The bottom line is that health insurers have a bottom line; they are businesses like any other and the main focus in business is to have the highest profit possible.  Many businesses “hide” some profit through titles like “administrative expenses”.  That being said, it is very likely that many of our health insurance companies are making more of a profit than is necessary to sufficiently operate the company.  So with the current sliding economy and rising inflation rates, it is quite possible that these “costs” are contributing to the rise in health care costs.  In other words, costs are rising in order to maintain the same level of ultimate profit that insurance companies desire. 

Although SB 1440 is a step in the right direction for California’s health care reform, it is not flawless.  Unfortunately, the bill does not address the issue of actual healthcare premiums.  Although restricting admin costs and excessive profits may help redistribute some of the profits, it will not guarantee that the premiums will be capped.

In order to truly save money for employers as well as the insured, health care reformers should consider some of the following:

• The absence of strong preventative care is leading to an extremely large number of chronic disease cases, such as complications from obesity, that will result in astounding costs in healthcare within the next 20 years.
• The current infrastructure is not capable of managing the exponentially rising costs that are resulting from simple lifestyle choices that could be radically reduced with better education and preventative medicine.  Issues such as poor nutrition, lack of physical activity, and a focus on image perfection instead of overall wellness are only some of the contributing factors to our society’s deteriorating health.
• Our nation is increasingly dependent on pharmaceuticals to solve minor health issues that may be solved with non-invasive care and/or prevention.  This dependence has created a very lucrative industry that is      consequently increasing the costs of healthcare.
• The development of new technologies for medicine has been tremendous for the advances of diagnostic tools and better treatment of very severe diseases.  However, these technologies are outrageously expensive to research, develop, utilize, and maintain, which all lead to the increased costs of healthcare.

The above are only a few of the many reasons healthcare costs continue to increase.  These are the types of problems that healthcare reformers must address to truly drive down costs.  So, even though SB 1440 will help ensure that insurance companies continue to spend adequate amounts of money on the insured, it will not address the true issues of increased healthcare costs that must be controlled for the future wellness of the state.

Mo'Money, Mo' Problems

Ha ha, where is Ashton Kutcher!? that must be a joke; please someone tell me that I am getting punk’d while writing this blog. I can’t believe that we are reading and accepting these things. Similar to Ramon said in his posting, CEOs are getting paid, but not to the point where the patient’s costs are compensating for it. To me, it seems like rising costs are becoming an aftereffect of being the most allocated in healthcare [reference to pg. 33 table 2.1 in Comparative Health Policy] and in my opinion, the least efficient.

It’s what like most parents try to teach their kids about spending: get best bang for your buck or at least be a smart spender. Efficient ways to run a health care system may be more of an art, maybe that’s why U.S. is so horrible. Too many government officials are not diversified enough to know what a good deal is anymore. I mean it’s hard to know that 20 dollars Calvin Kline jeans are a good deal when you are spoiled on wearing 200 dollars Calvin Kline suits. To not to digress, money can be saved in the long run, key word: long run, in preventive measures. Going to have to spend a little money in order to save a lot more because lifestyle change is what America needs. Only way to achieve that is by having the government and employers force that along by creating initiatives and benefits for patients. For example, free apple iPod shuffle for those patients who regularly visits the doctors twice a year along with being up to date with vaccinations and lab work.*

Speaking of iPod shuffle, here is the song of the blog: Mo’Money, Mo’Problems – Notorious BIG feat. Puff Daddy and Mase [p.s. the gentlemen in the picture is not Notorious BIG, Puff Daddy, or Mase; just a man with money and probably some problems since he allow his photo to be own by Creative Commons]


*patients must maintain this lifestyle for 4 years, in order to receive iPod shuffle.

Where's the money going?

After reading "It's the prices, stupid...other countries" by Anderson and Co., I was curious as to where the extra money spent, U.S. per capita spending more than double the OECD average, was going. My first thought: how much do the CEOs of key players in the health industry (insurance, biotech and hospital companies ) make? Well, here's a little taste (from http://www.forbes.com/lists/2008/12/lead_bestbosses08_CEO-Compensation-Health-Care-Equipment-Services_9CompTotDisp.html ):

Overall Rank (all industries)/Name/Company/Compensation in millions per year/5-year/Age/Efficiency

53 H Edward Hanway Cigna 30.16 120.51 44.4 56 162
75 David B Snow Jr Medco Health 21.76 36.29 19.0 53 NA
78 Dale B Wolf Coventry Health Care 20.86 61.91 9.1 52 NA
86 Michael B McCallister Humana 20.06 60.64 22.7 55 36
98 George Paz Express Scripts 18.37 26.85 16.8 53 NA
108 Jay M Gellert Health Net 16.65 47.39 26.1 54 157
199 Ronald A Williams Aetna 8.88 NA 10.2 59 NA

I would imagine that these CEOs wouldn't be making so much if the companies were in financial distress...so, to address the prompt, I do agree that administrative costs and excessive profits are contributors to the rising costs of health care, but are not the only reasons for rising costs. We now live in an era where the leading causes of death are due to chronic diseases, such as cancer and heart disease. Patients now have more treatment options than ever before thanks to vast advancements in medical technology, cutting edge treatments and innovative prescription drugs. As a result, our society has become reliant on procedures, treatments and technology. Our physicians upgrade their practices with new technology continually to attract more patients and increase their revenues, resulting in a positive feedback loop, reinforcing overutilization and passive, rather than active and preventive, health behaviors.

