Blog Title: Colorado Health Insurance Insider

Health Care Sticker Shock

Average individual deductibles on employer-sponsored health insurance polices rose to $1000 this year, up from $500 in 2007.  For people with individual health insurance, these numbers probably seem like a bargain.  Our clients in Colorado have literally hundreds of options for coverage, but $500 is the lowest deductible offered by most carriers; some don’t offer deductibles below $1000.  Off the top of my head, I’d say that the average individual deductible among our clients is around $2000 - $2500.

But most Americans get their health insurance from their employers, and three digit deductibles have been the norm for a long time.  As companies struggle to pay for health insurance for their employees, the obvious solution is to increase deductibles and copays, and offer HSA qualified plans in trade for lower premiums.  This is preferable to dropping the coverage all together, but the burden it places on families should not be underestimated.  Combined with the higher premiums that companies are increasingly passing on to employees, and all the other economic strain that Americans are under right now, it’s absolutely plausible to assume that the 100% increase in health insurance deductibles will result in more people skipping needed medical care because of financial worries.

Increasing deductibles are also a reality for people with individual health insurance.  This article from the Chicago Tribune details the health insurance and medical history of Mickey Trznadel.  The 55 year old pays over $500/month for his health insurance, with a $2500 deductible (he used to have a $1000 deductible, but the premium increased to $665/month, and raising the deductible was his only option).  He’s a diabetic, but doesn’t test his blood sugar because the test strips are too expensive, and his $25,000 annual income will only stretch so far.   It’s not just employees with group health insurance premiums who are seeing hikes in deductibles and premiums.  For those with individual health insurance, an increased deductible is usually a personal choice (as opposed to a decision made by an employer) but it’s generally a choice made out of necessity when the premiums on the lower deductible become unaffordable.

Mickey’s story is unique because the health insurance carrier (Blue Cross Blue Shield of IL) is able to comment on the case and provide specific numbers, thanks to many release waivers that Mickey signed to allow them to do so.  (Normally when we read stories like this, there’s a disclaimer stating the the insurance carrier involved is unable to comment because of privacy regulations).  In the 20 years he’s been with his current insurer, he’s paid $73,212 in premiums.  Over that same period, his insurer has paid $83,157 in reimbursements to providers for his care.  Mickey is upset - and justifiably so, considering that his premiums will eat up more than 20% of his gross pay next year, in addition to a deductible that is equal to another 10% of his income.  But looking at the numbers, he’s still come out ahead by having been insured over the last 20 years.  The article didn’t mention negotiated network rates, which is an often-overlooked benefit of health insurance.  The insurance company paid $83,157 for Mickey’s claims, but the actual billed amounts were undoubtedly much higher.  If you have health insurance, look carefully at your next explanation of benefits and see what the provider billed and what the insurance company is paying (with the difference written off if you went to an in-network provider).   Had Mickey chosen to skip health insurance, he would have been responsible for far more than $83,157 because the Blue Cross Blue Shield network negotiated rates would not have applied.

Mickey’s story is an example of how our health care problems run far deeper than increasing health insurance premiums.  Nobody likes to get the letter in the mail from the health insurance company, detailing the rate increase for the coming year.  But if we had to pay for all of our own health care, we’d feel some sticker shock there too.

Cost Of Treating The Uninsured At Denver Health

When hospitals treat uninsured patients, who pays the bill?  Here in Colorado, Denver Health Medical Center treats a large portion of the city’s uninsured and indigent population, and the cost is staggering.  Last year, it cost the hospital $275 million to treat uninsured patients.  That number rose to $300 million this year, and is projected to increase to $350 million next year.  And the hospital’s CEO, Dr. Patricia Gabow, warns that the cost could be even higher if the economic downturn hits Colorado harder than expected.

Dr. Gabow has been working with Diana DeGette (D - Colo) and Nancy Pelosi to try to secure government assistance for treating the uninsured.  Otherwise, the hospital will be forced to cut services in order to make ends meet.  And for some of Denver’s worst hard-luck cases, that would be very bad news.  Denver Health is where people go when they have no place else to go.  It’s one of the only hospitals in the area with emergency beds for the mentally ill.  Without Denver Health providing this service, the local jail becomes the option of last resort.

