Voluntary Cost-Shifting

As I listened to the debate about health insurance over the past eight months, I became a (more) interested party.

After 35 years as the insurance companies’ dream (virtually no money ever paid out on my behalf), I find myself facing huge expense for limited coverage, and a hard end to that coverage in 2011 unless I join another large group like my last employer.

As a late-50’s high-end earner and taxpayer (no shelters for that W-2 income), I’ve paid the maximum income tax rate for decades.  My payroll tax for Medicare has already prepaid a very expensive organ transplant and a year or two of physical therapy to boot, procedures I expect never to want and hope never to need.

I’ve also worked so many hours per week at my jobs that I went literally for years without seeing a doctor of any kind. Those few times I did (a separated shoulder from a spectacular fall, a hospital-based diet and weekly monitoring, and the occasional ear infection or bronchitis or flu), I ended up paying for it myself and not taking the time to submit expense forms to the insurance company.

To top it all off, the only time I ever got around to having expensive voluntary procedures (eg colonoscopies) was when I wasn’t doing the 9 to 5 thing.  Except for the last couple of months where I paid COBRA and the insurance company paid the hospital and doctors, I’ve paid out of pocket for my health care and let the insurance company keep their money and their hassle.

[In fairness, my wife is different.  She uses more doctors, and expects the insurance to pay what they say they will cover.  I recall once in the 1990’s when they pulled the “pre-existing condition” weasel move to deny some expensive treatment she had.  Problem was, we had paid out of pocket for the required full year after we were covered under that policy before she ever submitted receipts.  By the time she elevated the case to the state Insurance Commissioner, she had documented every communication, every lie, and every evasion.  A week after the Insurance Commissioner took her file and turned it into a case, we had a check for nearly $20K.]

Anyway, separating the partisan insanity from the financial reality, I was shocked and pleased when there was a brief moment that allowed my age group to “buy in” to Medicare without going through the nightmare of private insurance bought on the individual market.  To me, I couldn’t fathom how this was an alternative to a public insurance product for all, but I thought it made sense from an expense standpoint.

It was soon defeated by the Senator from the state of Insurance, even though he was caught on tape several months earlier proposing exactly the same policy.

The argument made against it was two-fold.

Lieberman’s incoherent argument was that it would add to the general deficit as a new mandate.  To that, I say the only way it could happen is if they ignore the well-established science of actuarial pricing. When I got my COBRA renewal for 2010, I was shocked to see a nearly 20% year-over-year increase in insurance premiums to keep exactly the same plan I had in 2009.

In just one year, my premium costs were  increased by as much as the 10-year expected cost increase that opponents to the legislation are whining about.  I don’t know about you, but I think 20% over ten years doesn’t feel nearly as bad as 20% the very first year, and uncapped future increases.  Maybe the 100,000 employees in the group my old employer covered had a huge jump in costs last year, so the actuarial results justified the increase.

More likely the insurance company figured out how to create more administrative costs, so that after they make their “modest” 3% or 4% profit, it just ended up costing 20% more for next year.  Or maybe my doctor and every other doctor and hospital just announced huge increases for everything they do.

Call me skeptical.  I think they were doing just what the credit card companies did after the new consumer protection law was passed, but before it became effective.  They were “getting while the getting is good” by raising their rates enormously to establish a new higher base to work from.  Or maybe I was the only one with a spotless credit record that got letters from all the banks saying they were raising my interest rates on my cards in spite of 0% rates set the Fed.

The other argument was more interesting:  that the existing system reimburses for Medicare services at such a low rate that doctors and hospitals have to charge higher rates to privately insured or cash-paying customers.  Certainly nearly every story I’ve heard about denied coverage comes from privately insured patients, not Medicare patients.

That makes sense.  Lower-level bureaucrats respond to pressure the same wherever they work, taking the path of least resistance or greatest reward.

At a private insurance company, withholding payment gets rewarded, so those bureaucrats look for reasons to deny service.  One company that provided coverage for one of my employers seemed to automatically deny or “lose” the claim the first time it was submitted, according to my wife.