I believe the first step to slowing the growth of health care spending is to invest in public health efforts. An analysis written by Trust for America's Health (TFAH) provides financial justification for investment in preventive public health efforts. The report states a return of investment of $5.60 for every $1 spent on proven community-based programs in tobacco, nutrition, physical activity - a savings of $16 billion annually over five years. The rest of the report can be found here: http://healthyamericans.org/reports/prevention08/.

If we can encourage people to become more aware, more interested and more proactive with their own health, we will move towards a more efficient health care system WITH a healthier population.

High costs and profits are no doubt a reason for rising costs of health care. Since more of our money is going to insurance companies and doctor's offices, we have to believe that someone is seeing the profits. Last week in class, we talked about how hard the founding fathers of medical schools and the health care industry in the US struggled to distinguish themselves from the rest of society. Today, this remains true. Not everyone can be a neurologist or cardiologist, and so just like any other industry, we are paying for their expertise. Therefore, it makes sense that these kind of people see the profit.

On the flip side, if we begin to see similarities to Taiwan 2.2% of cost going to administrative cost, will we also begin to see the troubles that Taiwan is seeing in staying afloat. Watching the frontline piece, we learned how Taiwanese and Japanese hospitals are borrowing money to stay open. Do we owe our hospital success to these high administrative costs. Will we also see a a decline in the "luxury" of our hospital rooms. Are Americans really willing to give up this comfort to see a drop in prices?

An article in the New England Journal of Medicine, Costs of Health Care Administration in the United States and Canada (http://content.nejm.org/cgi/content/short/349/8/768) points out how adopting a Canadian-style health care system could save us money.

From the article:

"Results In 1999, health administration costs totaled at least $294.3 billion in the United States, or $1,059 per capita, as compared with $307 per capita in Canada. After exclusions, administration accounted for 31.0 percent of health care expenditures in the United States and 16.7 percent of health care expenditures in Canada. Canada's national health insurance program had overhead of 1.3 percent; the overhead among Canada's private insurers was higher than that in the United States (13.2 percent vs. 11.7 percent). Providers' administrative costs were far lower in Canada.

Between 1969 and 1999, the share of the U.S. health care labor force accounted for by administrative workers grew from 18.2 percent to 27.3 percent. In Canada, it grew from 16.0 percent in 1971 to 19.1 percent in 1996. (Both nations' figures exclude insurance-industry personnel.)

Conclusions The gap between U.S. and Canadian spending on health care administration has grown to $752 per capita. A large sum might be saved in the United States if administrative costs could be trimmed by implementing a Canadian-style health care system."

But then again, you ask yourself are Americans ready for a complete change in healthcare?

Patient-Consumers and Their Nebulous Understanding of Health Care

High costs and profits undoubtedly have driven up the cost of health care. According to Kaiseredu.org, administrative costs account for 7% of the total U.S. health care spending (http://www.kaiseredu.org/topics_im.asp?imID=1&parentID=61&id=358) —though I believe a much higher percentage was quoted on the Frontline piece. In any case, it is no secret—particularly to us in this class—that health care costs are rising. Thus, it seems reasonable to think that those in the health care business are also seeing greater profits, since health care in this country operates in a free market. But why, then, do health care costs continue to rise at a seemingly unregulated rate? Should the forces of supply and demand not control health care costs as they would in any other industry?

I argue that health care is unlike any other industry. The high skill set and the specialized knowledge that go into health care delivery are possessed by few and are beyond the comprehension of all others; those “in the know” essentially make up an exclusive club. This characteristic of the health care industry makes it inherently un-transparent. Consider this: if the average Joe knows little about what makes up his medical bills, what sort of cost accountability can he expect from his health insurance company and health providers? The average Joe—only knowing that he spoke with his doctor, gave samples for and received lab results, laid still in a big clanking machine (MRI), etc—wouldn’t even know where to begin in questioning why his medical bills are so high. All he can do is concede and consent to pay what he’s been billed—as is the case with most people in this country, if they can afford to do so.

The lack of transparency in the health care system was touched on in article in yesterday's LA Times. It cites insurers' underpayments, or negotiated (lower) prices for services, as a main reason for the rising cost of medical care (http://www.latimes.com/business/la-fi-lazarus7-2008sep07,0,5859110.column). As part of a vicious cycle, insurance companies pay providers too little and, in turn, providers increase the cost of their services. Such things happen without the knowledge of health care recipients. Thus, the lack of transparency in the health care industry is really system-wide, not limited just to health care delivery and the billing of individual patients.

