Tag Archives: health insurance premiums

Three Ways to Fix Health Insurance (No Matter What Happens With Obamacare)

Whether Obamacare is fully implemented or collapses under the weight of its 906 pages of law, its 15,000 pages of regulations, and the well-publicized glitches in its rollout, the underlying, ineluctable problems with health insurance remain largely unresolved. How we respond will determine whether we hit the iceberg and sink or veer away in time to save our private health care system.

To understand some of the real cost drivers for health insurance, let’s look at the “Doe” family. John and Jane Doe pay $600 per month for health insurance for their family of four. Most states have a list of benefits, or “mandates,” that, by law, insurers must cover – from gastric electrical stimulation to breast implant removal. While some states have fewer mandates, others have piled them on. (Utah has 26, while Rhode Island, Maryland, and Minnesota all have at least 65.) The Doe family could see savings up to 50% or more on their insurance rates if they could just buy a basic health plan without the mandates. That could drop their monthly premium to as low as $300.

Premiums would come down even further if tort reform ended “jury lotto,” where patients get large, unjustifiable settlements or jury awards for medical treatment gone awry. While doctors are human and are certainly capable of errors, the legal system allows for these big settlements even when doctors are not at fault.

Here’s the scenario: Imagine that Doctor Smith treats a woman who complains of an ear infection and gives her a prescription, telling her to call if the condition doesn’t improve. The woman dies a few days later from a brain tumor. The family sues, alleging the doctor should have been able to diagnose the tumor. The jury sympathizes with the grieving family, believes that doctors should be omniscient, and reasons that rich doctors and their insurers can easily afford a large payment, so the family receives a $10 million award. The pestilential result is that everyone’s health insurance rates go up to cover such settlements, the doctor’s malpractice rates increase, and he now orders extra tests for the next patient to protect himself from the next lawsuit.

Tort reform could provide significant savings to the health care system, resulting in insurance premiums dropping as much as 10%. The Doe family might now see its insurance rate go down to as low as $240 – a whopping 60% drop in their monthly premium.

(Some have talked about allowing consumers to buy across state lines to reduce premiums even further by increasing competition and making it easier to buy policies in states that mandate fewer benefits, though this has not yet been shown to be true.)

A third way to drive insurance rates down is consumer engagement – changing the dynamic so that people actually know and care about what their health care costs. As long as it is Other People’s Money (OPM), there is little incentive to lower the cost of care, which continues to rise and, in turn, drives up insurance rates. (Contrary to public opinion, a recent analysis by the accounting firm PriceWaterhouseCoopers found that health insurers pay an average of 87 cents to providers of medical and pharmaceutical services out of each premium dollar and, after expenses, earn just three cents in profit. The problem, then, with health insurance isn’t that insurers are gouging people; it’s that costs are high, and consumers are generally unaware and unconcerned.)

So how can we get engaged? Even while we wait for the regulatory and legal changes that will need to occur to reduce mandates and rein in unjustified malpractice awards, here are two things for consideration in lowering health care costs.

First, we need to change our mindset as consumers when it comes to health insurance. What if we treated health insurance more like homeowner’s insurance? In other words, what if we bought coverage for the unexpected (illness or injury), while paying for our day-to-day medical needs out of pocket, as we do for home repair and maintenance? Great insurance options to consider include high-deductible health plans with linked Health Savings Accounts (HSAs). In general, we need to shift our thinking on health care from OPM (Other People’s Money) to MM (My Money).

Second, how about a radical “Groupon” type of approach? Let’s say John Doe is diagnosed with a hernia and needs an operation. There are three hospitals in town. All three are fully credentialed and meet quality standards. John’s surgeon can admit to them all. Hospital 1 is an older, traditional facility in a more frugal setting, with an estimated cost for the surgery at $10,000. Hospital 3 is a new, state-of-the art “Hyatt” hospital with high end amenities and a fancier environment – estimated cost: $50,000. Hospital 2 is in the middle, with an estimated $25,000 price tag. Here’s what John’s health insurance company tells him:

“You are covered at all three hospitals. But if you go to hospital 3, you have an additional $2,000 copay. If you go to hospital 2, we’ll cover the cost at 100%. If you go to hospital 1, we’ll pay you $2,000. Your choice.”

John is comfortable at hospital 1 and likes the idea of getting rewarded for choosing a lower cost setting. He has his surgery done there. He gets the $2,000, while the insurance company saves $38,000 off the cost of hospital 3.

This kind of savings will eventually be reflected in lower premiums for everyone. Decisions like John’s will also encourage hospitals to lower costs, as market forces come into play, leading to even more reductions in insurance costs.

Conclusion

We are not going to reform the health care system and resolve our health insurance problems overnight. And even if Obamacare is fully implemented, we still need to make fundamental changes, including how we see and use health insurance as consumers. If we are going to steer the Titanic away from the iceberg, we as consumers need to change our mindset and get engaged – and have financial incentives to do so, leading to powerful market forces. Once the sleeping giant of the American consumer awakens, watch out.

All Employers CAN Reduce The Cost Of Health Care

What health plans and brokers don't want you to know….

Sometimes it's humbling to admit what you don't know. It's even worse to realize that you don't know what you don't know (YDKWYDK – pronounced, yidick-widick). Well, last fall I was hit square in the face with an embarrassing case of YDKWYDK. Silly me, I presumed that within certain boundaries, actuarial science is, well, a science. Based on the experience/characteristics of a population, and the design of a plan, there was a narrow range within which premiums would be assessed. Not exactly.

