Shopping for Health Care

A recurring motif here at InsureBlog is Consumer Driven Health Care. In general, this means avoiding plans with expensive “first dollar” benefits (such as $20 office co-pays and $10 prescription cards). By choosing plans with high deductibles, and using one’s insurance as a safety net for large claims, more dollars stay in one’s pocket. And, in many cases, result in favorable tax benefits, as well.

Inherent in this philosophy is the idea that consumers will become more pro-active in deciding how and where to spend their health care dollars. For example, Provider X charges $100 for a mammogram, while Provider Y’s is only $85. Assuming equal quality, why would one choose Provider X?

The challenge is that, for the most part, health care costs are like airline fares: one never really knows ahead of time how much a given service will cost, and different patients (with different plans) will pay different amounts.

Confusing? You bet.

Some carriers, like Aetna, are coming around, and making this information more accessible to insureds. But not all:

“The California HealthCare Foundation recently had a small army of "mystery shoppers" -- people posing as uninsured patients -- call or visit hospitals in the state asking for specific medical procedures.”

These mystery shoppers soon learned what most of us already knew: the folks at the doctor’s office rarely (if ever) knew how much the service or procedure would cost. In fact, less than a third of these shoppers could get firm prices in a single call. I have no reason to suspect that it’s much different for actual shoppers, either.

Of course, this is a national phenomenon, not limited to the Golden State:

“A survey by the Kaiser Family Foundation and USA Today found that 52 percent of people polled nationwide said their doctors never or rarely discuss the costs associated with the procedures they recommend.”

Of further course, one wonders whether or not most patients ever ask about those costs. But those patients who’ve bought into the CDHC model, generally through Health Savings Accounts (HSA’s), probably do. I went poking around the net, but have thus far been unable to find a study of how many HSA’ers [ed: you just made up that word!] do, in fact, ask about these costs. In an admittedly informal and non-scientific survey, I asked some of my HSA clients whether they asked about these costs. To my surprise, only about half of them said they do.

Yet there is evidence that older “tried and true” treatments can be just as effective as the newest, at far lower cost. Now, your provider may have a very good and valid reason for suggesting the latest technology or purple pill, but that’s really another reason to discuss the issue.

Last winter, for example, my daughter experienced the thrill of a kidney stone. I am assured that this pain is second only to that of childbirth, and seeing her retching, I can believe it. At the hospital, a very brusque resident put her on the fast track for a certain procedure, somewhat akin to an ultrasound, but more invasive. He was quite taken aback when I called an immediate halt to the proceeding. “But she must have this procedure,” he exclaimed. “Fine,” I replied, “please explain to me why it is preferable to the old sonic blast method.”

Which rendered him quite speechless.

My point was that, before we go for the latest tech, let’s examine the options for both cost and efficacy. Eventually, the chief urologist came in to explain, to my satisfaction, why this procedure was, in my daughter’s case, superior and ultimately, more cost effective. At which point she underwent it, and has been quite the happy camper since.

The lesson here is not that I don’t care about my daughter’s welfare, but that I wanted to be an informed consumer. The resident was apparently unaccustomed to having his word (or authority) challenged. But that’s really the point: if we are to be informed consumers, we have to act as informed consumers.

Judy Rupp, information and assistance case manager with the Northern Oklahoma Development Authority Area Agency on Aging, recently wrote:

“Every decision that is made regarding health care has multiple repercussions that all involve cost — both short and long term — as well as personal well being. By being an informed consumer, you can make decisions that will keep you healthy, wealthy and wise.”

Couldn’t have said it better myself.

UPDATE: Hospital Impact blog has another take on this subject. Recommended.

Another Ethical Question...

We have an acquaintance who has a medical condition which requires surgery. Complicating matters is the fact that she is currently planning to establish residency in another country. She is currently in that other country, but cannot afford to have the operation there. Since she is still an American citizen, an alternative she is considering is to temporarily move back here where, due to her circumstances she will be eligible for Medicaid, which will pay for the surgery. She would make the permanent move overseas once she recovers.

A more accurate statement would be: “to temporarily move back here where American taxpayers would fund her operation, after which she would move overseas.”

A still more accurate statement would be: “to temporarily move back here where you and I would pay for her operation, thus enabling her to move overseas.”

As one who promotes and encourages personal responsibility, I have a problem with this. We give the State the power to take our money and give it to someone else (or to pay for services on their behalf). Is it “right” that the State will take our money to pay for such services on behalf of one who will then move (permanently) to another country?

