Where Exactly Does That Premium Dollar Go?

“No American should ever have to spend their golden years at the mercy of insurance companies.”

That’s what President Obama said in his acceptance speech at the Democratic National Convention. He was trying to score a point off his opponent, Mitt Romney, whose Medicare plan includes “premium support” payments to seniors, with which they can purchase health insurance. The so-called “voucher” plan.

There are valid criticisms of a voucher plan—not the least one with no specifics in it so far—but I have to confess: when I heard this quote, I wasn’t thinking about those.

I was thinking, really? Insurance companies are still the villains?

I guess I’d hoped—now that we’re past all the rhetoric used to enact health reform, now that the individual mandate has been ruled constitutional, and now that insurance companies are shouldering a great deal of the burden of getting more Americans covered—we’d be done with this easy scapegoating.

Nope. So let me reiterate (or is there another word for saying something again that you’ve said a thousand times?): if your premiums are up, it’s because costs are up. It’s not because insurance companies are profiting.

I try to make it a point to ask people in different settings what they think insurer profits are. The persistent belief—from Medicare recipients to community health advocates to Congressional staffers—is almost always high. But the reality is almost always low.

Here is a chart that makes this perfectly clear. Insurance companies spend your premium dollar mostly on medical costs, some on administration, and some on taxes.

For-profit insurers, on average, have a net profit margin of 4.5 percent. Non-profit insurers retain even less revenue than that (we have to keep a certain amount in reserve, by law, to ensure we can pay all claims).

I’d say seniors and insurance companies are both at the mercy of health care costs. But that makes for a less stirring campaign speech, doesn’t it?

Why Is It So Hard to Do Less?

Annual EKGs to check cardiac function.
Imaging for low back pain.
Antibiotics for sinusitis.
Colorectal screening for cancer.

What do all these procedures have in common? According to the best available medical information, they are all overprescribed. The “Choosing Wisely” campaign by the American Board of Internal Medicine (ABIM) Foundation asked nine medical specialty societies (such as the American College of Physicians and the American Society of Clinical Oncology) each to create a list of “Five Things Physicians and Patients Should Question.” The 45 treatments that made the lists had costs—financial, physical, and even psychological—that, in most circumstances, outweighed the benefits.

This is the latest in a series of new studies showing that some routine medical procedures do not help, and may even harm, the average patient. The United States Preventive Services Task Force (USPSTF) recently recommended against the use of routine P.S.A. screening for prostate cancer. We don’t know yet how the doctors and patients will respond.

But there’s some evidence to suggest that they might not respond at all. A couple of years ago the USPSTF recommended that women at no particular increased risk have mammograms every two years (rather than every year) starting at age 50 (rather than 40).  And still most women over 40 continue to expect an annual mammogram, doctors continue to prescribe them, and insurance companies and Medicare continue to pay for them. Why? The USPSTF makes extremely careful recommendations backed up by the latest, most respected studies. Shouldn’t day-to-day medical decisions be based on solid medical research?

I think so. But I read recently an interesting essay that argues that the culture of doctors encourages them to rely on their judgment more than the judgments published in academic journals—they don’t like to be second-guessed. And I know that most patients tend to want to do more, not less, when it comes to their health and the health of their family—even when “more” is, medically speaking, a mistake. Both these attitudes are understandable. But both need to change, so that doctors and patients make choices based on what makes sense from a medical point of view.

The Simple Pleasure of a Gold-Medal Win

Sometimes I feel this blog is full of compromise and qualifications. Health reform is good, but here are the problems. The mandate is necessary, but is it enough? Coordinating care is good but colluding is bad. And so on. Life is complicated, I guess and the U.S. health care system is about as complicated as it gets.

That’s why I love sports: a win is a win. And at the London Olympics, the U.S. women’s soccer team had a very, very big win: 2 to 1 over Japan, to take the gold medal.

It was a joyous moment and some of us will get to savor it a little bit longer when the team visits Rochester on September 1, for an exhibition match against Costa Rica. Why kick off the victory tour in Rochester? It’s the hometown of our own Abby Wambach, co-captain and star of the team.

