Why is your health insurance getting more expensive? What can you do about it? Here’s a little help.
Politics guarantees rhetoric…so I’m going to avoid that at all costs.
I think it was Twain who said that, “common sense is genius in working man’s clothes” and I think that’s a better approach.
There are several verifiable reasons that your health insurance premium is going up. In fact it would be higher in 2010 regardless of who had been elected. Some reform would have happened regardless, and your premium would have gone up even without it.
My purpose here is to help you understand a little bit of what’s going on, and offer a couple of suggestions on what you can do about it.
I believe that health care is one of the only major moving parts to the US economy where the decision makers are without the basic information they need. You and your Dr are the decision makers I’m talking about. After four years of working in the health insurance industry I have seen plenty of medical claims. My clients, some of whom are Doctors (or other health care workers), have taught me a whole lot about just HOW LITTLE WE ALL KNOW.
Before working in this industry I was a typical guy in this area. I never went to the doctor. I didn’t take any prescription drugs. I didn’t know anything about health insurance. I had no desire to talk about insurance. I would do anything for my wife to “take care” of our health benefits.
Now I know better. A little bit of common sense goes a long way…and it is all too rare.
Why is your health insurance getting more expensive?
1. Health Insurance is a FOR PROFIT Industry.
The truth is that the health care industry is a combination of a variety of moving parts that are ALL for profit industries:
A. Health Insurance Companies are in business to make money. Over the past 80+ years they stay very close to an average 2.2% to 3% profit margin .1 They tend to spend 87% of your monthly premium on medical services and products. They tend to spend 10% on administrative costs.2
B. Doctors, clinics, and hospitals are also here to make money. Sure, most doctors get into medicine to help people. Yes, it’s hard to believe (when your Dr smiles at you) that they do practice medicine to make a profit. Yet this truth plays a part in this big picture. There are also a variety of other players here, but let’s try to keep this from getting too boring. We’re talking about your money here.
C. Prescription Drug Companies have to pay for those spectacular TV commercials. (insert sarcasm here) Pharmaceutical companies average a 19.3% profit margin.3 Every time you see a TV ad, internet ad, or slick magazine ad that someone is paying for it. Don’t get mad at your pharmacist. He’s making a whole lot less money than the thousands of employees in the drug companies.
In 2007 we spent an estimated $2.2 trillion, most likely 2010 will see spending at $2.6 trillion, and it’s possible that we’ll hit $4.4 trillion by 2018.4 If your car insurance included every oil change, repair, your tinted windows, and that snow tire change that you just did it’s quite possible that your car insurance would go up. If we want the kind of cutting edge hospitals (perfectly clean and decorated like futuristic Fortune 500 company headquarters) staffed with smart/funny/attractive/philospher/witty doctors we see on TV…well, that’s going to cost even more!
Oh yeah, and there’s that thing called inflation. Medical inflation outpaces general inflation and it’s driving more than half of the growth in health care spending.5
3. Obeying the Law Costs Money.
Going back to 2004, health insurance companies were spending more than $339 billion to obey the law. Some of this was spent paying for benefits that they were required to cover, but more than half of the money was spent on things like filing and reporting on requirements.6
4. We make bad choices. No one wants to talk about this because you don’t make bad choices – other people do. It’s not nice to talk about. Momma always said, “If you can’t say anything nice then don’t say anything at all.” The truth hurts. The truth is that:
“Increasing numbers of patients who are challenged by obesity, smoking, drug abuse, poor nutrition and physical inactivity contribute to an increase in the use of, and therefore the cost of, health care services.7 These preventable risk factors 8 can also contribute to chronic diseases, which account for 75% of the money spent on health care in the U.S. each year.” 9 – quote from anthem.com
5. We burn money
One third of all health care is waste. It’s simple. There is not enough common sense in health care! You’ve probably heard it said, “numbers don’t lie” and “liars use statistics”. One of the resources used by all sides of this debate is the RAND study which says that one-third of all health care is waste.10 Maybe less is more.
6. Cheaters Make a Difference
$180 million is lost to health care fraud every day! 11
7. Most Decision Makers Don’t Know the Real Prices.
If we are all honest…most Doctors and patients have no idea what is being charged (retail, wholesale, and actual cost) for medications. This is a HUGE factor. There is a drastic difference in prices being charged in this turf war between drug companies and insurance companies. Is it fair to expect a doctor to know what is being billed for any medication, when they are seeing so many people each week? If there were a simple public solution for full disclosure of all relevant price information, ON MEDICATIONS ALONE, I believe we would see a quick balancing act in the way that a free market system does work.
Please don’t think for a second that I’m letting the health insurance companies off the hook here. Remember what #1 on this list was. Despite their low profit margin, they’re doing just fine. The total dollar amount, taken in, keeps that fleet of companies afloat.
What can you do?
A. Know your health insurance benefits.
Unfortunately, I myself have not had a Benefits Summary (let alone understood it) of most health insurance policies I’ve had. Please make sure that you have a one page explanation of your health insurance. Make at least a fifteen minute effort at figuring it out. If you need help, ask. I’m happy to help if you like.
You need to understand your benefits. I have seen many stories of families who ended up filing bankruptcies because they were unaware that there were gaping holes in their health insurance policies, then a claim occurred.
Please ask yourself, “How does my coverage work for…?”
1. Doctor Visits (primary and specialists?)
2. Prescription (generic and name brand?)
3. Hospitilization (which is the closest in network hospital and urgent care?)
4. “Max Out of Pocket” (the most you will pay for all covered expenses per person per year?)
Please ask yourself these questions in a specific way. You need to know the answers.
