September 23rd brought the first real changes of federal healthcare reform:

24 09 2010

September 23rd brought the first real changes of federal healthcare reform:

For nearly four years I have worked in the healthcare industry. Often conversations about healthcare reform seem to only bring up frustration. A few of my friends have asked for help with their health insurance situations. I hope that the information below is helpful to you.

Here are a few of the changes to health insurance.

1. No lifetime maximum. Your health insurance policy can no longer limit how much is paid for your medical treatment over your lifetime. Previously it was common for your health insurance to have a limit of between two and five million dollars. In truth, lifetime medical claims very rarely exceed five million. I did have a friend who had a million dollar surgery. This is rare.

2. Preventive care is now free to you. When you need a check up (blood test, mammogram, colonoscopy) you no longer have to pay for those expenses. This may be a shock, but health insurance companies are in a for profit industry, which means that these expenses will be built into your monthly premium.

3. Children under the age of 19 will not be declined health insurance and will have no preexisting condition exclusions. If I happened to be down on my luck out of a job, with a sick child, I would be thrilled! No sarcasm here. It would be the best day of my life! I love my kids. I would give my life for them. This would be better than winning the lottery! They would be able to get the treatment they needed!

The reality is that even just these three things will cause your health insurance to be more expensive this year!

Over the past 80 years health insurance companies have averaged a 3% profit margin in the US. Regardless of WW2, recession, etc they have been able to maintain that 3%. You may not want to know what prescription drug companies have averaged.

If a health insurance company is now required to pay for each of the three changes listed above they have make changes to cover you new expenses.

Reform, in the way of change, would be happening regardless of who was elected. Having worked in the industry for a few years I heard rumblings of the major players (Hospitals, Dr, Rx Companies, Networks, and Insurance Companies) finally all being ready to come to the table, at the same time, and say “the system is broke we need to fix it”. This was happening long before the election. It just didn’t get done.

Among those major players health insurance companies have the lowest profit margin. That’s easy enough to verify. A 3% profit margin versus a 16% profit margin of other industries.

I believe that if you and I actually knew what was being billed for Dr visits, medications, and various medical treatment the system would change within a few years. Full disclosure would bring more change than people realize. One of the crazy things about our free market system is that the decision makers don’t have good information. Unfortunately, most of us decision makers feel that it’s all too complicated to get good information. How can we make good decisions without good information?

Free market doesn’t work if both the buyer and the seller don’t know what the actual cost and the actual selling price are! If you have ever worked at a pharmacy, a hospital, or for a Dr and you started to check out how things work, you know what I’m talking about. Many Dr’s don’t know what a medication actually costs (it just gets billed to insurance or costs the patient) and most patients don’t know either!

Dartmouth Atlas of Health says that 1/3 of all healthcare is waste. Think about that. This has a definite effect on the economy!

We live in the most law suit happy culture in human history. This eventually has an effect. I believe that a law suit can be a necessary evil, but our current situation has allowed less than ethical people to get wealthy.

Truth is that our current system is not the result of anyone’s design. I’m not saying this as a negative. Most people just don’t know how it happened. It is what it is. Comparing it to Canada or Europe is like comparing apples to tigers. Our system is a completely different animal.

Consider the history:

In 1900 healthcare was cheap in the US, and hospitals were primarily dark dirty places to die. Dr’s visited the wealthy in their homes and the rest of us only went to a hospital when it was too late. Back then medications were not actually causing cures!  People forget this!

So what happened? (NPR’s economy people pulled together a pretty succinct bullet point list – here’s my rendition.)

1.       Start Curing Illness: 1909 first Rx to cure illness (Salversan cure for syphilis).

1910 people start to expect Dr’s to have a cure. Hospitals start to change. They become a place with happy outcome: birth, curing. Demand increases, supply increases, and cost increases.

2.       Great Depression: (even before crash cost had risen and people had stopped going to hospital) Baylor University Hospital in Dallas estimated that an average ribbon counter clerk would spend more on cosmetics than healthcare. They started a strategy to market healthcare benefits. So Baylor started offering public school teacher’s a plan that cost $6 year giving them up to 21 days of hospital visits. Then the Great Depression hit. The Baylor idea became a popular way to make money selling medical benefits. This effort by Baylor later became Blue Cross where health benefits were marketed to groups of workers.

3.       During World War Two, prices and wages were frozen by the government. Companies needed to produce more with a smaller work force. Free market encourages competition and companies start to offer benefits to attract better employees.  (Prior to that only 9% of workers were insured.)

4.       The IRS decided to offer tax deduction to companies who offer benefits. The government gained some control with this leverage.

5.       Federal and state laws got involved to prevent discrimination. Limited underwriting allowed. Decent motives lead to bad economics

We got sucked into paying for benefits as a nation because hospitals were marketing medical benefits to groups of employees. This is very different from true insurance.

The truth is that when you or a family member is sick you want to get better no matter how much it costs! You no longer care how much it costs you, the Dr, the hospital, or the insurance company. That’s why we carry insurance…just in case. What if? With true insurance I pay a small monthly bill, just in case something bad happens, then the insurance company pays the big bill.

A small fraction of us still have true insurance. Now most of us have policies that are a blend of insurance and benefits.

What are benefits? Three main things could be called the benefits part of your health insurance. First would be paying a higher monthly insurance premium so that when you have predictable expenses like Dr, lab, and prescription costs for predictable conditions like a cough, cold, flu, rash you are actually paying a small portion or none of the cost.

Second would be the preventive services that our government requires insurance to cover.

Third would be the coverage for dental and vision services. Do you know that if you are not having two cleanings per year you are probably paying more in insurance premium than you are using in dental services? Lately almost all dental plans have annual dollar limits. This means that you don’t come out ahead even if you have expensive dental work. You may be surprised to learn that 1/3 of the average monthly cost of employee health insurance is for dental services.

Most of us are prepaying for services that we never use.

The current changes will impact our economy more than we expect. Underneath is all there will be a battle of “state rights” versus “federal control”. We will vote again. Revisions will be made to the reform regardless. Yet government will not relinquish the greater control they now have. Here we are again making decisions in a situation where the popularity contest of partisan politics is effecting our thinking more than the facts. How much did that pill, lab test, or Dr visit really cost? I don’t know.

I just wish that the average American had access to better information. Strangely I hold out hope that if we did, common sense would bring the change we need. I think it was Twain that said, “common sense is genius in a working man’s clothes.”

It will be very interesting to see what the next year will bring. Having spent time in Canada and Europe I know a variety of people who are actually looking to the US, hoping that we can arrive at a better solution than they currently have. Here’s to the optimists, dreamers, and visionaries! My prayer is that the US will find a clear common sense way forward!



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