Tag Archives: health insurance

What My $18,289 Medical Bill Says

Warning: While this is not quite as disturbing as the poor woman with a spider in her ear on Twitter, I’m still sleeping with one eye open.

Also, TLDR: Prices play a key role in free markets, right? They help set supply and demand and indicate value. My guess is that the vast majority of healthcare and by extension health insurance in the U.S. is a badly functioning market in part because prices are nearly irrelevant.

The story, in which I bravely warn my family of danger.

Not long ago, I went to bed early and was woken up by what sounded like a very loud fly knocking against the inside of our bedroom window. I turned on the light to see a bat weaving and darting just overhead. (We have low ceilings – the bat was way closer to me than any bat should be.)

I’m happy to report that I bravely warned the rest of my family by shrieking (repetitively) at the top of my lungs; the bat got a broom-to-the-rear-end assist out the bedroom window.

Really, there was no dignity to be had for anyone that night.

But, I had a bigger problem. I had two little marks on my arm that Dr. Google suggested could be a bat bite; my primary care physician’s office told me to go to the emergency room. 

Turns out, showing up as bat woman at a suburban ER late on a Monday night makes you an absolute rock star.

I ended up getting the rabies vaccine and a shot of human rabies immunoglobulin, which was absolutely the largest shot I have ever seen in my life. Follow up was three more doses of vaccine over a three-week period.

And that’s why I received an $18,289 bill: $1,120 for the ER visit, which didn’t shock me, and $17,169 for the shots, which did.

Pic, or it didn’t happen:

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I looked at the bill, nearly fell over and fortunately made it as far as the “You owe” box. My share, luckily, is $300; my insurance company paid $3,986.

Then I started thinking.

Why do we pay people to make up prices for healthcare, and what does it feel like to do that job?

Is $17,169 even a real price? Does anyone actually pay that?

I’m guessing no, if my health insurance company can get the hospital to knock 74% off the tab. And, given the way health insurance works in the U.S., I’d assume that every other insurance plan has negotiated some similar discount.

So, how does it feel to sit in a room with Excel open, presumably, and figure out what the rack rate is for care? What are the numbers even based on, if anything? And how does it feel to know that the only people who may get charged that are the people who are uninsured? (More on that later.)

The Centers for Disease Control and Prevention’s page on the cost of rabies prevention (published June 2019) pegs the expense for the immunoglobulin plus the four vaccine doses at $1,200 to $6,500, for the medications alone, not the hospital charge. So, how do you get to north of $17,000? And, according to First Databank, a company that monitors drug prices, the price of the drugs I received has increased 388% in the last decade, for no obvious reason, as best I can tell. Think the CDC missed that.

What is it like to be on the opposite side of this pricing, to be negotiating on behalf of the health insurer? Does someone go back to the boss to say, “Hey, I negotiated us a 74% discount!”? Doesn’t that doesn’t just strike everyone involved as laughably bizarre?

Why do we ask people to do useless work? What does that do to them, and what are we failing to grow or build or improve by asking them to focus on this nonsense?

Was it cost-effective to treat me?

This bill got me metaphorically scribbling on the back of an envelope.

Is $17,169 a fair price? Well, maybe that’s a silly question, because that’s not what my insurer and I paid together.

Let’s just assume that the fair price is about $4,000, which is roughly what we paid for the shots.

Rabies is a nearly completely fatal disease, and the onset of symptoms to death is about seven days. Let’s say the resulting hospitalization and treatment costs $100,000 (source: wild guess). Soullessly assigning no economic value whatsoever to my life (which I, by the way, value greatly), we should be willing to pay for 25 courses of rabies shots to prevent one case, or whenever the risk of catching rabies is 4% or higher.

What was my risk of catching rabies? The estimates I saw suggested that anywhere from .1% to 10% of bats are infected with rabies, depending heavily on local conditions. It is easily transmissible, apparently, especially with a confirmed bite, so let’s assume that, if my bat friend had rabies, I would get it.

So we’re within a wide margin of error based on avoiding costs. What if we ghoulishly try to value a life? There are lots of papers on this topic. I’m no expert, but I’m going to pick $100,000 per remaining high-quality year of life left, which seems roughly reasonable based on the literature. Let’s assume I have 40 high-quality years left, or $4 million of value.