Diana DeGette has been working in congress to try to get the federal government to provide more help to hospitals like Denver Health that take on a larger-than-average share of the costs of treating the uninsured population in the US.  Hopefully the new session that begins in January will address this issue, although finding money for projects like this in 2009 might be like getting blood from a stone.  The problem of paying for the treatment of uninsured patients is not a new one.  But as jobs disappear - along with benefits like health insurance - it’s likely that more and more people will be relying on hospitals like Denver Health.

The government does already provide some assistance, and in past years has paid as much as 30% of the costs associated with treating the uninsured at Denver Health.  But the costs have increased so much recently that the government share (not adjusted for inflation in over a decade) has dropped to about 20% of the total cost. That leaves a very big chunk of money that the hospital is losing by treating much of Denver’s uninsured population.

The common wisdom is that when hospitals have an increase in costs incurred from treating the uninsured, they eventually raise the rates that they charge insured patients in order to make up the difference.  But in a metro area like Denver, with multiple hospitals, ‘reasonable and customary’ charges are going to be determined by looking at charges from all of the area hospitals.  So even though a hospital like Denver Health treats more uninsured patients than other hospitals, they can’t charge health insurance companies higher rates to treat insured patients.  They still have to work within the guidelines established by reasonable and customary charges.  (I suppose they could charge whatever they wanted, but they would only get paid the amount that the health insurance companies deem appropriate).  For hospitals like Denver Health, government assistance is vital.  I don’t see a free market solution to this problem that doesn’t involve cutting off services to those without a means of paying.  And I hate to picture a United States where we turn the truly ill and injured away from our emergency rooms if they are unable to provide proof of health insurance.

Guest Blogger Writes About Health Care Reform

This article was written by guest blogger “Financegal” via the “Open Mic” category.

Individuals who are chronically ill already have to deal with many challenges in their lives. Chronic illnesses include Alzheimer’s disease, diabetes, multiple sclerosis, asthma, arthritis, and chronic obstructive pulmonary disease (COPD). A new study conducted by the Commonwealth Fund in eight industrialized nations has found that chronically ill patients have a relatively greater struggle in the United States. About 138 million people in the United States have chronic conditions. 23% of Medicare recipients suffer from five or more chronic illnesses and result in over half of total Medicare expenditures.

Americans pay more for health care than individuals in other countries. Often, that health care is poorly coordinated, driving up costs for both insured and uninsured patients. In the drive to increase revenues, patient care often suffers. The Americans in the study were most likely to report errors in prescriptions and diagnostic tests, which could lead to serious negative outcomes for patients. In many cases chronically ill patients can’t even get insured at all, because insurance companies can choose not to cover individuals with preexisting conditions. Uninsured patients fare even worse in the United States.

Over half of all Americans have gone without needed health care (such as doctor visits, medications, and other treatments) due to cost. In most cases, it’s preventative care that suffers. That neglect leads to far higher costs for patients and society in the long run. In light of this study, many are calling for health care reform in the United States.

Health Insurance Reform Alone Is Not The Solution

Ezra Klein has written an insightful article about why attacking the private health insurance industry as the root of the health care crisis in America isn’t likely to accomplish much more than warm fuzzy feelings for all those who hate the health insurance industry.  At the Colorado Health Insurance Insider, we’re a part of the health insurance industry, but we also try to look at health care reform from an unbiased position.  We see the shortcomings in the health insurance industry, but we also see failures throughout the health care industry when it comes to controlling costs and providing affordable access to health care for everyone.

Health insurance companies are not winning any popularity contests.  But part of the problem is that because health insurance companies pay most medical bills in this country, we’ve become insulated from the real costs of health care.  We don’t know what health care costs (or how much it has increased over the years) but we do know how much our health insurance costs, and how much our premiums have increased each year.  For those who have experienced major health problems and watched as EOBs roll in from the health insurance company, detailing what the providers charged and what the health insurance paid, the insurance policy probably seems like a pretty good deal.  But for people who haven’t experienced large claims and are unfamiliar with the price tags associated with major illnesses, increasing health insurance premiums probably seem outrageous.

Besides the obvious benefit of paying claims, health insurance carriers also play a roll in keeping health care costs in check.  Next time you get an EOB from your health insurance company, look closely at the numbers.  You’ll probably see a significant difference between what the provider charged and what the insurance company will allow.  The use of “reasonable and customary” limits on charges keeps provider prices in check to some degree.  So while it’s easy to hate the insurance companies, they are playing a vital roll in our current health care system.  And their profit margins are nowhere near as big as some of the other players in the system.

