The Insurance / Taxpayer Wedge

In Dr Laffer’s paper, he explains of the health care wedge, where patients often dont have a financial interest in their care because its hidden from them. A situation this weekend came to light that presents another yet wedge. Its probably not an isolated deal either, as I sort of predicted it would occur due to issues with Medicare Part D legislation, and its yet another uncomfortable discussion that no one wants to talk about.

The insurance/taxpayer wedge… informed insurance buyers evaluate different policies during open enrollment. With medicare part D, most will take a very close look at the published formulary to make sure the drugs they are taking are covered. In most cases, there are a range of pharmaceuticals, as one size doesnt fit all. Ie, out of 10 heart meds, one may work well, another somewhat, and eight probably cause more problems than they are designed to help.

What medicare part D legislation provides for, is insurance companies to publish a formulary during open enrollment, and then change it, after enrollment closes. On the surface, this is a bait and switch type of thing, and a insurance companies dream. Ie state you will provide for ABCD, lock in your customer base, and then dont do so… and you get to reap the rewards of premiums without having to pay out until the next open enrollment. A less cynical view would suggest the approach is to provide for mid term change. Ie if a new  less costly drug comes on the market, formulary changes mid term would provide for less costly coverage, or even the approval of new life saving meds could necessitate a change.

The issue of course, is that as long as removing one drug, and replacing it with another works… Or that one drug is found not to be as effective, and another better one already on the formulary replaces it. There in lies the problem. Such changes may not work for all people. Granted, there are provisions such that one can jump hoops and potentially get an exception, but how many seniors are going to be able to do so, and even more how long it could take to accomplish. Far too many seniors accept they got hosed, and either A try to buy meds on their own if they can afford it, or B end up not taking their meds, at least until they see their doctor, or C until something goes massively wrong, either while waiting for the doctor, or just being resigned to be hosed over.

And C is going to happen. Some meds cannot be stopped arbitrarily, in other cases, a specific medicine may be keeping someone alive, even if they dont know it. I heard a story this weekend, where a man got hosed over. He could not afford to buy his meds being they were recently removed from the formulary. Without the meds, he ended up in the hospital.  Being a Medicare patient, this shifts the cost to the taxpayer… and the insurance company wins again, subject to what they may pay out on part B, which is tiny compared to the savings achieved by removing drugs from the formulary.

This is yet another wedge. The insurance company is isolated from the costs of their decisions. It leaves the taxpayer to pick up the tab for the expenses, and even if causality could be determined at a reasonable cost, there is no provision to recover damages from the insurance company.

By the same token, not to allow formulary changes may prevent new and lower cost methods from coming on the market, or worse, it might prevent life saving treatments from being available until the next contract period. To only allow expansion of the formulary while the contract is in force is another option, but its a more expensive solution, which obviously the insurance companies will lobby against… but I think its a must, from the point of view of contracts, morality, conservation of medical resources, and a savings to the taxpayer.

Another solution, is to provide consumers freedom and choice at any time a formulary or coverage change is made. Ie, if insurance company A drops coverage, you are now free to change carriers. Of course such could be pretty intensive from a overhead point of view, and it could also serve to prevent innovation, but over time, the market would self correct, short of every carrier changing their formulary at once.

No matter what, the status quo is not an option. Sooner or later, if it hasnt occurred already patients will die, medical resources will be over used to the point of invailability, and the taxpayer will have a bird over the exponentially rising costs… The insurance industry must be reigned in one way or another. Their free ride at hidden taxpayer expense cannot continue.

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Health Insurance Greed, us or them?

I was looking at the Blue Cross Blue Shield of MN 2008 Financial statement.  Their total revenue was $8.8 billion and paid out claims were $8 billion putting their administrative percentage a tad under 10%. In many ways, thats pretty impressive. Membership is roughly $2.2 million, putting a rough cost per member at $4000/year, which again, is pretty impressive.

However…. dollar figures dont tell the whole story.

  • If someone has a pre-existing condition, it likely wont be covered.
  • If someone was seriously injured, and doesnt recover, they will hit yearly, and likely lifetime limits of coverage, where upon their coverage becomes of little value, if its renewed at all.
  • If someone is old, and with some heatlh issues, they will pay many times, what a young healthy person pays, if they are offered coverage at all.
  • Maximum annual out of pocket spending is based upon only covered procedures, and only what they consider reasonable and customary. A significant illness or injury will likely result in annual out of pocket spending far beyond what is stated.
  • It is highly likely, one will have to fight every step of the way for coverage in the event of major illness or injury, significantly less so for more routine matters. One’s doctor is really not the one in charge of care, when many options have to be reviewed/denied/appealed.

All of the above serve to keep premiums low, and also lean towards keeping a specific membership demographic that keeps premiums low as well. Removing / modifying many of the above would be the morally correct thing to do, and changes are called out in the reform bill… however, such is going to require premiums to increase multifold. Where is the greed aspect? Is it us, who dont want to pay, or is it them, in wanting to keep prices down to maintain volume and thus profitability?

I have a feeling its more us, than them. No one ever thinks they will get sick or be injured, few even bother to read their policy, until they really need it, and then find out… they need to have fund raisers and such to help with their childrens health issues, or that bankruptcy may be a high probability, although for chronic cases… what then, it doesnt change financial circumstances, the high costs are still there. Or what about the anti-government person, who believes a great deal in affordable private insurance… only to find out, they exhaust it, or its cancelled and end up on medicare/medicaid programs anyhow.

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