Treating a known bat bite definitely makes sense.

Maybe the cost makes sense from that perspective? But would you need to consider it as part of all of the healthcare I will receive from this point on in my lifetime? Or just at this moment, with this choice?

I don’t know, but I’m pleased that I was able to make a rational economic decision on the fly.


See also: Mental Health Even More Critical Now

How did we end up in a place where life-saving, cost-effective treatment is most ruinously expensive for the people least able to afford it?

If I had been uninsured and gone to the hospital, I’m going to assume I would have been treated, at least with the first set of shots, though I don’t know for sure. If I had gotten the full series of shots, how much would I have been billed? The full rack rate? The worst negotiated rate with an insurance company? Something different?

(My $300 ER copay alone represents a significant burden for many families, including those affected by joblessness or reduced working hours because of COVID.)

I did some research – it turns out the major manufacturers of rabies treatments have programs to pick up the cost for those who can’t afford it. I’m sure this is an enormous relief for those who qualify, which I desperately hope is everyone who can’t pay the price. I also hope it’s easy to apply.

But, systemically, how does this make sense?

We set fake prices that are beyond crushing for most families. Then we don’t charge them to people who are insured. We save the worst prices for people who don’t have health insurance, who are even likely less able to pay ruinous prices than those who do have insurance. So then the manufacturers have programs (complete with separate paperwork!) to waive or minimize the cost for the uninsured, at least those who apply.

And since the manufacturers still need to make a profit, those waived costs actually get funneled back into the pricing the insurance companies negotiate with the healthcare systems.

Again, what information is in the pricing for these drugs? And in what ways are the healthcare and health insurance markets dysregulated as a result of the lack of clear pricing information?

As both the consumer of our healthcare insurance and the employer paying for it, how am I supposed to assess this situation?

My co-founder and I picked out our health insurance plan. While there seemed to be a whole lot of choice for a business of our size, the plans were really all the same… $2,000 deductible with $50 copays? $2,005 deductible with $49.75 copays? And so on.

I’m exaggerating, but not by much.

The service our healthcare plan provides is fine, and the cost seems reasonable, but how do I assess whether the plan is as efficient as it could be? The costs paid to healthcare providers get passed back to us (all of us insureds) through pricing. If the plan pays too little, it isn’t fairly compensating the medical providers, which will eventually refuse to work with our health insurance or go out of business, meaning we have an availability problem. If the plan pays too much, we pay for it.

Am I supposed to be really pleased that our health insurer negotiated a $14,000 discount? Or should I be mad it didn’t negotiate a $15,000 discount? How would I know? How could I make a more rational decision?

The answer is…I can’t. There’s so little information in the pricing, and so much opaqueness, that we’ll have to make another decision next year based on price and service when we renew our health insurance. 

Why do we tolerate the healthcare and health insurance mess we have in the U.S.?

I’m willing to believe that all of these ridiculous pricing mechanics exist for a reason, but do the reasons still make sense?

There are so many distortions here…

  • Even when I am both the buyer and user of employer-sponsored health insurance, I don’t have the information I need to make any kind of a rational decision except what makes the most sense for us for the next year.
  • There’s no easy way to understand how much healthcare will cost before treatment, especially in emergency situations.
  • The list prices are no more than sky high caps on medical procedure prices.

I’m no expert in health insurance, but I see that same underlying issue here that I do in my own familiar property and casualty space – massive systemic complexity.

In the P&C space, I’d argue that most of the complexity derives from old court cases that created boundaries between lines of insurance. This led to technology solutions for each line and specialized staff and culture to handle input into, maintenance of and output from these ossified systems. The market need for those silos has blurred or disappeared, but thus far they’ve been indelible marks in the insurance landscape.

The same is probably true of health insurance. I’ll add the root of employer-sponsored health insurance (which usually separates the buyer from the end user), which stemmed from wage controls during World War II.

There’s an interesting historical summary in National Bureau of Economic Research Working Paper 14839. In short, fringe benefits were excluded

The issue is that systemic problems require systemic solutions. Systemic solutions are so much less attractive than quick fixes – they don’t sound catchy, they don’t boil down to one sentence, they take time to implement.