I get to say “our own” because Abby is a hard-working ambassador for MVP’s Generation Go program. And I am proud of her, not just because she’s an incredible soccer player—the U.S.’s second highest all-time goal scorer—but also a matchless role model, committed to inspiring kids to lead an active life: to go outside; go out for the team; go for the gold. Through her soccer clinics, her internet video spots, her irrepressible energetic presence, Abby is a great counterbalance to the oh-so-tempting American diet of junk food and video games.

Wait a second—this is getting complicated. I just want to say. Good for you, Abby. Good for all of us.

Shining a Light on Health Care Prices

Say I want to buy an ice cream maker. With a quick search online, I can find out whether I should buy electric or hand-crank and then I can find reviews on all the brands. Once I’ve chosen my make and model, I can search for price and in a couple of seconds, get a list ranked by cost plus shipping. I can even find out if there are any in stock at a store close by, in case I just can’t wait another day to start making ice cream.

Well, an MRI is much more expensive than an ice cream maker and (arguably) much more important. But other than a Wikipedia article, I can’t find all that much information about what the options are if I need one—and I can find almost nothing about what my options are, in my location, with my health plan.

Now I know the Internet helps me make good choices and save money when it comes to all my other purchases. So couldn’t that be true for health care spending too?

It could. Actually, it already is. On one end of the spectrum, there are dedicated human resources managers walking their employees through complicated decisions face-to-face. On the other end, high-tech companies are developing sophisticated software that can do the same thing. Online spaces where employees can shop for health care based on price, quality and the state of their own health plan are starting to save companies millions of dollars a year in health care expenses.

Some of those savings can be traced to switching to high-deductible plans. But employers figure that a sizable portion is due simply to giving consumers the information they need to get the best value for their money.

As the government continues to look for ways to put the “affordable” in the Affordable Care Act, perhaps it should consider the effect of helping consumers do some serious shopping.

What’s That Leak in My Bank Account?

In my last post, I talked about whether people who have health plans with greater cost-sharing make less expensive health care choices, on account of having “skin in the game.” But I want to make something clear: we all have skin in the game, whether we realize it or not.

Even those of us who have employer-based insurance with no deductibles and low cost-sharing—even those of us who don’t have to hand over a credit card every time we see a doctor—are feeling the pinch. A recent paper in Health Affairs argues that the growth in health care costs over the last ten years has almost completely wiped out gains in income for families. “Although a median-income U.S. family of four with employer-based health insurance saw its gross annual income increase from $76,000 in 1999 to $99,000 in 2009,” concludes the study, “this gain was largely offset by increased spending to pay for health care.” In 2009, the family had $450 less per month than it would have if the rate of health cost growth simply matched the rate of inflation.

Most of the increased health spending of this representative American family was on health insurance premiums, which went up from $490 to $1,115 per month. With a leap like that, you’d have to know that health care costs were affecting you. But what if you have a tough union that manages to keep your monthly premiums down? Workers with that kind of protection would seem to live at the other end of the spectrum from those with high-deductible plans. But whether they realize it or not, they are still affected by the cost of health care. Princeton economist Uwe Reinhardt writes in a recent column, “that over the longer haul the bulk and possibly all of the ostensibly employer-paid health insurance premiums gets indirectly shifted back into the employee’s paycheck through lower increases in take-home pay.” In other words, when employers have to spend more on health care, they can’t spend as much on salary. Escalating health care costs are creating a situation in which people actually earn less.

So it’s not a question of whether people have skin in the game—that’s a given. The difference with a high-deductible plan is that people who have them understand better where the leak is in their bank accounts—and feel that they have at least some power to control it.

As more and more employers are forced to offer just the one kind of plan and fewer and fewer employees have contracts that insulate them from high premiums, Americans are beginning to notice just how draining these health care costs are, for everyone. My hope is that once we take notice, we will finally take action.

How Much Skin Should Be in the Game?

