In January last year, I posted an article “What’s wrong with the health care system?” in which I discussed how a friend has a procedure which the hospital charged $1200, but the insurance deemed it worth $200, so they paid $180 and the friend paid $20 as a co-pay.
I recently received a reply from reader Ken I’d like to share:
One does not realize that 1) Employers pay health care costs directly but indirectly; and have insurance companies fight and account for those health care expenses for those companies. My employer uses a Blue Cross plan to minimize its health care costs then pays Blue Cross a fee for that service and a fee for reducing that very same cost. 2) An employer or pool of employers, pays a hospital or health care group or doctors, a predetermined annual amount to preform a guaranteed amount of services for an agreed amount of patients. e.g. The example above. The test may very well have cost $1200, but it may have been part of the agreed upon service that was to be provided by that provider for $1000 as part of the annual fee. The remaining $200 was treated as normal expense and required a co pay. The interesting part to all of this is when a couple both have same but separate health insurance plans to different employers, and because of the birthday rule, the same service is paid different amounts because who covers it first.
Ultimately it all boils down to this: There are always going haves and have-nots; and the haves are always going to be overcharged so they can pay for the have-nots. Doesn’t matter if it’s the present system or Obamacare or Hillarycare. What does matter is the ultimate cost in 1) dollars, 2) cuts in services,3) choice of doctors, 4) choice of care or treatment and 5) use of personal or public money.
In response, regular reader and deep financial thinker, Elle, offered a detailed, well thought response which seemed a shame to leave buried as a comment;
Ken,
1. Employers use health insurers so that employees may benefit from the cost discount attributable to having an enormous number of clients, thus spreading risk. Your use of epithets like Hillarycare and Obamacare are reckless disregard for the clear mathematics of the single payer system. Single payer would do the same as Blue Cross, but given the much larger number of clients and the fact that hospitals and doctors have to work with only one administrator, for less money.
2. When you talk about cuts in services, you seem oblivious to the fact that many health facilities overprescribe services, with no improvement in health outcomes. Why do they overprescribe? Because the doctors at such facilities are not on a straight salary but instead have a financial stake in everything they prescribe. In other words, they work on commission. The models to use are the Mayo Clinics and others, where such a conflict of interest is prohibited, and the docs are paid a straight salary. Before commenting further, you should read Atul Gawande’s June 1 article in the New Yorker on this.
3. Joe, the New York Times for a few years now has been running articles on how not only are doctors’ and hospitals bills’ to the uninsured and under-insured negotiable, but the billing departments actually expect people to call and haggle over the bills. The nominal fee on a bill is monopoly dollars. Plus consumers need to understand that the rate of errors on medical bills is on the order of 50% and typically sizable. It has become such a problem that there is now a profession called “Patient Advocate,” where someone (often a retired nurse or other health care professional) who knows how to decipher what is on the bill. See the article After a Diagnosis, Someone to Help Point the Way, also in the Times. .
People talk about letting the consumer “choose” and so let free market forces work, but the health care system has so much in it that is arcane that the typical patient could not possibly make an informed choice. So it is not a free market when buyers do not have access to needed information.
4. But more of those on the left need to acknowledge that there most certainly are preventive health measures that the “have nots” can implement, at enormous savings to us all. People just need a simple financial incentive structure to practice this preventive medicine. Such preventive medicine translates to national health savings on the order of 30%, from my reading. Google on what the President of Safeway (Steven Burd) did when he gave Safeway employees a health insurance rate structure that resulted in higher premiums for those showing poor habits in the areas of tobacco usage, weight, cholesterol and blood pressure. Safeway health costs went down as its employees started practicing more preventive medicine, more than justifying the financial incentives. See for example Safeway CEO on free-market health care solutions.
5. Never forget that a healthy blue collar and middle class are essential to the success of companies and so your stocks.
Thank you both for your comments, and Elle, you ever feel the urge to send me a guest post, my blog welcomes you.
Joe