Yet, as a people, our failure to fight for systemic solutions is surely catching up with us.

from WWII wage controls, which caused employers to add more benefits to attract and retain workers. Health insurance existed in a fragmented way before this, but really came into its own and was firmly established as an employer benefit in the period. And now, 55% of Americans get their health insurance through their jobs, according to the Census Bureau. This has to be a piece of the complexity.

See also: 6 Life, Health Trends in the Pandemic

Public Service Announcement: Rabies is really nasty. Nearly always fatal, and really, really nasty – it kills tens of thousands of people worldwide each year, mostly in places where rabid dogs are common. It’s also not specifically spread by animal bites; it’s spread in the saliva of ill animals, so a scratch or a lick to a mucus membrane can also spread it. If you may have been exposed (including if you wake up in a room with a bat — bat bites don’t necessarily hurt and can be nearly invisible), you really need to talk to a medical professional.

Postscript: I had a long conversation about CEO pay at pharmaceutical companies with someone regarding this whole situation. CEO pay can be grotesque, especially at companies that do not pay their workers living wages and don’t provide decent benefits. However, cutting CEO pay is largely an issue of equity, not much of a solution to this cost issue. I looked up the 2019 salary of the immediate past CEO of Sanofi Pasteur, which manufactured the shots I was given. If he had worked totally for free, applying the savings evenly over their revenue, my bill would have been $4 lower.

6 Life, Health Trends in the Pandemic

COVID-19 is, in many ways, still a disease of uncertainty, both in the severity of its symptoms and the scale of financial hardship it could ultimately cause. And no business is better equipped to confront uncertainty than insurers.

So it is perhaps unsurprising that life and health carriers are responding to the pandemic with a variety of consumer offerings, from complimentary, compassionate benefits to new protection products and services.

After performing a global review of responses to COVID-19, RGA identified six primary trends:

Compassionate and Complimentary Benefits

Insurers have sought to build trust and goodwill by offering complimentary COVID-19 coverage as a compassionate benefit or marketing expense, with an emphasis on policies with lower face value to manage overall exposure. A multinational insurer in Hong Kong, for example, has begun offering an additional hospital cash benefit of HK$600 (equivalent to US$77) per day for covered clients who may be required to undergo a mandatory quarantine in a hospital or isolation center. Similarly, the local branch of another major insurer in Thailand partnered with a leading telecom operator to offer a market-first, free-of-charge COVID-19 coverage benefit to customers. If a customer requires treatment in a hospital, he or she will receive a hospital indemnity benefit of up to THB1,000 (equivalent to US$31) per day. Still another multinational partnered with a Singapore-based insurer serving private hire drivers to offer a complimentary benefit for all of these essential workers as part of the company’s Group Prolonged Medical Leave insurance policy.

Other forms of consumer relief have proved popular, including premium holidays, grace periods and reductions to policy/premium amounts. Many insurers globally have offered grace periods for premium payments either voluntarily or at the request of local governments and regulators. On the health insurance side, some insurers have waived cost-sharing, co-pay and other deductibles for inpatient hospital admissions due to COVID-19. Some have also sought to support healthcare first responders and other frontline workers through donations of personal protective equipment (PPE) and other charitable efforts.

COVID-Specific Protection

COVID-19 emerged in Asia, so it stands to reason that regional insurers have been first to develop hospital cash and comprehensive care products offering standalone protection in case of diagnosis. For example, one Bangkok-based broker and insurer teamed up to offer Thailand’s first policy that provides cash upon diagnosis with the coronavirus. Similarly, a major Indian insurer offers a COVID-19 support plan, providing end-to-end treatment services, including consultations with qualified doctors, to policyholders who become infected. In Malaysia, a major multinational has introduced a COVID-19 hospital assistance program with an upfront one-time cash payment upon hospitalization with the disease. The program includes a one-time cash payout for family assistance should dependents also be diagnosed. It also includes other assistance for consultation and treatment costs while in isolation or intensive care. Similar products are now emerging across Europe and North America.