They also had a neat trick when dealing with repetitive bills like the chiropractor that helped me recover from the shoulder separation — they would pay every other claim, and say they had already paid the missing ones when questioned.  My wife, of course, kept meticulous records, and made them pay what they owed by providing full sets of copies, with dates, every time she wrote to them.  There’s no doubt in my mind that it cost quite a bit more to operate that way for that series of treatments, but if it had been up to me to file the claims, they would have avoided paying for a lot of the cost.

I’d be willing to bet the insurance company had actuarial proof that enough people like me give up entirely, send in our only copy of the bill, or otherwise end up not being paid to make it worth it to deal with multiple letters and calls from the few like my wife, who simply refused to be cheated no matter how much time and how many Certified Mail expenses it cost her.

At a government bureaucracy, processing the required number of claims without causing problems that get elevated to more senior bureaucrats is what gets rewarded.

As a result, Medicare pays the claims, at its reduced dollars per service, but on nearly every claim.  That would make Medicare more susceptible to fraud more than private companies, in my opinion, because the claims processors at Medicare don’t want hassle, and don’t want to spend too much time on any one claim.

What we have, then is an incredibly efficient government claims processing vehicle that rewards providers for maximizing the number of claims they submit, and alongside it, a private enterprise system that minimizes the amount paid to providers while maximizing the amount that can be justified as legitimate overhead.

No wonder we spend twice as much as other countries for less favorable results!

We obviously can’t just hit the “reset” button on a system that has become as large as the Federal Government, much as we’d like to.  (Check the percentage of GDP — total Federal tax revenues are lower than the fraction of GDP now given to health care, once you include its administration, marketing and financing.)

Worse yet, now that Social Security and Medicare taxes are the largest single source of revenue to the Feds, beating personal income tax, a significant portion of our government is already a pass-through to the health industry.

OK, I get it.  We can’t just blow a whistle and stop the music.  Whatever we do has to let the existing system continue delivering essential services.

But let’s start fixing the financing, since that seems to be the main problem.

First, how about having each doctor, clinic, lab and hospital charge the same amount for the same service to all customers?  Is that really so anti-capitalistic?  Maybe even the baby step of having each patient know what the final, total estimated cost is for a procedure or treatment?  Even the most hard-core capitalist has to agree that those deciding to spend the money should know how much they’re deciding to spend.

Second, let’s admit that extreme loss to uninsured patients is a cost that already taxes society, and does it by the most unimaginably inefficient method possible.  After the patient agrees to have the treatment (without knowing how much it costs), the provider is forced to look under every available rock to find someone or multiple parties to pay for it.  Just the multiple attempts to bill and collect from multiple parties has to be adding several points to the real cost.

My idea is a nationwide “disaster” policy that pays single event or single illness costs that exceed some very high “deductible” — say $100K.  I have just the place to find the revenue, too.  Let every general public advertising for drugs, medical devices, medical services, etc. carry a small surcharge.  I’ve read a number of times that spending on pharmaceutical advertising on American TV alone exceeds the cost of all pharmaceutical R&D in the world.  If they can afford $50K to ask me to ask my doctor about “satataxafyn,” or some other new word with an X and Z, they can afford $2K extra to pay into the pool for the emergency surgery of a twenty-something who chose not to be insured or has a lousy job that doesn’t have coverage.  I can certainly live with fewer ads for motorized wheel chairs, too.

Basically, we could all then carry insurance for the first $100,000, or be self-insured for some or all of that cost.  I’d love to see the actuarial cost per person for that kind of coverage.  My guess is that it is very small, especially because the insurance industry already dumped the really expensive patients onto Medicare and Social Security Disability.

Beyond that, I’d like the option of joining all the other people my age in being part of a pool that chooses Medicare as our payment agent.  But let’s make my voluntary Medicare carry a little more of the load.  Specifically, since the defenders of the poor abused insurance companies like to buy into the Hollywood-style accounting that shows they only make 3% or 4% in profit, we’ll set the premium for my buy-in at actuarial cost plus 5%.  Now it can’t be unfair public competition, since the vastly more efficient private system should be able to beat the public system by 1% to 2% on price without breaking a sweat.