Informed Purchasers Can Get Better Coverage And A Lower Cost
I advise employers about how to manage health care costs. That's what I do for a living. Well, I discovered there is a process for uncovering available savings of which I've been unaware. Let's call it the informed purchaser discount. It turns out if you:

  • Learn more about how rates get set (not necessarily based on actual claims risk), and
  • Discover where fees might be hidden (many places), and
  • Inform yourself on calculations health plans use to forecast cost and protect themselves from exposure (quite conservatively), and
  • Partner with someone who has the data platform and predictable process to uncover available savings, and
  • Design a new plan that aligns patient and provider interests,

You can pay a lot less for coverage.

Why Don't You Already Know About This?
Well, it turns out there are incentives built into the system such that:

  • Most brokers — who are paid by the plans — are reluctant to push back on plans for better prices, and
  • Brokers who do push back may get penalized by the plans with worse quotes or slower service, and
  • The timing of quotes are manipulated to rush decisions and leave less time for deliberations, and
  • Because it's a hassle to price many different designs, the plans and brokers often choose a favorite and don't bother to tailor it to specific client needs, and
  • All plans tend to operate this way, so you won't detect over-charging by simply comparing among them.
  • Thus, benefits managers are left reporting to the executive team, honestly: “This is the best I could find.”

Sigh. In other words, circumstances are stacked against the individual employer, especially small ones that are fully-insured. The traditional industry process is meant to keep us in the dark.

Worse yet, as traditional benefit professionals, we don't know what we don't know. There are many reasons not to rock the boat. Perhaps there is a long-term, trusted relationship with the broker; they've become our friends. Brokers won't tell you that they think you can get a better deal — otherwise you would question why they aren't getting it. Perhaps there is fear that getting a different broker or an outside advisor will be looked upon as a sign that we have made poor choices in the past. Perhaps it is simply easier to do what we always do. Perhaps we assume we will get the best deal through the competitive bidding process. Perhaps we assume that because we are smart and capable in other areas, the same approach applies in health coverage. Whatever the reason, the vast majority of businesses don't have the insight to demand and get the informed purchaser discount.

So, you ask, how much can that discount be? (Are you sitting down?) $1,000 to $3,000 per employee, every year. For a 500 person company, that equates to overpaying between a half a million and 1.5M dollars on health care over the past five years. It's shocking, it's appalling, it's something I would not have believed … but folks, it's real. And you can do something about it.

I have spent my professional benefit career advising employers about plan design, corporate policy, health care quality, and health interventions. All the while, I should have been encouraging them to partner with an experienced purchaser who knows the process and can share understandings of risks and incentives.

Stop Paying A Penalty Simply For NOT Being Informed
The only way to get an informed purchaser discount is to make the process transparent and work with someone who only has a financial incentive to save you money. This doesn't mean you fire your broker (unless you want to), only that you insist on having a broker who will partner with an independent plan reviewer/designer. You want someone who is not threatened by complete transparency — something you will learn is not welcomed by plans or most brokers. (If your broker resists, I can recommend a few who do advocate transparency and are open-minded).

What should the independent party do?

  1. Review your current plan and experience at no charge.
  2. Assess the savings opportunity at no charge.
    Explain your design options and confirm you are comfortable with specific types of changes. The savings should not be solely derived from making the plan less desirable, such as:

    • restricting access to providers
    • shifting large increases in cost to employees
    • design changes that discourage employees from choosing coverage
  3. If savings are not likely, state that fact, shake hands and part ways.
  4. Charge a reasonable fee, most of which is contingent upon meeting a minimum savings (e.g. $1000 per employee).

In other words, there should be no cost or risk to assess your opportunity, and the group who guarantees savings should get paid after the savings are achieved.

Does such an organization exist? Yes. It's not a brokerage, but a small, independent consulting group called Incenta, that is saving its clients a lot of money. Do I work for them? No, but I am introducing them to my clients because it feels bad not to. Will I be partnering with them in the future to bring this solution to more employers? Absolutely.

What Now?
This article is a stark departure from my usual analytical or policy-oriented discussion. Readers who know me know that I investigate topics thoroughly and thoughtfully. Despite this, all of us encounter situations where yidick-widick, and we discover new solutions to old problems. It's not a sin to find out we didn't know — but I've decided it's inexcusable to ignore it now that I do know.

Never have I been more convinced that a different sort of expert is needed. Plus, in this case it happens to be very low risk — no cost to assess potential savings, and the vast majority of fees contingent upon achieving $1000 to $3000 of savings per employee.

So, I encourage every benefits manager to become one of the (few) informed purchasers. Don't wait until your renewal is approaching. And don't be afraid to admit YDKWYDK — better to learn this now than continue paying the penalty for remaining uninformed. Call or email me or the others listed at the bottom of this article. Become informed. Your bottom line, and your company executives will thank you.

For those interested in following up, talking it though, or getting started toward a better process of getting health care coverage, feel free to contact:

Wendy Lynch
Send Email to Wendy

Dennis Kelly
Send Email to Dennis

Dave Dias (one of the transparency-advocating brokers I know)
Send Email to Dave