See also: Reigniting Growth in U.S. Life Insurance

Segment-Specific Offerings 

The word pandemic derives from the combination of two Greek words: pan (“all”) and dēmos (“people”). But, while all are at risk of contracting the coronavirus, a few face far greater danger due to the essential public services they must perform. Insurers are customizing certain offerings to serve these frontline workers. In China, a first-in-market COVID-19 medical worker insurance program pays cash compensation upon diagnosis. Similarly, healthcare personnel at specified primary and secondary public hospitals, treatment centers, and pharmacies are eligible to sign up for another Chinese insurer’s COVID-19 coverage for free. Another insurer launched COVID-19 coverage targeting shopkeepers in India, with the product paying 100% of the sum insured, irrespective of hospitalization expense, upon diagnosis.

Health and Wellbeing

The coronavirus not only co-opts our cells, it exploits our fears. A lack of clear information and shortages of available testing have compounded the problem in some locations. U.S. insurers responded with new consumer plans that seek to bundle mental wellness services with physician care to address public anxiety with clear and actionable medical guidance. One U.S.-based healthcare carrier repurposed its existing telehealth application for mobile devices. The app now provides a coronavirus assessment based on guidelines from the U.S. Centers for Disease Control and Prevention and the U.S. National Institutes of Health. Customers can connect directly to a board-certified doctor via text or secure two-way video call and use the app to discuss the assessment results. Another U.S-based provider of healthcare IT solutions and services launched a new telehealth product to help physicians and patients stay connected during COVID-19 through real-time video technology. A number of mental health schemes have also emerged around the world with an emphasis on technology to address social isolation.

COVID Diagnostics

Artificial Intelligence (AI) has been coming to medicine, and insurance, for some time. Now the spread of COVID-19 may present a new opportunity to increase use of smart apps and chatbots. A number of insurers are relaunching and rebranding existing AI applications to meet surging diagnosis and informational needs in an era of social distancing and staffing shortages. In China, one major insurer launched a smart, AI-based audio screening system for COVID-19 to strengthen epidemic control and prevention through automated interviewing and risk assessment. Another U.S.-based case manager launched a coronavirus chatbot to answer questions related to COVID-19 and assist in diagnosis, and a multinational in Hong Kong retooled its mobile application to assist in coronavirus contact tracing. Much remains unknown about the overall effectiveness of these emerging technologies, but the increasing use of AI is a trend that merits monitoring.

New Approaches to Sales Operations

COVID-19 has been dubbed an “invisible enemy,” but its effect on the insurance industry has been very apparent. As traditional evidence and sales channels have been disrupted by lockdowns, carriers have moved to accelerate a transition to alternative evidence, simplified and accelerated underwriting and digital distribution.

“Selling at a distance” is a hot industry topic, and those insurers with relatively strong digital capabilities may be best-positioned, while others are playing catch-up. A major multinational recently launched a digital enrollment system, while another unveiled “simple life insurance” to be sold online. Another insurer is now using WhatsApp to deliver policy and renewal documents. One carrier has simplified the claims process for its critical illness policyholders. Upon diagnosis of COVID-19, the policyholder needs to only submit a certificate from a government medical officer to receive a lump sum payout rather than the more copious paperwork typically required.

See also: 4 Post-COVID-19 Trends for Insurers

As the pandemic unfolds, we expect more offerings to emerge. In the medium term, it may not just be health and safety concerns that drive offering design, but the state of the overall economy. Interest rates and slowing economies are placing renewed pressure on insurers to reassess less profitable offerings, such as those with generous guarantees, and to emphasize capital efficiency in the overall product portfolio. Against this challenging backdrop, it is unclear how many product innovations of all kinds are languishing in the exploratory phase versus being introduced to consumers at this time.

COVID-19 May Mean Big Changes for LTD

Twenty-six million Americans are out of work, among them a large share of people who can no longer afford to put off applying for disability insurance. Where previously they may have been able to continue working for an accommodating employer or solely rely on their spouse’s income, today, there’s a good chance that’s not so. 

We have seen this happen with disability insurance in just about every recession in our nation’s history, so this shouldn’t come as a complete surprise. However, this downturn isn’t like most. Caused by a global health crisis, the current decline may bring additional changes to the long-term disability (LTD) industry that require strategic alternatives during an evolving economic environment. 