Your thoughts?

[NB: I would prefer not to discuss the whole issue of Medicaid (and other such mechanisms) paying the cost of health care for persons here illegally; I understand that the issues are related, but I’d really like to focus on this specific situation.]

Post-Christmas Carnivals

For an interesting look at the medblogosphere, Grand Rounds is up at The Health Care Blog. Host Matthew Holt has a slew of great links. Two of our favorite MedBloggers, Elisa of Healthy Concerns and Kate of Health Policy, have interesting articles.

The Carnival of the Capitalists is hosted this week by Josh Cohen of Multiple Mentality.

And the Mighty Bargain Hunter serves up the Carnival of Personal Finance.

A Taxing Post...

Joe at Roth & Co has a multi-part series on year-end tax planning.

Important, useful information.

Buy & Sell, Part 2

In Part 1, we saw the consequences of a business failing to plan for the demise of one of its owners. In Part 2, we’ll discuss why properly funded Buy-Sell Agreements (BSA’s) can be valuable tools to ensure the continuation of a business in similar circumstances.

The problem arises because the needs and goals of the heirs (typically family) of the deceased owner aren’t necessarily (or even usually) shared by the surviving owner or owners. The heirs want the maximum amount of dollars for their shares in the business, a prompt estate settlement, and an end to their anxiety about potential creditors. And, they’d like to settle the issue of the business’ value for estate taxes.

On the other hand, the surviving owners would like to minimize their costs for transfer of ownership, while moving that transfer along as quickly as possible. Usually, they also put a premium on regaining full control of the business, free of (often meddlesome) family who have no experience in it.

The challenge is that, absent some formal, written contract that spells out and addresses each of these concerns, neither party gets their wishes, and the business often dies, too.

The first part of the solution is a written agreement which provides for an orderly transfer of the business at a mutually predetermined price, a method of valuing the business that will satisfy the IRS, and stability for the business, its staff and its creditors. Obviously, it’s far more effective for this to be in place beforehand.

There are two basic “flavors” of BSA: Entity Plans and Cross-Purchase Plans. Each business must determine which of these is most appropriate for itself (click on graphic to enlarge):
 Once an agreement has been produced (with the help of the attorney and the accountant), it’s necessary to fund it. Why? Well, here’s the thing: all the best intentions aside, just because there is a mechanism (the BSA) in place to facilitate an orderly transition, if there’s no way for the surviving owners (or the business itself) to pay the transition costs, then the whole exercise was a waste of time.

There are several ways to fund a BSA. The ideal solution would be relatively inexpensive, easy to administer, and wouldn’t interfere with the day-to-day operations of the business. In general, there are four funding alternatives:

• Cash

• Loan(s)

• Installment

• Insurance

Let’s tackle these one at a time.

The problem with paying cash for the deceased's interests is that there’s no way to know when it’s going to be needed: what if an owner dies tomorrow? Such funds must be put aside after taxes, and thus become somewhat expensive. There’s an opportunity cost: money put aside to fund this potential future liability are unavailable for other business uses, such as expansion or capital improvements.

If a principal dies, how easy would it be for a company to access additional credit? Even if sufficient funds can be borrowed, the additional debt is another burden facing a wounded company.

“Installment” means paying the deceased owner’s heirs over time – maybe a long time. That may well be distasteful to the heirs, and it (like loans) can be a drag on the company’s ability to move forward.

Insurance, on the other hand, satisfies all three criteria: it is (generally) inexpensive, fairly easy to administer (just remember to pay the premiums on time), and provides an immediate infusion of cash to settle debts and allow the company to have a chance at recovery.

These two “legs” – a written agreement and the funding to enable it – may well have resulted in a different, better holiday season for our jewelers.

For more on Buy-Sell Agreements and related issues, I recommend Allison Consulting's estate and business law blog.

Carnival Time!

A distinctly "Saturday morning" feel to this week's entries:

♦ Host Warren Meyer of Coyote Blog (as in Wile E.) brings us the Carnival of the Capitalists. Be sure to check out his offbeat "advertisements."

♦ And the Carnival of Personal Finance is up at Political Calculations. Ironman presents this week's installment in a uniquely useful "dynamic table" format.

♦ And for the best of the Medblogosphere, be sure to stop in at Grand Rounds. This week's episode is at MedPundit. This one has a Dickensian feel to it.

From the Peanut Gallery...