Don’t get me wrong - the health insurance industry has made plenty of mistakes over the 15 years since the last major attempt at health care reform.  But as Ezra points out, attacking the health insurance industry doesn’t get at the root problem, which is the dramatic increase in health care costs across the board.  Health insurance premiums rise in response to increasing health care costs.  And until we address the problem of health care costs that are far outpacing inflation, any fix we attempt - including intensive regulation of the health insurance industry - is merely a band aid.

Mandatory And Guaranteed Issue Health Insurance

The health insurance industry is supporting reform that would require them to cover everyone, without regard for medical history, as long as the reform includes a provision that everyone must buy into the health insurance system.  It’s easy to see the logic in their position.  Without a mandate, the population that chooses to purchase health insurance under a system with no medical underwriting will always be skewed towards the unhealthy side (which will drive premiums higher no matter how you crunch the numbers). That’s because those who currently need medical care will see the value in health insurance, whereas those who are currently healthy might see health insurance as a waste of money. Especially if they know that they can be accepted later on if they do get sick. I’ve written about mandatory health insurance and made it clear that I believe that in order for the system to work well, everyone has to contribute.

If you look at states like NY, where there is a requirement that health insurance carriers accept everyone, but no mandate that everyone have health insurance, the average premium for an individual policy for one person is $388/month.  For comparison’s sake, the average individual health insurance premium here in Colorado - where we do have medical underwriting - is $141.

I believe that the incoming president and congress will be much more inclined to help people pay for health insurance. I think that we’ll see an expansion of SCHIP and Medicaid over the next few years, and possibly subsidies to help keep health insurance premiums in check. But no matter how much they want to help, there’s a bit of a shortage of money in Washington right now. And there are other issues that will likely be viewed as more urgent than health care reform. That doesn’t mean that health care reform is any less important than it was a year ago, but we’re facing all sorts of other problems that need our government’s attention at the moment.

I’m curious to see where health care reform goes, and whether a mandate eventually becomes part of the solution.  Here in Colorado, making health insurance mandatory gained a lot of ground last year with the Blue Ribbon Commission on Health Care, but we haven’t seen any changes yet. My guess is that most states are waiting to see what happens on the federal level before making any decisions on a state level.

United Healthcare Eliminates FACT Fee

United Healthcare/Golden Rule has always required that members joined an association called “FACT” in order to purchase the health insurance.  It was only $3/month, but it was still annoying.  For applicants submitting new applications from today on, there is no more FACT fee!

The Failings Of The Free Market In Health Care

At the Colorado Health Insurance Insider, we’ve often written about the “free market” in health care.  And we’ve discussed the moral quandary created by the health insurance industry operating in a capitalistic fashion.  Bob Laszewski from Health Care Policy and Marketplace Review has written an article about the dramatic failings in the health care industry over the last 15 years since the Clintons tried to inject government control into the system.

Basically, Bob’s point is that the health care industry got handed a diamond in the rough when the Clinton health care plan went down in flames early in Bill’s presidency.  Health care was solidly in the realm of private companies and the free market, as nobody was going to want to tackle health care reform again for a good long while.  And yet here we are, 15 years later, with all sorts of messes in our health care system.  Jay and I write from the perspective of agents in the individual health insurance market in Colorado.  In our corner of the industry, there’s really only a free market for the healthiest of applicants.  Those with pre-existing conditions can’t get some polices no matter how much they’re willing to pay.  A person who has a serious health condition may find themselves “stuck” on their current policy and unable to exercise the free market behavior of shopping around. For some people, Cover Colorado (our high risk pool) might be the only choice they have.  And even that can run out, leaving some people truly without an option for health insurance.

Our health care system has worked very well for some people.  If your employer pays for your health insurance and offers a low out-of-pocket policy, or if you’re a top executive at a hospital or health insurance company, or if you’re a provider in a high-tech specialty, you’re probably doing pretty well.  And of course no system is going to please everyone.  But the problem with our system is that over the last 15 years, the number of people it’s worked for has been shrinking.  There are nearly 10 million more people in this country without health insurance than there were in 1992 (of course our population has grown in that time too, but the fact remains that there are more people disenfranchised with our health care system now than there were 15 years ago).  As more people struggle to afford health care (either directly or through health insurance premiums), the cry for government intervention gets louder.  We can assign blame all over the place, but Bob’s right - a relatively unregulated health care industry hasn’t done a very good job of serving the American people well.