If your employer, HR rep, or insurance agent has left you in a place of NOT BEING ABLE TO ANSWER THESE QUESTIONS, they are not helping you at all.
You may also want to consider how you would pay for a real claim. I have seen many claims, with no more than a one night hospital stay, that reached a “max out of pocket”. Do you plan to finance that with the hospital? Are you saving the cash, tax free, in a Health Savings Account? Do you have a “gap” policy to cover these expenses?
B. Know how you use your health insurance benefits.
Being aware of how you’ve used your health insurance over the past year will help you predict how you will use it over the next year. My wife and I approach our health insurance like we do the IRS. We want to “cover our bases”, but give them the least amount of money possible to do so. How will you know if you are paying each month (in your insurance premium) for benefits you will never use…if you don’t know what benefits you’ve already used?
Over the past year…
1. How many doctor visits?
2. What prescriptions, generic or namebrand, and what do they cost without insurance?
3. Have you had any urgent care or hospitalization?
4. Did you “max out” your health insurance?
How might this be different over the next year?
Dental Etc.: it may be wise for you to take a similar approach to your dental coverage. Some say that 1/3 of all health insurance premium dollars are spent on dental coverage. Yet almost all dental policies have a $1,000 annual max pay out per person. One root canal wipes that out and then you’re paying everything else out of your pocket.
C. Consider whether or not you are “beating Vegas”.
Are you getting the most out of the money you spend on health insurance, each month, or are you paying for benefits that you will never use? If you’ve “maxed out” the health insurance it’s most likely that you have already won, but I’m sure it doesn’t feel that way. Truth is that almost everyone, who pays for their health insurance, hates it until they have to use it for a major claim.
Financial protection is the only valid reason for carrying health insurance, in my opinion. Thankfully health care reform has ensured that annual maximums and lifetime maximums have been wiped out. This makes it easier for the average person to choose a decent health insurance policy.
This means that there are four areas where you may be able to adjust your health benefits to get better use your health insurance premium:
…sorry, make sure that the “shoe fits” in these four areas:
A. Doctor Copays – Do you visit often enough to warrant an unlimited number of doctor visits at copays?
B. Prescription Copays – How are you currently using prescription medications? Cancer chemo can be billed under Rx, be careful here.
C. Max Out of Pocket – What total dollar amount of risk is appropriate for you and how will you protect yourself from it?
A higher max drastically reduces the monthly premium. A “gap” policy, if it’s quality protection, may be a perfect solution.
D. Dental Coverage – Does each family member get two dental cleanings per year?
If so, you probably should pay for dental coverage. If not – DON’T.
D. Learn as much as you can.
The free market system only works if the decision makers (of supply and demand) know what’s going on. Does the “seller” know what it cost to bring the product to market? Does the “buyer” know what price is being paid?
If you are currently taking a blood pressure, cholesterol, acid reflux, or depression medication (the drugs I hear about from most clients) please consider learning how much your insurance company is billed by the drug company. Why? This does effect your monthly insurance premium, eventually! Please consider asking your doctor about the costs and about alternatives.
This would be a good start.
E. Act on what you learn.
Do what you can to be sure that your health insurance fits you. Is it the protection you need? Will it work the way you want?
Plenty of employers have chosen to reduce the quality of their benefits, to lower the premium. You may have benefits with no name brand drug coverage, a smaller network, or a higher out of pocket maximum than you did the year before. Any of these items could mean a whole lot more money out of your pocket when you are sick.
If you are involved with your benefits more, your employer will care. If you’re self-employed, or buy your own coverage, the solution is much simpler. SHOP AROUND and feel free to contact me with questions!
Talk to the person making the decision about your health insurance. Ask for benefits that fit you!
If you care, learn, and act – there will be less medical bankruptcies and a more responsible approach to health insurance premiums.
F. Vote and Vote Responsibly.
Regardless of who is elected next and what happens in the House/Senate: I do not believe that our government will relinquish the new found control it has over the industry. It is now, more than ever, about state rights versus federal control.
Regardless of your opinion of our current law: your hospital, drug company, and insurance company were probably looking for some sort of reform two years ago. The truth is that very few U.S. citizens want to spend even thirty minutes reading about the problem of our current health care system.
In our country, law makers are constantly thinking about a popularity contest and that means the average person is really a decision maker…making decisions with very little knowledge of the average costs (Dr, Rx, hospitalization).
Vote for common sense solutions. Regardless of the party, regardless of the issue we need leadership working toward solutions that work. Unfortunately, I don’t see much of that from either party. Hopefully we will see a variety of possible solutions soon.
What do you think? Feel free to leave a question or comment here.
1. Compiled from data from Fortune 500 Annual Ranking of America’s Largest Corporations 2008.
2. Pricewaterhouse Cooper’s Health Research Institute “Share of Benefit Premiums” Medical Cost Trend for 2009.
3. Kaiser Health News June 19, 2009
4. Centers for Medicare. Office of the Actuary, National Health Statistic Group
5. Businessweek, “Behind Rising Health-Care costs” July 14, 2008
6. Conover, Christopher J “Health Care Regulation: A $169 Billion Hidden Tax.” October 4, 2004
7. Pricewaterhouse Cooper’s “The Factors Fueling Rising Health Care Costs 2008” December 2008
8. Thorpe, et al, Health Affairs, June 2005
9. Will Dunham, More Americans getting multiple chronic illness, Thomson Reuters, January 2009
10. rand.org health services utilization study accessed April 21,2010
11. National Health Care Anti-Fraud Association “The Problem of Health Care Fraud”
Special thanks to anthem.com (from whom I’m only collecting $32 monthly in residual commission) for assembling the above research, for they’re own purposes granted, but they helped me in pulling this data together more efficiently.