What if only really sick people take this option?  Simple, really.  Each year the premium would be based on real costs from the actual cohort group (including the 5% transfer), so only a really bad epidemic or something would make a large loss, and only for a year at a time.

Just like my current private coverage, each year the premium is announced a couple of months in advance so you can change plans if you want to.

I think without the overhang of enormous marketing and administrative costs embedded in private insurance, voluntary early Medicare buy-in  might be very viable option, and it would allow those of us in our working years to choose to help the Medicare system extend its date with destiny by paying slightly more for our insurance than it costs.

Some of us think that a “system” with costs rising four or five times as fast as  the cost of government is already too big to continue, especially because  it is already the size of our Federal government.  Those exponential curves are a killer.

10 Responses to Voluntary Cost-Shifting

  1. nester says:

    perfectly logical. unfortunately, people don’t want to hear it. most of the insured think, on some level, “somebody else is paying for my health care,” whereas the uninsured KNOW it.

  2. Eric iousa says:

    Makes sense, thus can’t happen. Health Care is very sick.

  3. Tom D says:

    “”Lieberman’s incoherent argument was that it would add to the general deficit as a new mandate. To that, I say the only way it could happen is if they ignore the well-established science of actuarial pricing. When I got my COBRA renewal for 2010, I was shocked to see a nearly 20% year-over-year increase in insurance premiums to keep exactly the same plan I had in 2009.””

    Those are two important issues, but my take is different. The fear of current Medicare beneficiaries, whose premiums have gone to pay for wars and the welfare since LBJ first came to power, was precisely that actuarial pricing would NOT be used, and that the “buy-in” would be a subsidized political transfer of benefits to those who who chose, one way or another, not be be insured from age 55 to 65. So Medicare beneficiaries have prevailed upon their representatives NOT to approve the “buy-in” proposal without a firm committment to real actuarial principals in place. All was hazy, at least as presented. “Great idea. Trust us.” They didn’t and don’t.

    Choosing early retirement at 55 and not buying insurance and/or being laid off and choosing not to sign up for COBRA and continue one’s coverage therafter until age 65 is a risky financial decision. I went through it and paid huge premiums for ten years, and, yes, they go up 20% nearly every year even if new bills are NOT in the Congressional hopper every year. They’ve got you, but that’s exactly the age when serious morbidity and mortality starts to ramp, so the actuarial facts are there.

    The main benefit of Medicare coverage is that Medicare has “negotiated” and decided in advance what they will pay for each and every covered service, and “will pay” is the clincher. In private insurance no one has negotiated anything for you, and you are at the mercy of both the provider and the insurance company. Neither you nor the provider knows if or how much the insurance carrier will pay, so the incentive is to charge as much as possible and try hard to collect it, instead of accepting the reduced but “sure thing” as with Medicare.

    As a former provider and current consumer of medical care I can tell you that there is economic logic to the current system at least in so far as it applies to those who are gainfully employed, but it requires some thought and expense in the same way that housing, transportation, investing, and general life budgets do. Many young working people take the chance of not buying health insurance since they rarely need it, and expect to live forever, but then want to buy it cheaply when something terrible happens to them.

    The poor and otherwise hopeless do get free medical care “of their choice”, but their choice is poor and they chose it late, as they do with all other areas of their lives. Emergency room poor patients never pay a bill. The real costs of their care fall and have always fallen upon the insured and the taxpayers who subsidize the hospitals in various ways.

    The Pelosi mindset has always been to force the integration of the poor into the mainstream system, but for a lot of reasons that doesn’t work. The best solution is to increase the subsidies to emergency rooms and other facilities which are acceptable to and close to the chronically poor and require those facilities to provide some basic preventive services as well. Or, alternatively, greatly expand the present VA system and allow the poor uninsured to go there.

    Unfortunately most voters (and congress people) never understand large economic systems, so rather than working with one and improving it they are preyed upon by con artists and come up with absurd solutions for basically simple crises. But you knew that already.

