Wesley Sierk's Blog

Healthcare in America – 1 of 2

Posted in Health Care For Business Owners by rwsierk on March 27, 2010

This is the first of a two part Post on the current state of healthcare. In this Post, I am going to give you my take on health insurance and it will not surprise most people that know me that I believe the insurance industry is largely to blame. We will then move on to an outline of my understanding of the PROPOSED White House / Congressional Leadership Reconciliation Bill, the Health Care and Education Reconciliation Act of 2010, H.R. 4872.

First, Where We Are Starting From:

Today, managing healthcare is a difficult task for employers due to ever increasing premiums, changing work‐force dynamics and a never‐ending stream of government legislation. Managing the total cost of benefit programs involves several processes that create numerous challenges. To do this effectively employers want and need, detailed claims data. This data is UNAVAILIBLE to employers. This data would give an employer the ability to assess the quality and utilization of their employee’s healthcare. This data needs to be compiled in an organized format with meaningful, value‐driven information that allows them to make timely and intelligent claims management decisions.

Employers are looking to partner with an insurance company that provides innovative solutions to overcome these many challenges. Most would embrace a healthcare plan founded on a partnership, with the administrator striving to meet the individual needs of both businesses and their employees. By partnering, employers would be assured of a business relationship that could meet their needs today and well into the future.

The purpose of this writing is to bring to the surface specific flaws found within the current health insurance format widely accepted throughout the United States. I will define the downfalls before we move to the government’s plan to provide solutions for creating lower, sustainable costs while increasing the covered population, present services and care provided. The PROPOSED BILL also attempts the herculean task of increasing the overall management efficiency of the health insurance industry in America. Don’t Laugh.. At first I was skeptical, but having read the bill, they have outlined some good goals.

I believe the businesses are facing a completely indigestible economic stew made up of higher taxes, out of control claims, an aging employee population, and double-digit annual premium increases.

Contrary to common belief, health insurance in the United States is a relatively new phenomenon. Although health insurance programs appeared during the Civil War they did not provide the comprehensive coverage we have today. They only gave the insured coverage against accidents due to travel by rail or steamboat. These plans did provide the groundwork for the more comprehensive injury and illness group plans we have today. The first group policy that gave these comprehensive benefits was Massachusetts Health Insurance of Boston in 1847. Insurance companies issued the first individual disability and illness policies in about 1890.

In 1929, the first modern group health insurance plan was formed. A group of teachers in Dallas, Texas, contracted with Baylor Hospital for room, board, and medical services in exchange for a monthly fee. Several large life insurance companies entered the health insurance field in the 1930’s and 1940’s as the popularity of health insurance increased. In 1932 nonprofit organizations called Blue Cross and Blue Shield first offered group health plans. Blue Cross and Blue Shield Plans were successful because they involved discounted contracts negotiated with doctors and hospitals. In return for promises of increased volume and prompt payment, providers gave discounts to the Blue Cross and Blue Shield plans.

Employee benefit plans proliferated in the 1940’s and 1950’s. Strong unions bargained for better benefit packages, including tax-free, employer-sponsored health insurance. Wartime (1939-1945) wage freezes imposed by the government actually accelerated the spread of group health care. Unable by law to attract workers by paying more, employers instead improved their benefit packages by adding health care.

Government programs to cover health care costs began to expand during the 1950s and 1960s. Disability benefits were included in social security coverage for the first time in 1954. In 1965 when the government created the Medicare and Medicaid programs, private sources paid 75 percent of all of the health care costs. By 1995, individuals and companies only paid for about half of the health care with the government responsible for the other half.

During the 1980’s and 1990’s, the cost of health care rose rapidly, forcing the majority of employer-sponsored group insurance to switch from “fee-for-service” plans to the cheaper “managed care plans.” As a result, most Americans with health insurance were enrolled in managed care plans by the mid-1990s.