New government data show that the growth of health spending is slowing. According to the annual health expenditure data gathered by CMS, the rate of growth for 2010 was just 3.9 percent; for 2009 it was 3.8. This is the slowest annual pace in more than five decades. Is the health care cost crisis over? What gives?

First of all, don’t pop the champagne cork just yet. We still have a problem. Health spending continues to rise, just not at the terrifying speed it has in the past. But it’s still rising much faster than the cost of living. It still accounts for almost 18 percent of our gross domestic product, far more than in any other country. And keep in mind that another high rate in recent years is unemployment: think of how many people lost their health insurance coverage along with their jobs. Much of the spending slowdown can be explained by the recession.

Much, but not all. Many experts consulted by the New York Times think the recession only partly explains the change. Another possible cause: a steep increase in the use of high-deductible plans, which offers consumers lower premiums but greater out-of-pocket costs, with deductibles starting at $1,000 for individuals and $2,000 for families. That means patients have an incentive to think twice about heading to a doctor or getting an extra test. Politicians—who like to call this incentive “skin in the game”—argue that it’s one key to curbing health care spending: if people have to open their wallets for each procedure, they might choose fewer procedures.

Turns out that’s true. A study of more than 800,000 families found that when families switched to health insurance plans with high deductibles, health spending went down an average of 14 percent.

So that’s great, right? Right. Except that frugality isn’t always the healthiest option. One of the study’s authors concludes that “people are cutting both necessary and unnecessary care.” Some even cut back on basic and needed medicine. That’s bad news from a health status perspective, but it could also be bad news financially. Couldn’t skipping necessary care ultimately increase spending over time? If a patient skimps on cardiac rehab after surgery, for example, that patient is far more likely to end up back in the hospital for another expensive stay.

High-deductible plans are the right option for some people; for some, it’s the only option. And I think it’s great if patients have an incentive to, say, choose a generic over a brand-name drug. But the question is: how do you get people to save on things that don’t affect their health and spend on things that do?

Well, I’m Glad That’s Over.

As of yesterday morning, we have the Supreme Court’s decision on the Affordable Care Act. The verdict: It stands. It’s a little more complicated than that, but practically speaking, “it stands” is all most people need to know.

It means that starting in 2014, everyone will indeed be required to purchase health insurance. I’ve long argued that the individual mandate is crucial to the success of the law. You can’t ask insurers to cover more people with fewer restrictions (which ACA does) without expanding the risk pool (which is what the individual mandate does).

I’m not convinced though that the law’s penalties for not purchasing insurance are a big enough stick to prod healthy young people into the pool. That could be a problem.

And though I agree with the basic principle of making sure all Americans have meaningful, affordable health coverage, the ACA has other problems as well. There’s the Small Business Health Insurance Tax (HIT) and new taxes on pharmaceutical and medical device manufacturers, which will all increase the cost of health care. There are funding cuts to the Medicare Advantage plans that are ultimately going to mean higher premiums or reduced benefits for older Americans. There are not enough provisions that address the real causes of escalating health care costs. And there isn’t much time built in for creating exchanges and getting products approved before the January 2014 deadline.

But these are all problems that can be fixed. So, now everybody can start the work of fixing what needs to be fixed.

Throw Out That Prescription Pad

How often does anyone put pen to paper these days? We don’t write down phone numbers; we key them into our contact lists. When the kid’s grades are slipping, we send the teacher an email. Invitations have turned into “e-vites.” Even love notes arrive via text message.

And yet most doctors are still writing prescriptions by hand.

Although it offers all the usual benefits of information technology—decreased waste, better record keeping, increased efficiency—and although the software has been available for years, e-prescribing is not the norm. Not even close. “Only about 36 percent of all prescriptions were delivered electronically in the United States in 2011,” according to an upcoming report highlighted in the New York Times.

Study after study shows that e-prescribing drastically reduces prescription errors. MVP has participated in several of these studies in the Hudson Valley area; you can read the results in the Journal of General Internal Medicine, the Journal of the American Medical Informatics Association, and the Joint Commission Journal on Quality and Patient Safety.

