Tuesday, March 21, 2006

The Missing Piece

Health care, and health insurance rates are going up and everyone is pointing fingers. Some blame the carriers, others the lawyers (malpractice). Still others want to point to mandated (legislated) benefits as the cause. Of course pharma gets their share of the blame as well.

Actually it is a puzzle where all the pieces come together to make the big picture. Only problem is the missing piece.

Carriers are conduits. They take in premium dollars and pay out claim dollars. A portion of those dollars are retained in house for administrative costs and sometimes maybe 4% of the income is retained in profits.

Malpractice rates are high, particularly for some providers, which in turn cause the rates charged. When OB’s are paying $400k per year in med mal premiums that money has to come from somewhere.

No doubt legislated benefits, both at the federal level and state level impact rates. In general it appears that federal mandates can add as much as 20% to the cost of coverage and states another 10%. In some cases, particularly with small group plans this can be magnified to 50% or more of the billed premium.

DTC (direct to consumer) advertising has definitely changed the landscape considerably with regard to costs for medicine. On average, about 18% of every premium dollar goes out to cover meds. In some cases it can be as high as 25%.

Along those lines, a recent report indicated that switching away from brand name meds and toward generics could save $20 billion nationally. Many health insurance plans include Rx copays which are graduated. A typical brand name formulary drug may have a $30 copay but a generic equivalent is only $10. Most plans will only reimburse at the generic rate even if the med is scripted for the brand name but even then the patient is (many times) willing to pay the extra $20 difference just to have the branded med.

So why won’t consumers use generics?

There are many reasons but I think the big one is this. Until the patient feels the true cost of health care in their wallet their behavior will not change.

An extra $20 for a branded med really doesn’t hurt most budgets. Remove the copay and all of a sudden the difference is something to notice.

Prozac is a popular drug that is covered under many plans for a $30 copay. Remove the copay and the price jumps to $150. A generic equivalent (Fluoxetine HCL) is $22.

Percocet is used as a powerful pain killer and is another $30 copay med. Without the copay the price becomes $70. The generic equivalent (Oxycodone) is $5.

Office & Rx copays are high demand features of a health plan, but they are also high cost items. Remove those items from a health plan and allow the patient to become a true consumer of services and then health insurance premiums will start to drop.
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