One of our commenters took issue with us regarding what happens when a group health plan is disbanded (that is, goes away altogether). Rather than address this in the comments section, it seems more helpful to explain the ramifications as a separate post.

In my reply to the commenter, I said that if the group was cancelled, “COBRA (and/or state-mandated continuance) is not available.”

I should probably clarify that little nugget: "and/or state-mandated continuance."

In Ohio, we have a state law which we lovingly call "mini COBRA." In certain circumstances, an (ex-)employee may elect to continue their group cover for an additional six months. Obviously, if there is no longer a group plan in place, this option is not available; it was to this benefit that I referred.

Also under Ohio law (YMMV), most group plans must offer a "conversion" plan with no exclusion for pre-existing conditions. Unfortunately, these can be quite expensive, and offer minimal coverage. Still, they may well be “better than nothing.”

There is also a mechanism available through HIPAA (which, BTW, is not the same as “Hippa,” which is a Greek word referring to “Eve”) which allows an uninsurable person to access a state-mandated benefit plan. This, like the conversion plan, would cover pre-existing conditions, but with correspondingly higher premiums.

Interestingly, we covered this ground back in March, and I recommend that post to those interested in a case study of this method.

A Ray of Hope (Anthem vs Premier)?

UPDATE (12/22/05): Just received this announcement: "Anthem Blue Cross and Blue Shield has reached an agreement with Premier Health Partners in Dayton, effective January 1, 2006." I'll have a bit more on this shortly.

Maybe; according to this article in the Dayton Daily News, Anthem and Premier “are talking at length again after nearly a year — expressing guarded optimism about the outcome.”

What’s really interesting is that the DDN story is the only source for this information, which leads me to view it with some skepticism. That’s not to say that it couldn’t happen, but if substantive negotiations were taking place, one would expect to see multiple “leaks.” After all, these are the two largest players in the local health care market, and any forward movement in their tempestuous relationship would be newsworthy.

Of course, even if it is true, cautious optimism is in order:

“(F)rom the perspective of members, I'd hate to get somebody's hopes up," Anthem spokeswoman Kim Ashley warned. "We do not have a definitive, signed agreement."

No kidding.

On the other hand, Premier may want to reconsider reconsidering:

“Doctors say that Anthem…made an arbitrary change in company policy that means physicians are being underpaid for some services rendered.

The change…put into effect Nov. 1 is shortchanging doctors about $25 for each of certain types of office visits when additional services are provided to patients.”

According to the physicians, Anthem now "blends" (whatever that means) codes for different services in order to arrive at a lower reimbursement level. Anthem claims that this new method will actually increase how much they'll pay out.

I know which way I’d bet.

UPDATE (12/21/05): According to my Anthem sales rep, negotiation is ongoing. As noted above, however, there has been no resolution. Interesting.

Shopping for Info...

A survey by UICI, a health savings account provider, indicates that consumers will not "shop" for health care online. Why is this interesting, let alone important? Because one of the fundamental tenets of Consumer Driven Health Care (CDHC) is that the consumer, well, drives the healthcare decision making process. He’s supposed to be involved, interested, and willing to invest his time and efforts in learning as much as possible about the costs and consequences of those decisions.

According to UICI, when it comes to car shopping, for example, 56% of shoppers consult the web for pricing and availability. And 44% of folks looking for a new computer also use the web to research their options.

On the other hand, only 22% of consumers use the web to choose new doctors, and even fewer (12%) of hospital patients used the Web to compare hospitals. It certainly isn’t for lack of resources: many carriers have web tools, and a lot of providers have websites chock full of helpful information.

Only a little more than a third of internet users said they were even aware that information comparing prices and quality of doctors is available online. And about a third also they were aware that this type of information is available about hospitals online.

Frankly, that’s pathetic. And no, I’m not blaming the consumer (well, not completely, anyway). It seems to me that if carriers are going to continue to push CDHC, and they are, then they’re going to have to do a better job of educating consumers about the resources that are available. And, of course, agents (this one included) could stand to put in more effort on that front, as well.

Of course, if one purchases such a plan, then one has already agreed to take a more proactive role in the health care process. This means taking the initiative in researching treatment and provider options and, whenever possible, treatment costs. It would be nice, for example, if Aetna expanded its transparency program. It would be nicer still if other carriers implemented their own.

Makin' the Cut...

*** VOTING'S OVER ***

WooHoo! Thanks to our readers, InsureBlog is a Finalist (one of only 15!) in the 2005 Weblog Awards (Best of the Top 5001-6750). Thank You!