I don’t think we need to scrap our health care system.  But we need to make it work for more people, and that will probably require some measure of government regulation.  Hopefully we’ll get it figured out before another 15 years go by.

Many thanks to Joe Paduda, who hosted the Cavalcade of Risk this week, where I found Bob’s article.

Big Pharma Likes The Free Market

PhRMA (Pharmaceutical Research and Manufacturers of America), the biggest pharmaceutical lobbying group in the US, is preparing to launch an ad campaign to show Americans how good our free market health care system is.  They’re worried that Obama’s plan to allow the federal government (via Medicare and Medicaid) to negotiate lower drug prices will cut into their profits.

I recognize that drug companies produce some vital medications.  My father’s autoimmune disease and resulting kidney failure would no doubt have killed him by now without drugs created by “big pharma.”  For that, my family is grateful.  And I know that there are lots of other families in similar situations, with a loved one still alive thanks to research and development done by pharmaceutical companies.  But there are plenty of questionable practices in the pharmaceutical industry (as there are in just about any for-profit industry).

What it really boils down to is that it doesn’t matter how great the drugs are if people can’t afford them.  When seniors with confusing Medicare D plans are struggling to pay for their out of pocket expenses for their drugs, something is broken.  And allowing Medicare to negotiate prices is a plausible way of curtailing the upward spiral in drug pricing.  Here in Colorado we’ve seen more and more health insurance carriers increase copays for drugs, add prescription deductibles, or cover only generic drugs in an effort to keep prescription costs under control.  And unless something changes in the way drugs are priced, I doubt that health insurance carriers will be likely to start increasing coverage anytime soon.

People (probably in the pharmaceutical industry) will no doubt be crying foul, and claiming that with an estimated $10 - $30 billion cut in revenue if Medicare gets to negotiate lower prices, pharmaceutical research and development will suffer.  But let’s look at the numbers.  Health insurance carriers are often criticized for the profits they earn.  But when we look at the five Fortune 500 health insurance companies (Wellpoint, United, Aetna, Humana, and Cigna) the profits as a percentage of revenue are between 2.3% and 7%.  They’re not losing money, but they’re not bringing down the house either.  Now let’s consider the pharmaceutical industry.  There are 12 companies in the Fortune 500 list, and only two (Abbott and Bristol-Myers Squibb) have profits below 10% of their revenue.  Phizer’s 2007 profit was nearly 37% of their revenues.  Those are some pretty big numbers.  They even make the oil and gas industry profit margins seem small.  So let’s not feel too sorry for big pharma.  I think they’ll be ok, even if Medicare gets to negotiate drug prices.

The Affordability Of Individual Health Insurance

A recent study by eHealth Inc. seems to indicate that the individual health insurance market is quite affordable, especially when compared with the group health insurance market.   The study on individual health insurance is large, with a sample of over 227,000 individual health insurance policies that were active as of the summer of 2007.  Some of the findings include:

• average premiums for individuals: $158/month (up from $148 in 2006)
• average premiums for families: $366/month
• average individual deductible: $1972
• average family deductible: $2610

If we look at the detailed findings of the study, Colorado has average premiums below the national rate, at $141/month for an individual.  The high end of the scale mentioned in the article is for states like NY that don’t allow medical underwriting on individual health insurance policies.  The result is that everyone gets covered, but everyone pays more.  Colorado has laws regarding individual health insurance that are very similar to most other states - medical underwriting is permitted, and premiums can be based on health history.  My own family has a health insurance policy with an annual premium of $5976, and a deductible of $3000 (unfortunately both a bit higher than the average found in the study).  But it’s still a lot better than paying $12,000/year for a group policy.

