As the Patient Protection and Affordable Care Act, colloquially known as "Obamacare" reaches the main stages of implementation, many of the issues are starting to become clear. The most visible ones are the price increases that will start happening this and next year.
- Insurance companies in the state of MD report fee increases of 25% average and as high as 150%.
- A study by the Society of Actuaries estimates cost increases of 32%.
- Blue Cross in NC reports rate reductions as deep as 41 percent and increases as high as 284 percent.
- A recent report by the House Energy and Commerce Committee predicts premium increases from 50 to 400%.
While many people will blame the "greedy insurance companies", unfortunately increased premiums ARE a consequence of Obamacare for 3 reasons:
- Obamacare established a level of benefits and copays that in general are better than the average coverage on a health plan, thus this increases premiums.
- Forced health care companies to accept individuals with preexisting conditions and at the same time
- Limited the differences in premiums that they can charge between high risk and low risk individuals, thus low risk/young individuals will by definition subsidize high risk/older individuals.
Additional factors include employers dropping coverage since it will be cheaper to pay the "fine" than to pay for coverage.
"The requirement that insurance companies cover a whole bunch of health benefits. This is known as the “essential health benefits” and it can include some health services that plans previously skimped on. Californians (and the rest of the country, for that matter) will have to pay more to get more coverage, essentially. Milliman estimates this will increase premiums by 22.2 percent for most Californians."
When adding market trends and other factors they estimated a 42-43% average increase in CA. While the law also establishes tax credits or subsidies to reduce the out of pocket premium, thus many people will not bear the full impact of these increases, those subsidies will simply go to increase the deficit and will eventually hit back in the form of inflation or other tax increases or reduced retirement benefits.
The law also states that insurers must spend at least 80 percent (85 percent for insurers covering large employers) ) of the premiums you pay on medical care and quality improvements, so the IRS will be reviewing their financial statements with a vengeance. There will be no room for increasing premiums because they feel like it.
Obamacare as designed does nothing to control costs, which will continue to skyrocket at an even faster pace. This Time Magazine article "Bitter Pill: Why Medical Bills Are Killing Us" documents the serious problem of lack of pricing transparency for medical services and how it is impossible to understand the cost and pricing structure of the U.S. Healthcare system today. It is a long article and worth reading in its entirety, but I am posting some critical passages here
When you look behind the bills that Sean Recchi and other patients receive, you see nothing rational — no rhyme or reason — about the costs they faced in a marketplace they enter through no choice of their own. The only constant is the sticker shock for the patients who are asked to pay.
Yet those who work in the health care industry and those who argue over health care policy seem inured to the shock. When we debate health care policy, we seem to jump right to the issue of who should pay the bills, blowing past what should be the first question: Why exactly are the bills so high?
What are the reasons, good or bad, that cancer means a half-million- or million-dollar tab? Why should a trip to the emergency room for chest pains that turn out to be indigestion bring a bill that can exceed the cost of a semester of college? What makes a single dose of even the most wonderful wonder drug cost thousands of dollars? Why does simple lab work done during a few days in a hospital cost more than a car? And what is so different about the medical ecosystem that causes technology advances to drive bills up instead of down?
If you are confused by the notion that those least able to pay are the ones singled out to pay the highest rates, welcome to the American medical marketplace. The chargemaster, I learned, is every hospital’s internal price list. Decades ago it was a document the size of a phone book; now it’s a massive computer file, thousands of items long, maintained by every hospital. I soon found that they have good reason to hope that outsiders pay no attention to the chargemaster or the process that produces it. For there seems to be no process, no rationale, behind the core document that is the basis for hundreds of billions of dollars in health care bills. No hospital’s chargemaster prices are consistent with those of any other hospital, nor do they seem to be based on anything objective — like cost — that any hospital executive I spoke with was able to explain. “They were set in cement a long time ago and just keep going up almost automatically,” says one hospital chief financial officer with a shrug.
The chargemaster rates are relevant, even for those who have insurance. Insurers with the most leverage, because they have the most customers to offer a hospital that needs patients, will try to negotiate prices 30% to 50% above the Medicare rates rather than discounts off the sky-high chargemaster rates. But insurers are increasingly losing leverage because hospitals are consolidating by buying doctors’ practices and even rival hospitals. In that situation — in which the insurer needs the hospital more than the hospital needs the insurer — the pricing negotiation will be over discounts that work down from the chargemaster prices rather than up from what Medicare would pay. Getting a 50% or even 60% discount off the chargemaster price of an item that costs $13 and lists for $199.50 is still no bargain. “We hate to negotiate off of the chargemaster, but we have to do it a lot now,” says Edward Wardell, a lawyer for the giant health-insurance provider Aetna Inc.
That so few consumers seem to be aware of the chargemaster demonstrates how well the health care industry has steered the debate from why bills are so high to who should pay them.
The worse thing about the chargemaster scam, is what it means for an average person even with insurance. Think of the example listed. If an item costs $13 and lists for $199.50, and the insurance company gets a discount of 50%, the price to the insurance company is $100. If you have a plan where you pay 20% of the insurance company cost, you end up paying $20. This is MORE than the actual cost of the item. These price distortions have reduced the benefit of Health Savings Accounts, since lack of price transparency and overcharges impact the value of comparison shopping.
As a result of the publication of this information on Time Magazine, Health and Human Services Secretary Kathleen Sebelius released an enormous data file on May 8 that reveals the “chargemaster” prices of all hospitals across the country for the 100 most common inpatient treatment services in 2011. It then compares those prices with what Medicare actually paid hospitals for the same treatments—which was typically a fraction of the chargemaster prices.
