies.
(2). It's more profitable for many people to be uninsured. That may seem like an odd statement, but financially, it is very true, and many Americans have figured it out. It starts out like the problem many states have forcing drivers to have insurance for their cars. Millions of Americans simply don't, despite laws & requirements. They'd prefer to take their chances and spend the premium money on something else. HOWEVER, being uninsured for health is much more profitable than the car example. When you wreck your car, no one is obligated to fix it free. However, when you go to a hospital, they must serve you. If you have health coverage, there are deductibles, co-pays, possible limits, etc. It is much cheaper to be uninsured (assuming you don't have big assets or income bill collectors can seek). During the reelection campaign of the first President Bush, the press latched onto a story of a little boy in Texas who could not play Little League baseball because he didn't have the health coverage the team required. The media was playing the story as a sure sign of the failure of the health coverage system. What made this interesting was that the mother had turned down the family coverage available from her employer. George W. (the son) went down, arranged and paid for a year's worth of health insurance for the boy. The boy's parents went on TV, and were furious! Why? Because they explained what I did above; that it is much more expensive and hassle, than simply walking in and getting free care. So, the importance of this factor is that being uninsured is often more profitable, and lots of people purposely choose that strategy, just as huge segments of the driving public refuse to get car insurance.
(3). There is a tremendous scandal in medical pricing. Prices for the same service in one facility can vary as much as 700%, depending on the patient's coverage. The person who gets the biggest rip-off is the individual payer. The original cause of this situation was Medicare. They said that they would only pay a percentage of the retail cost. So, what happened is that medical providers bumped up their prices so that the percentage Medicare would pay approaches their true cost of providing the service. Meanwhile, large insurance companies, PPOs, and a host of discount schemes negotiate some lesser discount from the artificially-high official price. Medicare audits to be sure that the price on which they base their discount is what is "actually" being charged. So, in order to "prove" that the high list price is the "real" price, the inflated list price is what gets charged to people who don't have ways to get a more reasonable price. In any other retail transaction, this would cause an uproar. The whole medical pricing & discount system is a mess. High discount percentages are marketed fiercely....but percentage off what base?? There is a disconnect that makes purported discounts a crap shoot. So, often, a higher percent "discount" leaves more to pay than a lower discount percentage from a lower base price. California, about a year ago, implemented a requirement that medical facilities make their pricing public. It was from California early responses that I learned that rip-offs are as much as 700%. I had previously thought it was only about 300%. I don't know how far your CA colleagues went or how it has worked out. I thought there would be more openness and signs of progress by now.
(4). In employee benefit health plans, government (State and/or Federal) are the primary disincentive. Why & how?? Mandates. States & Uncle Sam have added so many mandated types of coverage and who must be covered that employers feel punished for the good deed of offering health coverage. It has the same disincentive effect as if you mandated that every company vehicle in the state must have expensive plush leather, sun roof, etc. etc. You'd never do that. However, there are about 1,100 mandated types of coverage imposed on employers among the States (not all in every state), and a couple of hundred expensive Federal mandates. Yes, each mandated type of benefit may be kind and wonderful when viewed alone. However, the total is a huge burden, and we are approaching the time when some mandate will be the straw that breaks the camel's back of employers' willingness to offer health benefits to their workers. We are already seeing a retreat in the pension arena. Meanwhile, having government micro-manage what will be in each health coverage takes away the option for employers & workers to custom-design coverage (get the most bang for the buck) for their particular workforce. (This latter is a big reason so many employers prefer Federally-regulated ERISA self-funding, which allows much greater flexibility in plan design.)
(5). Employers are often trapped by their current insurer from shopping around for a better price or product. How? If you want to shop around, you need the statistics of how your plan has done. Has it been very healthy? Has it had lots of expensive illnesses? Has it been mostly healthy but a few very expensive situations? Answers to those kinds of questions allow an employer to shop around for what is best. Since most employers have workers paying a percentage of the cost of the coverage, any savings or better coverage is a direct saving or enhancement to the workers too. Insurers & Blues often cite the federal HIPAA privacy law, but the privacy law is quite understanding about sharing this kind of information for the business workings of the plan. The insurers simply do not want the employer to be able to cost-compare and shop around. Fortunately, this bad practice is something which State officials can squash overnight by just telling insurers that it is unacceptable not to provide adequate information about the plan and expenses for the purpose of comparison shopping.
(6). Improper or discriminatory commissions & incentives: You have read about the widespread investigations & prosecutions of NY Attorney General Elliot Spitzer and some prosecutors elsewhere over the exorbitant commissions & incentives to steer trusting clients to the insurer that will pay the broker the highest fee. The same thing happens too often when brokers steer employers and other buyers of health coverage not to the most cost-effective, but to the health coverage option that pays the most to the broker . Again, this is something that States can handle directly via their rules about state licensing of insurers and state licensing of agents & brokers.