    • hhill51 says:

      Tom —

      That was really a substantial answer, and I appreciate it. Do you really believe that the actuarial cost for two mid-50’s Boomers with virtually no prior health care costs grows at 20% per annum? Seems high.
      But maybe the risk in my 25-year credit card on which I use less than 10% of the credit with never a day late on it or any other credit is now “worth” Cost of Funds plus 1600 basis points instead of COF+300 basis points as it was for the last several decades. Silly me.

  4. Tom D says:

    “five” years out is a typo for “twenty five” years out which is the insurance planning curve that would be of interest in actuarially-based 55-65 year Medicare buy-in options.

  5. Tom D says:

    “Five years” out is a typo. It should be “twenty five” years out that would be the basis for cost long term health care projections for the 55-65 year old cohort. The point is that the mortality curve (and therefore health care cost) is in its greatest acceleration period between ages 55 and 65.

  6. Dr. Chuck says:

    As a retired physician you have miscast Medicare’s willingness to pay. Medicare was the most important reason for my early retirement. The system found a million ways to deign treatments not indicated, would pay nothing at all for office surgery expenses which drove cases to the hospital with resulting increased costs of a few thousand dollars each. The feds removed the state based billing systems and centralized the insurance processing on the other side of the country. Appeals were difficult and only really practical for the largest of contested fees. I would have by far preferred lower reimbursement in exchange for a more efficient and fair billing system.

    • hhill51 says:

      I would hazard a guess that you retired more than five years ago. If your early retirement (congratulations on saving enough to do so) was in the 1990’s, things have gotten much worse with private insurers competing to hold down “medical losses,” and Medicare going the other direction, being more reliable and regular in their payments, according to my active physician friends.
      Your issue with removing state-based systems is likely to get much worse if the “buy across state lines” people get their way, especially with the clear invitation to abuse and fraud by fly-by-night “health insurance” companies in tiny corporation-friendly states collecting as much premium as possible and then going out of business as soon as expensive claims come in. State insurance commissioners are just about the only non-Federal regulators that still have real enforcement capability. It is no surprise that the corporate lobbyists are pushing that and “tort reform” — another Federal takeover — this time of state civil courts.

    • Tom D says:

      “Willingness to pay” must be understood in the context of Medicare-covered services. Medicare has never covered “all services” even apart from deductibles, co-pays, time restrictions, etc. For example, most cosmetic services have never been covered nor new services until they are deemed proven and necessary on a national basis. Many people are unaware of this but “must” be advised by the provider before such an uncovered servive is rendered that it will be at the patient’s expense.

      But what I was talking about is that Medicare had struck a bargain with providers and patients that for covered services they would in fact pay a certain fee which is usually a percentage of the Medicare “allowed” amount for that service. A medicare provider may NOT charge more than the allowed amount for a covered service, but the difference between the allowed amount and the payable fee may be billed to the patient or to the patient’s supplemental insurance carrier.

      That guaranteed payment and the allowable maximum charge are the “covenant” that made Medicare work for most providers and for most patients. It hasn’t worked well for outpatient care providers (office visits), and has caused a gradual decline in the numbers of primary care physicans on simple economic grounds.

      However now to finance all sorts of other pieces of the monstrous “health care reform” bill, Medicare provider physicians will face an enormous 21% decline in payment levels from Medicare, payments which have increased very little over the past ten years. This will just kill Medicare outpatient services fairly quickly. Surely the goal here is to destroy any semblance of choice or quality care and force everyone into assembly line mass clinics. It basically completely rips off the Medicare trust (already spent in any event). Anyone in Congress who thinks they can possibly get re-elected if they vote for that part of it will certainly be completely surprised.

      This and the “buy-in” for 55-65 year olds is why Medicare beneficiaries will bring down the Congress if this mammoth ripoff passes.

      This bill(s) is the socialist equivalent of “pay czar” review for corporate executives and various recent unconstitutional Federal Reserve actions. If people cannot or will not see these connections, they have been had quite cheaply by the Obamists.

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