Clearly, not everyone can be doctors, pharmacists, etc.; so not everyone can be completely knowledgeable of all the details of the health care services they receive and what exactly they’re paying for in their medical and health insurance bills. However, there must be a way—on the part of both providers and insurance companies—to make the health care industry more transparent. In our present system, doing so would give health care consumers better understanding of what they’re actually purchasing, thus making health care more like a commodity in a free market, with costs responsive to not only supply, but also the demand of the informed consumer.

Disease perception+Invasive treatment+Triangle relationship

The bill requires the insurers to maintain 85% or more loss ratio seems to be a good idea at the first glance. However, this idealistic proposal without the consideration of American medical reality simply won't fly high. It will fail once this is put into the litmus test. First, American perceive health care as "disease combat" and rarely entertain the thought of preventive medicine or self care. This is just in the stage of opening up the mind and not yet mobilize into actual practice. Once the perception is shifted, it takes the commitment to build up a preventive care routine which is NOT registered in general American psyche yet. The preventive care or lifestyle make-over is a foreign concept in America until recent years. In general, Americans give too much power to medical providers. That might be translated into giving too much money to medical authority. First and foremost, this deep seated belief is challenged and in the process of being transformed. No wonder the medical community is uneasy of new trend and the public is lost. Because the old is gone and the new is not in place yet. The root of high cost and low performance is embedded in the metaphysical level regarding US health care system. We can not measure it scientifically but many are aware of its power now.

More invasive treatment per person in US than other nations: America is famous for its most advanced medical technology. There is nothing wrong in applying it to save lives. But under the current pay schedules, providers compete shares of the pie from larger fees. In US, medicare spend out proportionally in the last six months care for dying elderly than other necessary medical procedures. We need to discern that these invasive treatments are necessary or not, some of them are not applied in the adequate setting and drive the cost skyrocket. To provide the invasive and costly procedures to the dying patient without proper cause is debatable. Do the patients truly receive the benefit is questionable. Meanwhile, the health care cost is rising.

Then there is this triangle relationship between patients and care: Americans are conditioned to believe that gatekeepers are necessary entity. Without "middleman", some feel insecure. We as human beings do have the instinct of seeking the necessary remedy for our dis-eased condition. Do we need a middleman to keep us more healthy? Not so. I have lived in US for decades and encountered numerous primary care physicians ranging from OK to incompetent or worse biased. Mathematically speaking a straight line is the most economic way to solution. Why do we complicate ourselves with triangle approach? Quite a lot of middlemen get the kickback from referrals. One referral to the preferred specialist means more financial gains or favors. The gatekeepers become gatetakers. Sometimes, in the worse scenarios, the patients are deprived of their best cares because of their gatetakers. The unspoken code and hidden costs contribute to the higher specialist fees. In conclusion, administrative cost and margins of profit do deserve our attention. They need to be kept low and functioning. However, the insurers also need to make the healthy profit without greediness to keep the system going. Control of administrative cost and profit alone does not adequately address the high care cost and poor performance.

Show me the money!

I have very mixed feelings when it comes to this article. On one hand it might be a very good idea to limit the overhead of private insurers (assuming of course that the lower health care cost will be passed to the consumer). On the other hand shouldn’t a health care company want to reduce its overhead as a natural course of business rather than being forced to do so by government legislation? I think the bill does well by allowing certain costs to be moved into the cost of health rather than administration which allows it not to be taxed, I think that is wise to include that in the bill.

I did mention last week that I think we can drive down health care costs quite significantly if we do stream line the administrative costs. For example I see no reason why we should not enjoy the amazing 2.2% of cost going to administrative duties which Taiwan enjoys. It would be very easy and cost effective for companies such as well point to institute the health card which they have in Taiwan which stores all medical and billing information. This would be a brilliant way to drive down costs.

By the way this is all assuming that the profits will translate to the consumer which in my opinion needs to be mandated in this bill as well. What I don’t want to see is the oil company model where lower crude oil prices mostly translate into richer executives.

I also wanted to comment on some items I read in the other postings. Claire mentioned eliminating “gatekeepers” as way to reduce costs but I think that gatekeepers are in place to reduce cost because they cut down the time specialists need to be consulted and their time costs the health care system a lot more money. If I m not mistaken that is a way the National Health Service in the UK keeps lowers costs. I agree with Luke in so far as we need to make the records electronic to drive down costs and he is right with his idea on medical equipment again. We can take another lesson from Japan who managed to motivate companies like Toshiba to accommodate its low health care costs by making machines (MRI) which could operate at a much lower cost. The example was an MRI going down in cost from about 1200$ to about 99$ which is staggering.

Regarding the solution to driving down health care sotst I believe the biggest portion lies in cutting down administrative costs however there are other things which could be done as well. Luke’s article had some interesting ideas on how to drive down health care costs and I agree with some and not with others. I am not sure that HMO competition drives down prices because at this point Im sure there is an element of price fixation as well as HMO’s knowing that you need them more than they need you. Since this is mostly true with those who insure themselves privately I think a major way to drive down costs for the consumer is to have the government negotiate on your behalf. In other words between employers and the government every American citizen should be covered at a better price (Obama’s plan).