You can see the results here.

Thank you so much for your support!

Death of a Salesman (and his business)...

When Bob Gross, co-owner of a local jewelry store, dropped dead of a heart attack this past July, his business died with him. Sure, it took a while, several months, in fact, for the store to succumb, but succumb it did.

A buy-sell agreement, and the means to fund it, would have saved the business, and its employees would not now – at the height of the Christmas season – be looking for jobs instead of gifts.

Such an arrangement would also have meant that his friend and business partner would not be left out in the cold, either, with no store and few prospects. And it would have also made a difference for his widow and children, who face the holidays without their husband and father, and without the income and financial stability he provided.

"Bob just assumed I'd be Larry's partner and the business would go on," Mrs. Gross said. Instead, Gross's estate is moving through probate court and the shares will be divided among his wife and other heirs. "People don't know this is how it works," Mrs. Gross said. "They just assume."

Interestingly, this was no fly-by-night, cut-rate jewelry clearinghouse: "We're not a discount jewelers, our clients wouldn't stand for it," Jaffe said.

So presumably finances were not the reason that the business was left unprotected. We may never know the reason, but it doesn’t really matter; what matters is that this was a problem that had a simple and generally inexpensive solution, but for lack of foresight, was left untreated.

Buy-sell agreements are tools businesses use to ensure that there is a smooth transition should one of the owners die: an orderly transfer of ownership, a mutually agreed upon sales price and terms of sale, and stability for customers, staff and creditors.

Such agreements are especially important when dealing with closely held businesses like Messrs Gross and Jaffe owned. Had one been in place, and properly funded, this business need not have died with its owner.

How simple is it to put together a buy-sell agreement, and how does one fund it? Click for Part 2…

It's Carnival Time!

The Carnival of Personal Finance is up at Wealth Junkie.

And Rob of the Sama Blog hosts this week's Carnival of the Capitalists.

Both offer interesting posts that can help save you money (especially this time of year!).

For the best of medblogging, mosey on over to Grand Rounds, hosted this week at Corante. Be sure to check out Healthy Concern's take on new facelift technology.

The Game of Life...

Now takes even longer to play. But that’s a good thing.

Regarding our post about lower term insurance prices, commenter John F took us to task for missing one of the most important reasons for that cost reduction: life expectancy.

And he’s right; life insurance rates are based substantially on mortality tables, which tracks life expectancy among groups of people. In a recent study, the National Center for Health Statistics found that “(t)he US life expectancy has hit an all-time high at 77.6 years.” On the one hand, this will serve to exert downward pressure on life insurance rates, which makes purchasing life insurance easier to afford.

On the other hand, the same study found that “(h)alf of Americans in the 55-to-64 age group have high blood pressure, and two in five are obese.” Aside from the obvious health risks these two problems pose, it also means that, while life insurance prices may fall, qualifying for these less expensive plans could be more difficult. Since the margins on term insurance products tend to be razor-thin, you can bet that underwriting (that is, the process by which an insurer determines how medically fit you are, and thus your actual rate, not necessarily what the agent quoted) will become correspondingly more stringent.

There’s another potential problem lying in wait, as well: as a group, Americans are living longer, and that’s good. But that also means that high ticket items like Social Security and Medicare will be paying out more dollars for more seasoned citizens. And it also means that the 30 year term insurance policy you bought at age 45 may not last the rest of your life; what happens to your plans on your 76th birthday?

More food for thought.

Coming to Terms...

While health insurance costs continue to climb, there is good news on the life insurance front: term insurance rates continue their downward trend, which can be good news for consumers.

According to an article in Investment News “insurers are cutting the cost of term life policies as a result of heightened competition and streamlined sales processes.”

One reason for this is that, as a whole, sales of life insurance are down across the industry. One measure of this is “policy count;” that is, the total number of life policies written in a given year, irrespective of the face amounts or premiums. Compounding the problem is that average policy size is also much lower than one would expect.

Since the law of supply and demand applies no less to the life insurance business than any other, it stands to reason that insurers would like to make buying life insurance more attractive.

Of course, lower price is one way. But equally important is the purchase process itself: much like obtaining a mortgage, buying insurance can mean a daunting array of paperwork, and a seemingly endless underwriting process. To minimize both, carriers have finally come into the 20th century (that’s not a typo): electronic applications and fewer health questions help to speed things along.