While these are not the prices that the average patient pays, this will hopefully start the necessary process of pricing transparency in the Medical System. The next step is for health insurance companies to release the information regarding the discounted prices agaings the chargemaster.
A recent article in the NY Times stated that the rate of increase of healthcare costs between 2009 and 2011 has dropped to 3.9% compared to increases between 6.2 and 9.7% between 2000 and 2007. Unfortunately, the reasons for the rate decreases are not long term solutions
- Recession and lower Medicare payment rates are not sustainable cost lowering strategies. Hospitals are cost-shifting
- Less rapid developments of medical treatments are not cause for celebration.
- Trend toward higher co-pays and deductibles will be reversed by the current health care reform.
- Only viable solution listed is trend of "bundled payments" & procedures tied to quality goals, but it is still not enough.
Unfortunately the current healthcare reform did nothing to change the existing systems and frameworks, only increased the baseline cost and set up the stage for even faster cost increases. If things continue like this, at some point subsidies and credits will exceed actual patient premiums, and there will be a push for a next round of healthcare reform for nationalizing healthcare to "stop greedy insurance companies from getting rich at our expense" but without trully solving the problems of the existing system.
Part of the problem is that emphasis continues to be in focusing the solution on comprehensive insurance instead of outcomes and access via other means. The NYT recently discussed two healthcare studies that focused on outcomes and their relationship to insurance. The first study from the 1970's found that "with a few modest exceptions, the level of insurance had no significant effect on the participants’ actual wellness". A more recent study from Oregon's recent expansion from its Medicaid program reported how health outcomes for the new Medicaid users differed from those for the uninsured. The answer: They didn’t differ much. Thus if the benefit of health insurance is mostly or exclusively financial, then shouldn’t health insurance policies work more like normal house or car insurance and protect exclusively against disasters?
Michael Ortner, President of Capterra, wrote a very detailed and thoughtful letter to his employees regarding the choices the company faces in this new environment. As part of the letter, he delves on the history of healthcare insurance in the U.S. and proposes some short term solutions:
1) Allow individuals to deduct their health insurance from their taxes (just like they essentially can if they receive them as a benefit)
2) Have employers get out of healthcare as a benefit and instead kick that money into the salaries of their employees
3) Allow people to buy health insurance from any provider across the country (also not currently allowed)
4) Allow insurance companies to offer plans that are primarily catastrophic in nature (also not currently allowed due to over-regulation)
The Economist Magazine reports that in 2012 the Mexican Government practically achieved universal healthcare. since 2004 a programme called Seguro Popular (Popular Insurance) has been gradually rolled out all over the country to provide better services to those without employment-linked insurance. The overwhelming majority of Mexicans are now covered. Mexico achieved this by guaranteeing access but limiting the options. The package consists of essential interventions provided in ambulatory settings, general hospitals financed by a Federal fund and a package of specialized interventions associated with specific diseases and conditions available only through specialized providers.
"In Dallas, Texas, where I live, for example, the entire county is part of a health district which makes indigent health care available to needy families not covered by Medicaid. It covers people up to 250% of the poverty level, with sliding scale co-payments, based on family income. Parkland Memorial Hospital and its satellite clinics is the primary provider.
You could argue that uninsured, low-income families in Dallas are actually “insured” in this way, although they face the problems of rationing by waiting and other non-price barriers to care. Officially, they are counted as “uninsured”. At Parkland Memorial Hospital in Dallas both uninsured and Medicaid patients enter the same emergency room door and see the same doctors. The hospital rooms are the same, the beds are the same and the care is the same.
In the developed world, the health policy community is excessively focused on health insurance, even to the point of ignoring health care."
Longer term, there is a need for real healthcare reform and innovation along the points outlined in Clayton Christensen's book The Innovator's Prescription to reduce costs and improve services. Christensen's points include:
- Rules-based "precision medicine" reduces costs and makes good on the promise of personalized care,
- Disruptive business models improve quality, accessibility, and affordability by changing the way hospitals and doctors work,
- Patient networks enable better treatment of chronic diseases such as diabetes, heart disease, and kidney failure,
- Employers can change the roles they play in health care to compete effectively in the era of globalization, and how
- Insurance and regulatory reforms can stimulate disruption and change.
At the recent conference MediFuture 2023: Seizing disruptive opportunities in healthcare, Christensen stated:
"Disruptive innovation in health care and other industries is unable to attract money because investors select instead efficiency innovation based on measures of profitability. Efficiency innovation creates capital because of less cost, but eliminates jobs.
Disruptive innovation, such as in health care technology, transforms something complex into something affordable and accessible and creates jobs.
What we need is disruption so we have more access,” he said. “Not all innovations are created equal.”
Wellmatch, a healthcare startup I learned about while at the South by Southwest conference, is addressing the price transparency issue with a search engine that provides information on actual prices for specific medical services sorted by provider. They are working with several insurance companies to provide specific out of p0cket costs. I envision that this service could potentially be very useful not just to shop for medical services, but also to shop for insurance companies.
iTriage is a startup that intends to change the symptom-to-provider pathway with apps that correlate symptoms, causes, directs you to the right medical help and set up appointments.
The opportunity is there for a next generation of entrepreneurs to take advantage of cloud and app technologies to bring real healthcare innovation to the U.S. market.