While this study does make the individual health insurance market seem pretty rosy, there are a few issues that deserve a mention.  Although a huge number of policies were sampled, the nature of the research meant that the policies had to be issued and in force in order to be included in the study.  So only people who were healthy enough to be issued policies in the individual health insurance market were included (plus those in a few states like NY where individual policies are guaranteed issue).  The results obviously don’t include those who were declined or had to obtain coverage through a state high risk pool (typically a much more expensive option).  So while the individual health insurance market is great for healthy people looking for an affordable option for health insurance, the options are limited or non-existent for a lot of people with serious pre-existing health conditions.

The other issue is coverage.  A deductible of $1972 for an individual and $2610 for a family might seem pretty high to people who are used to comprehensive group health insurance coverage.  Deductibles have been steadily creeping up on group policies as employers seek to curb costs, but these numbers are still higher than most people are accustomed to.  Maternity care is another factor that might catch a lot of people by surprise in the transition to individual health insurance.  Maternity is one part of a group health insurance policy that a lot of women plan to use, as opposed to most parts of our coverage that we hope we never need.  But in the individual health insurance market, maternity coverage is hard to find.  Here in Colorado, there are only three carriers - Rocky Mountain Health Plans, Assurant, and Golden Rule/United Healthcare - that offer maternity coverage at all.

So while the numbers in this study do indicate that individual health insurance is a relatively affordable option, there’s still a whole group of people who are uninsurable in the individual market because of their health history.  And the trade off with an individual health insurance policy is that your out of pocket expenses might be higher than you’re used to.  But the upside is that if you’re healthy there are plenty of affordable options available, and in the event of a serious health problem, an individual health insurance policy will protect your assets.  Which is why we have health insurance in the first place.

Colorado Earns D On Prematurity Report Card

The March of Dimes has released a report card on the nation’s premature birth rates.  Colorado got a D.  Not good, but we’ve got a lot of company: the whole country got a D overall.  Only nine states earned grades higher than a D, and not one state got an A.

Colorado is a pretty healthy state.  It’s the thinnest state in the nation, and fewer residents here have diabetes compared with the rest of the country.  The same holds true for heart disease.  And yet when it comes to babies being born too early, we’ve got nothing to brag about.  The premature birth rate here in Colorado is 12.3%, compared with 12.7% for the entire country.  The Health People 2010 goal is 7.6%, so we’ve all got work to do.

The March of Dimes analyzed the rates of preventable factors that influence premature birth, and in Colorado the two biggest culprits were smoking (19.8%) and lack of health insurance (21%).  In case we need another reason to make health insurance more affordable and available, here it is.

Quality prenatal care - provided by a doctor who works closely with women to help them quit smoking, eat well, and generally take care of themselves while pregnant - plays a huge role in the health of women and their babies.  And programs that assist pregnant women in getting prenatal care would almost certainly have an impact on the number of premature births.

In Colorado - as is the case in most states - most individual health insurance policies do not cover routine maternity care.  This includes all prenatal care and the delivery, although complications of pregnancy are covered.  While I understand the fact that health insurance is a for-profit industry and covering maternity on individual policies has not proven to be cost effective, it occurs to me that covering prenatal care (even if the delivery isn’t covered) might be a good investment for individual health insurance carriers.  If more women knew that they could go to the doctor during their pregnancy and have the costs covered by health insurance, they might be more likely to seek prenatal care.  If paying for prenatal care prevents a premature birth, the health insurance company would come out far ahead, since the charges a preemie incurs in NICU are covered by health insurance, regardless of whether the plan had maternity coverage or not.

While individual health insurance that doesn’t cover maternity care is a factor, a far bigger issue is women who don’t have health insurance at all.  If an uninsured woman gives birth to a preemie, she stands a good chance of qualifying for Medicaid or ending up bankrupt.  One way or another, tax dollars usually end up picking up a good chunk of the cost of caring for the tiny baby if the parents are uninsured.  And the costs are staggering.  An expansion of state health insurance plans (that cover maternity) to all uninsured pregnant women would seem like a good investment if it reduces the number of women who give birth before 37 weeks.

I doubt that we’ll reach the goal of reducing the premature birth rate to 7.6% by 2010.  But hopefully our new administration’s commitment to expanding access to health care will have an impact, and we’ll be headed in the right direction.  Since 1990, the premature birth rate in the US has increased by 20%, which is truly shameful considering all of the advances we’ve made in medical science in the last 20 years.  We can do better than this.  But in order to do so we have to make affordable access to health care for women of childbearing age a priority.