Insurance Costs and Quality of Health Care

The costs of health care have increased dramatically for consumers and insurers, particularly during the 1980s and early 1990s. For example, in 1980 Americans spent $247.3 billion on health care. By 1999 that figure had more than quadrupled to $1.2 trillion.

Costs have increased to some extent because Americans are living longer. In 1900 the average American had a life expectancy of about 50 years. In 2000 the average life expectancy was about 76 years. New technologies also allow us to treat more problems than ever before. I recall a conversation I had with my grandfather, Richard Sierk, Sr. shortly before his death in his late eighties. He said he could recall a few times when he was in school where he went home for the weekend and a classmate did not make it to school on Monday because of an illness that took their life. Advances in medical care have made illnesses that take a life quickly and unforeseen few and far between. Unfortunately, these new treatments are often costly. MRI scans, arthroscopic surgery, robotic surgery, minimally invasive surgery and some of the newer drugs are particularly costly.

Increased use of health care has also led to a growth in health care costs. Americans are more likely than ever to seek professional health services for medical problems. For example, in 1991 there were an estimated 669 million visits to doctors’ offices. In 2008 there were an estimated 957 million visits to doctors’ offices.

The current healthcare system cannot go unchanged. Unlike any other form of insurance we have in America, health insurance has morphed from providing for protection against catastrophic financial loss into easing the daily monetary payments for the average American. Instead of providing for the large medical expenses, health insurance is now viewed as needing to provide for the day-to-day small items to make the employees life easier. It is helpful to compare health insurance to another insurance employees purchase: auto insurance. Most employees purchase auto insurance to cover the large dollar outlay should they get into an auto accident. But imagine a system whereby auto insurance companies not only had to provide for the accidents and collisions, but also the routine maintenance. It seems absurd that the auto insurance companies would be looked at to replace a door handle, wiper blades, and provide oil changes. A few things would happen if auto insurance were forced to provide those benefits. First, the cost of auto insurance would skyrocket and some employees would defer the routine maintenance of their cars, relying instead on the insurance companies to fix when the situation worsened.

How well do you think employees would take care of their cars IF the auto insurance company paid to fix every little thing that broke?

THAT IS WHAT HAS HAPPENED TO OUR HEALTH INSURANCE COMPANIES. Employees count on our health insurers to fix things that break, and as a result, take little to no responsibility for the upkeep of their body.

One reason I blame the insurance industry is because they fostered this idea throughout the 1990s and 2000s. The catastrophic coverage plans previously popular were lower premium plans. The insurance companies looked to a co-pay and managed care model that would provide them with vastly greater premium income. I refer to this model as the “gym membership” model. The gym wants to sign up as many people as possible with the hopes that a few months into the membership very few people will actually go. My wife is still paying $9 per month for a gym she got in college because “it’s a good deal if I ever want to go back to it”. Insurance companies used that same logic, but soon found out people DO use their plans. They could also not rely on “lapse supported pricing”, an industry wide practice of hoping when people actually need their plans the premiums or access to the plan will become prohibitive so they will lapse their coverage.

Another “unfortunate” thing happened to insurance companies, the advent of the Health Savings Account (HSA). Before the advent of the HSA, young healthy employees and families accepted the employer sponsored plans with a co-pay. Now they had the ability to take the premium savings and inure it to their benefit. For example, when our first child was born we were on a $25 co-pay PPO plan. The cost for our family went to $1150 per month. If instead it took a deductible of $4,000 per family our cost went to $250 per month. We could then take the $900 per month put part of that into a deductible account to offset the cost of the medical care. That simple example illustrates a shift that happened on a large scale: younger,healthier people paid less in premiums and the people who paid more and stayed in the traditional system were the people more likely to use the health insurance. That is known in insurance terms as adverse selection. The same insurance companies that created the system to take more dollars were now relegated to providing more benefits for less money.

Be careful what you ask for, you may just get it.

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