Another trend is worksite marketing: used to be, the blue collar market was served by companies that sold “industrial” policies. These were low face amount, inexpensive plan paid weekly to agents who came by one’s house to “collect the debit.” Of course, those days are gone, but the folks who were well-served by that system are not completely on their own. More and more carriers sell more standardized plans that can be deducted directly from one’s wages, much like the old weekly plans.

In any case, term life insurance really is getting better (at least for now).

Early December Carnivals

• The Carnival of Personal Finance is up at Frugal Underground. This week's hostess, Sarah, chose an interesting format: by word count. And Believe It or Not, I'm not the wordiest!

• Adam at Techronization hosts this week's Carnival of the Capitalists. Be sure to check out Roth & Co's item on S Corporations (What's a Family?); you might be surprised by the definition.

• And Grand Rounds is hosted this week by Dr Charles. He's got a cool Norman Rockwell theme going on.

IVF in the News (Again)...

Back in October we took a pretty extensive look at In Vitro Fertilization (IVF) and insurance. The underlying premise of that article was that “IVF fails to meet the threshold of “medical necessity,” ergo it should not be covered by insurance.”

Apparently, most employers (and their group carriers) must agree with that assessment, because

"Only 25% of employers offer any type of infertility treatment, and even some of that is not very comprehensive. They might just cover the diagnosis of a disease," says Julie Salz Greenstein, government relations director for Resolve, a national infertility advocacy group.

Ms Greenstein opines that “(w)e believe it's the right of people to try to build their families." Well, of course she – and her colleagues – are free to believe anything they’d like; the problem arises only because she apparently believes that it is also her right to force others to help pay for her treatment.

What bothers me about this attitude is that proponents of lifestyle-related benefits, whether they be for IVF or Rogaine, seem not to understand the underlying economic factors at work. For example, Connecticut recently became the 12th state to require coverage for IVF. This means that policyholders in Connecticut will now subsidize the cost of this expensive treatment, whether or not they want to do so. This effectively means that insureds will now see rates increase due to treatment for a lifestyle choice, not a medically necessity. Doesn’t seem quite fair.

Why, for example, would we cover IVF but not trans-gender or bariatric surgery? Both of these are lifestyle issues, as well, so why is it fair to exclude them? Each new covered benefit results in higher premiums. Is it Ms Greenstein’s contention that health insurance isn’t expensive enough? That doesn’t seem reasonable, or likely. But it is the end result of mandating coverage for treatments that are not medically necessary.

Interesting Links for the Weekend...

• We've talked about "chutzpah" before, but Joe Kristan at Roth & Co writes about a fellow who not only defrauded the California Medicare system (to the tune of $40 million), but decided he didn't need to pay taxes on his ill-gotten gains, either.

• In my previous two posts, we talked about overweight Americans. Well, Elisa at HealthyConcerns has a disturbing post about the other side of that coin, anorexia.

• And David at the Health Business Blog tells us about the latest in "consumer driven" care: some insurers are apparently using graphic videos to discourage consumers from (over?) utilizing certain services.

Sensing a Theme...

In my last post, we looked at the importance of exercise in maintaining good health. But why is this so important, and why are we talking about this on an insurance blog?

Well, one aspect of insurance has to do with mortality and life expectancy, both of which are directly affected by one’s general health:

“Americans could see a decline in life expectancy if they don't start making healthy decisions, two speakers said at (a recent) University of Rhode Island Honors Colloquium.”

Now, I’m not normally a “chicken little” kind of guy, but this is important information, and it affects my clients, their families, and all ther kind folks who frequent this blog. One of the doctors at the conference warned that “(f)or the first time in history this generation of children may not live as long as their parents because of lifestyle choices.”

This is of a piece with an article brought to my attention by my colleague, Bob Vineyard: “Fatter rear ends are causing many drug injections to miss their mark, requiring longer needles to reach buttock muscle.” Regular, standard sized needles are often too short to reach past the layers of fatty tissues, and allow the needed medications to get into the bloodstream. This is actually a double-whammy, because it can lead to irritation and even infections. My only real quibble with this study is that it was limited to a very small test group: 25 men and an equal number of women. I’d prefer to see a larger sample size [ ed: you just had to say that, didn’t you?].

In any case, the population that may be most in danger is our children. More and more young people are overweight, which has led to an increase in diabetes. From an insurance perspective, this makes it more difficult for folks to find affordable coverage later, if they can find it at all.