Or you can simply read my highly scientific summary: old system, bad; new system, good. Partly that’s because e-prescribing eliminates handwriting legibility issues that we all joke about. But e-prescription programs also provide prompts and safeguards, alerting doctors to contraindications, correct dosages, and so on. Fewer prescription errors mean fewer “adverse drug events,” which means fewer patients harmed in small ways and large.

Sure, e-prescribing saves paper. But the real reason doctors and hospitals should hurry up and switch is that it saves lives.

Why Provider Networks Work—And What Happens When They Don’t

Out-of-network charges have been in the news lately: stories about patients socked with outrageous bills from doctors who weren’t in their insurer’s network.

I’ll get to those charges in a minute, but first I want to say something about health care provider networks. Generally, the existence of networks benefits providers, consumers, and businesses that provide health coverage for their workers.  It holds costs down, facilitates quality care, and reduces administrative burdens.  If consumers choose an out-of-network doctor or hospital, it’s true that they have to pay a greater percentage of the bill (or even, depending on the plan, all of it). But a careful consumer can simply choose in-network care and not have to worry about all that. Right?

Most of the time. It’s pretty hard to be a savvy consumer in emergency situations or in hospitals, though, where whole teams of people can be involved in your care. In fact one hospital in New York actually put up a sign reminding patients to ask the doctor treating them if he or she accepts their insurance. You do have the right to ask for another doctor. Of course, you can only ask if you’re conscious. And even if you are, chances are good that your anesthesiologist or radiologist doesn’t belong to any network. What are you going to do? Politely decline to be put under for your operation?

Compounding this problem is the fact that some providers don’t clearly communicate their fees. Some bill the insurance company for the agreed-upon out-of-network rate, and then bill the patient even more if that rate doesn’t suffice. One large national insurance company has even filed lawsuits against certain doctors it feels are misleading patients and scheming to charge exorbitant amounts.

If you can’t always choose your provider, and you can’t tell what a provider is going to charge, you as a consumer are at risk of getting one of those crazy-high bills someday—even if you dutifully pay your health insurance premiums and carefully choose doctors in your insurer’s network.

So what’s the solution? I believe in appropriately-regulated markets and I don’t usually recommend legislative remedies for health care issues. But, in this case, the only solution I see is a ceiling on how much a provider can charge out-of-network patients—a ceiling that’s fair to both providers and patients, and one that gives everyone some peace of mind.

It’s Not Just for Facelifts Anymore

What are you doing for summer vacation? Scuba diving in Mexico? Enjoying a gondola ride in Venice? Getting your hip replaced in Singapore?

You read that right. An emerging trend in U.S. health care appears to be . . . leaving the U.S. for your health care. “Medical tourism,” as it’s called, has come a long way since it meant traveling to South America for discreet but what some viewed as risky cosmetic surgery at bargain basement prices. Many health care procedures cost much more in the U.S. than they do in other countries—even countries with top-quality health care. A recent survey of medical charges in 30 countries by the International Federation of Health Plans shows, for instance, that the average cost per hospital day in the U.S. is $3,949; the second highest reported cost was Chile, at $1,552.

People are beginning to notice these numbers.

When Peter Hayes, a principal at Health Care Solutions, directed health care strategy for the Hannaford Supermarket chain a few years back, he realized it was cheaper to send workers who wanted hip replacements all the way to Singapore—with a companion, all expenses paid—than to send them to a local hospital. In fact, it was so much cheaper that all the employee’s cost-sharing obligations would be waived, as well, and it would still save the company money.

Immediately after Hayes’ company announced the benefit—and potential savings of $30,000 each for Hannaford and around $3,000 each for the patients— a local hospital stepped up and matched the prices and shared the quality data Hayes had been seeking. That hospital did the majority of hip replacements for Hannaford’s employees, as well as those of other employers in the market.

Actually, Hayes’ goal was not necessarily to send services to off-shore destinations, but rather to motivate U.S. health care providers to step up their game and compete on quality and price. And, he says, it succeeded and exceeded their expectations.

If medical tourism continues to grow, it might be global competition that finally forces U.S. medical prices to drop.