Consider all the cancer screenings that are on hold for two to three months or more. With progressive diseases or conditions like cancer, early detection is key. So, with these nonessential but still incredibly important appointments getting delayed, this means that, when forms of cancer are eventually detected, many could be in advanced stages with limited treatment options. 

This pandemic might also influence people’s thinking about both short-term and long-term disability insurance, including the possibility of more unexpected diseases like COVID-19. Reporting about the current pandemic already refer to prior outbreaks, such as SARS, MERS and the swine flu. These illnesses have been flagged by some researchers as more likely over the coming decades due to climate and environmental changes. As a result, employers and their employees might see even more value in disability protection.

See also: The Messaging Battle on COVID-19: Are Insurers Losing?  

Not only are LTD carriers in a position to see claims rise, they’re also in a position to see an uptick in business inquiries. This can be a positive, but things could quickly get out of control without the right insights and support. According to recent analysis by the Integrated Benefits Institute, costs for sick leave related to COVID-19 may be in the range of $6.1 billion to $23 billion in 2020, and short-term disability claims could go into the millions of workers affected.

To ensure success, LTD carriers are going to have to pay close attention to how much money is being paid in disability claims versus the rate of purchase by employers and their workers; the latter ideally outweighing the former. Third-party service providers may be able to help identify new developments. It can be hard to see emerging trends when you’re in the middle of them. Independent resources may have access and information to spot potentially significant marketplace trends— like COVID-19 survivors reporting long-term health issues—in their early days. 

Early analysis by medical professionals is finding multiple potential long-term health effects from the coronavirus, including conditions that fall under categories of long-term disability such as stroke among individuals under 50, long-lasting lung damage and damage to the heart, kidneys and brain. Research and medical studies are continuously advancing as the virus spreads. 

These developments signal the value and importance of accessing existing benefits such as Social Security Disability Insurance (SSDI), which covers more than 156 million U.S. workers. As more people experience COVID-19, LTD carriers can benefit by partnering with third-party providers capable of monitoring and assessing emerging health impacts. An added benefit is that these providers can help LTD carriers reduce spending by coordinating and assisting former workers to access the SSDI benefits they earned while working.

The LTD industry has long looked to third-party organizations to help them determine if a beneficiary is eligible for SSDI benefits. Steps include walking individuals through the application process and doing everything possible to make sure that person is approved for disability benefits as soon as possible. 

See also: 3 Tips for Improving Customer Loyalty  

This is important because almost two-thirds of SSDI applicants are initially denied during the application process, which lasts three to five months. If a claimant files an appeal, the reconsideration level of review by the Social Security Administration requires an additional four to six months, and only one in 10 claimants will be approved. With a second denial, claimants must file another appeal to the hearing level. This appeal may require another 12 to 24 months—up to two whole years—before an applicant receives a hearing with an administrative law judge, and less than half of these individuals are approved nationwide. 

During this time, LTD carriers can be paying the individual’s disability benefits and providing an important financial backstop for American workers. That reality is significant when coupled with the current environment as the LTD industry enters unprecedented times, and raises the opportunity for LTD carriers to explore and expand their alternatives with third-party service providers. If we’ve learned anything from this crisis, it’s that we’re stronger when we work together.

Health Insurers Must Open Up on Pricing

From one way of looking at it, the big carriers are caught in the middle, between the providers that aggressively raise their prices each year and the employers or individuals who are starting to realize that there’s no bottom to the pit into which they throw their premiums and deductibles each year.

On the other hand, no one in the U.S. healthcare system has been better-positioned to use their combined purchasing power to force delivery organizations to finally focus on the value of the services they provide than those same large carriers. Yet, over and over, they’ve been happy to pass those escalating prices on to the people paying their premiums – with just enough of a markup to ensure their own profits aren’t at risk.

Part of problem is semantics. As Vitalware CEO Kerry Martin recently said, there is an important difference between healthcare “costs”/“charges” and healthcare “prices,” but the lines between them are often blurred. People say, “healthcare costs are increasing” when it’s more accurate to say “healthcare prices are increasing.”

Think of it this way: Healthcare costs are what it costs hospitals to perform certain services. These haven’t really gone up over the years, evidenced by the fact that cash prices – what people who forgo insurance and choose to self-pay – have seen few fluctuations.