(7). Patients are increasingly trapped into getting care at an exorbitantly expensive facility rather than being given their own information in a timely manner for an independent second opinion or to shop around. This is a fairly new and cruel rip-off. This happens most often in the most expensive surgeries and treatments, when a patient's time & energy are limited. A patient recently got trapped into paying about 500% of what he could have paid elsewhere for a surgery, because the medical facility stalled for months in releasing his own medical records to him so he could get a second opinion. The medical facility said it was HIPAA Privacy. That's absolutely not what the law says.
(8). Fraud, waste & abuse by both patients and the medical community is a huge problem...some say as much as 40% of the total of medical expenditures. It comes in myriad shapes, such as patients who "doctor shop" to amass drugs to abuse or re-sell. It comes from the constant luring of the public to take advertised prescriptions for conditions they didn't even know they had. The advertised ones are always the most expensive, and sometimes out-performed by simple cheap over-the-counter drugs. Meanwhile, doctors feel pressured to write the prescriptions for the highly-advertised drugs, because if he doesn't sign for the prescription, the patient will go find a new doctor who will, and the doctor loses a customer. We also hear a constant flow of fraud stories of unneeded medical procedures (my favorite being testimony in Congress a bill for 8 days of hospital recuperation from a pregnancy test for an 80 year old male. Sometimes, fraud & waste comes in the form of everyone who goes to Doctor X gets an operation for something relatively untraceable, no matter what the original symptoms. Fraud, waste & abuse is the factor people politely avoid mentioning, but it is a gigantic wasted cost.
(9). The selfish interests of states have been a destabilizing factor. It is no secret that many states' budgets are increasingly getting devoured by Medicaid costs, and prospects are desperate in many states. So, there have been not-so-subtle attempts by states to shift or ease their Medicaid load onto private patients & health benefit plans. Similarly, since the Insurance Department budget in many states is attributable to the premium taxes and other fees paid by insurers, there is the appearance (and too often the reality) of a cozy relationship when it comes to enforcing things such as #5 & #6, above. Insurance Commissioners and Legislators involved in insurance & benefits related issues need to focus on the big picture of what is most cost-efficient and fair overall, not just for the state's interests.
Much of this may seem geared to employee benefit plans. Yes, but that's because employee benefit plans are not only a gigantic part of the health coverage of the state & nation...but the incidents noted about employee benefit plans also impact individuals directly. When an employer or health benefit plan gets ripped-off or loaded with expensive mandates, it directly hurts the workers & dependents. It hits them in the form of the percentage of the premium they are paying via their paychecks. It hurts them by higher deductibles and limits on the amount of coverage that gets offered next year. It causes employers to drop coverage or eliminate jobs. So, employee benefit plans are simply a collection of the needs of individual workers and their families.
Is some form of government "universal coverage" the answer? The answer seems to be a universal no. The half-dozen major countries who have come to talk with me all have forms of universal coverage. Their governments realize that the systems are unsustainable (as many states are finding with their Medicaid programs). Also, Americans and the media would be in an uproar if we had the delays, limits, and not-so-subtle rationing used by other countries.
Is there any good news? Yes, I would say that you and your colleagues of the legislative study committee are important good news. Too many studies are doomed from the start to become mere propaganda, because they start with a supposition and (surprise surprise) the findings support the desired outcome. So, while your head is spinning from reading this, and it will be hard not to fall into the trap of aiming your thinking for some desired outcome, you and your colleagues are doing something important.
Another good thing is that a decade ago, when I would describe the factors listed above, I'd get blank stares or a mentality of denial. Today, once pointed out, most people recognize each issue as being a reality.
Consumer Driven Health Plans (CDHPs), most commonly in the form of Health Savings Accounts (HSAs) and Health Reimbursement Accounts (HRAs), are showing signs of making patients wiser consumers of health care services. The individual HSA/HRA owners have a very visible stake in the outcome and get to keep the savings generated by their careful attention. CDHPs are also flexible to accommodate the spending needs of each type of patient. They are not perfect for all situations, and some of the problems mentioned above (#3,7, & 8) can quickly torpedo a patient's best efforts in an HSA or HRA. However, ending on the point of your study, even the flexibility & self-responsibility of Consumer-Directed plans aren't as cheap and hassle-free as being uninsured.
So, you have to make uninsured status not so financially attractive, while you remove obstacles that keep other forms of health coverage from maximum consumer-friendliness & cost-effectiveness.