What has gone up are the prices that carriers negotiate off those costs/charges to turn a profit. Prices are increasing, with no added benefit to beneficiaries. Perhaps, health benefits should be renamed health detriments

It’s a broken system, ripe for disruption by upstarts that can attack the areas of biggest waste, while the incumbents focus on protecting their legacy service bundles.

A recent JAMA study pinpoints those areas with the greatest opportunity for change. The greatest source of wasteful healthcare spending, accounting for $265.6 billion of the estimated $760 billion to $935 billion industry total, came from administrative complexity, defined as “waste that comes when government, accreditation agencies, payers and others create misguided rules.” Complexity by design is the root cause. Thomas Sowell put it well, “People who pride themselves on their ‘complexity’ and deride others for being ‘simplistic’ should realize that the truth is often not very complicated. What gets complex is evading the truth.” 

The second-greatest source of waste, accounting for between $230.7 billion and $240.5 billion, the authors identify as pricing failure, or “waste that comes as prices migrate far from those expected in well-functioning markets, that is, the actual cost of production plus a fair profit.” Essentially, this is waste that comes from the cost versus price loophole carriers, and hospital executes have historically taken advantage with a devastating impact on the working and middle class. There is no bigger contributor to 20 years of wage stagnation and decline than hospital profiteering. 

See also: Pricing Right in Life Insurance  

This gap, historically too opaque for consumers to notice, is now quite salient, thanks to all the news coverage that surprise medical billing got in 2019. Many informed consumers are no longer afraid to give their medical bills a long and hard review, questioning not only why they would pay an arbitrary price, but also the quality of care they’re buying. They’re aware that, despite the high prices they may be paying, there’s often little return on their healthcare investment, and as a result are becoming pickier and picker about the providers they choose.

Some in high-deductible health plans are even going so far as to research what their providers’ cash prices are, and if they’re less than what they’d pay prior to hitting their deductible, are making the conscious decision to ignore insurance. That can be a smart approach.

If carriers don’t change, it’s likely government will soon change them. The Centers for Medicare and Medicaid Services’ (CMS) hospital price transparency final rule, which would require hospitals to “establish, update and make public a list of their standard charges for the items and services that they provide,” comes into effect this time next year. Carriers can continue to keep the prices they negotiate with hospitals secret for now, but not forever.

Being upfront and transparent about how and why they’ve come to agree on certain prices for certain services or procedures isn’t just the right thing to do, it’s the inevitable. And those that get a head start on that now will be the ones to have a leg up on their competitors in the not-too-distant future.

The True Rate of Healthcare Inflation

The chart below compares the government’s Bureau of Labor Statistics’ inflation calculations for Medical Care versus the Kaiser Family Foundation’s research into how much insurance premiums have been increasing. The differences between the two calculations are huge. From 1998 – 2018, the government estimates that health costs have increased by only 107%, but for some reason insurance premiums have increased 288%. In fact, 288% is a material understatement, because that figure does not include the huge increases in deductibles.

One might say, “Well, this means the insurance companies are overcharging!” That is a possibility, but if the insurance commissioners of America are that bad at reviewing rate filings, which I doubt, then all the insurance commissioners and their staffs should be replaced ASAP. Another reason I don’t think the difference can be accounted for by declaring insurance companies are grossly overcharging is that the ACA to some degree limits their profit margin, and a review of their financials finds profit margins that do not suggest massive overcharging.

Another perspective is that government-sponsored healthcare expenses do not increase nearly as much as the costs covered by insurance companies. Medical care is medical care, unless if under government programs patients get materially less care or the insurance companies subsidize government programs by overcharging everyone that buys their own insurance.

A third alternative is the Bureau of Labor Statistics’ numbers are just plain wrong. I trust the Kaiser numbers because they are associated with Kaiser Permanente Insurance, so they know what premiums are being charged. Premiums are easier to verify, too.

See also: The Science That Is Reinventing Healthcare  

In your day-to-day world, what difference does all this make? Maybe none except by adding to your humor or frustrations. Or, perhaps the difference adds to your conspiracy theories. In selling benefits, though, I think seeing the discrepancy helps the intelligent and educated producer sell and advise the educated and intelligent buyer. Understanding the true inflation of medical care will help people make better decisions.