Some futures aren't much fun to contemplate - II

Medicare has an enormous financing problem that most people probably don’t think about, or even know about. The problem is Medicare's crushing future liabilities, 90% of which must be paid from future federal budgets (the other 10% will come from contributions, e.g., Part B premiums paid by Medicare beneficiaries). Taxes must be levied to cover these Medicare liabilities as they become payable.

Many people know that Social Security income benefits (the “OASDI” funds) face this kind of financing problem. However few people know that Medicare has the same kind of problem as Social Security – and it’s much bigger.

OK, so how big are the Medicare liabilities? As of 2005, “(p)roviding promised Medicare benefits is projected to require over $2.7 trillion (in nominal dollars) in new tax rev­enues over just the next 10 years . . . Medicare’s financing problems will arise sooner and ultimately surpass Social Secu­rity’s financing problems.”

$2.7 trillion is an incomprehensibly large number of dollars, but just consider that the TOTAL RECEIPTS of the U.S. government for fiscal year 2006 are expected to be less than $2.5 trillion. Given that future Medicare costs are no small problem, have you ever heard a member of Congress discuss them? Have you ever heard a member of Congress suggest a way to deal with them, on his way out of the room?

Frequently this or that politician or commentator suggests a solution to our present health care cost and access problems is “Medicare for all”. There are about 45 million Americans covered in Medicare. Before the public entrusts the government with health care for more than 200 million additional people - in any form, whether "Medicare for all" or not - shouldn't more people understand the problem the nation faces in paying for the Medicare liabilities that already exist?? Some futures aren't much fun to contemplate.

Carnival Monday!

This week's Carnival of Personal Finance is hosted by Jim at Blueprint for Financial Prosperity. With over 75 entries, in 3 categories, there's sure to be something you'll find useful (and/or fun).

Our kids are pretty much grown now (okay, one's still a teenager, but you get the idea). Still, we (they) might have benefitted from GreatFX's post on teaching kids about money.

David Maister hosts this week's Carnival of the Capitalists. There are more than 50 entries, broken down into 6 categories. Each one has helpful context, as well.

Nina, blogging at Queercents, poses an ethical question about investing in companies which engage in activities we find immoral.

Insurance Dispatch...

In this week's column, we learn about a federal agency's reports that a lot of us are scrimping on preventive care.

Check it out at Trusted.MD

The Thinker Nails It...

Bob found this insightful and important post over at The American Thinker. Steven M. Warshawsky does a terrific job of explicating something we here at InsureBlog have said for a long time: the reason health insurance is so expensive is that health care is so expensive, and he further underscores the difference between the two, writing that "not everyone who lacks health insurance is suffering from a lack of adequate medical care."

Read the whole thing.

Wal-Mart Wins...

We've blogged on the Maryland vs Wal-Mart situation before (the Old Line State had passed a law which would have requored specific employers -- namely, Wal-Mart -- to provide health coverage to its employees there). This would have placed an onerous financial burden on Wal-Mart's customers, and perhaps led to lay-offs or even stores closing.

Fortunately, the US Fourth Circuit Court of Appeals saw what a boondoggle this would have created (not to mention that it conflicted with ERISA, which supercedes state law), and told Maryland legislators to take a hike.

All's well that ends well...

Cavalcade of Risk #17 is up!

David Williams, host of the new and improved Health Business Blog, hosts an outstanding CoR this week. It's well-laid out, includes copious commentary, and almost 2 dozen entries.

Bravo, David!!

If you'd like to host a future edition, just drop us a line.

Cost trend moderated a bit in 2005

“Healthcare spending [in 2005] grew 6.9% to about $1.99 trillion from about $1.86 trillion in 2004, a slower pace than the 7.9% increase a year earlier, the report by the National Health Statistics Group found.” (Free subscription required)

2005 was actually the third consecutive year in which health care spending declined. That may be a slender ray of good news for group benefit plan sponsors of any size - if this translates into smaller premium increases for 2007.

The $1.99 trillion consisted of $342 bn for Medicare; $300.9 bn for Medicaid consisting of $179 bn for medical services plus another $121.9 bn for nursing home and related services; and $1,347.1 bn for private, non-elderly care. Using estimated populations of 257 million under age 65 and 43 million age 65 & over, gives approximate annual per-person costs of $6,400 for the under-65 population (includes Medicaid) and $7,950 for the over-65’s.

Of course, for insurance to cover these populations, the premiums must cover these medical costs plus adminstrative costs – regardless whether the insurance is arranged by the government or by a private insurance company. For example, the average monthly premium for persons over age 65 must be at least $7,950 per year ($663 per month per person), plus something for admin. Clearly, regardless of who arranges the insurance – government or private company – the premiums have to be high because the medical costs are high. There can be no relief unless medical costs come down.

BTW, just how big a number is two trillion? Well, it’s $228 million an hour, for 12 months. Or, look at it this way. If you earned $100,000 an HOUR, 24 hours a day, 365 days a year, and went on payroll the day Julius Caesar was assassinated, you would have earned about 1.8 trillion dollars as of today. You won’t make it to 2 trillion for another 220 years. Nice work- if you can get it.

Ashley: A Moral Conundrum

This is not an insurance issue, but we have talked before about ethics. Recently, there have been news stories about a severely disabled girl whose parents decided on a radical treatment: through the use of surgery and chemicals, they have arrested her physical growth at about age nine.

As the parent of two healthy, active (sometime too active) daughters, I am at a loss as to how to view this: on the one hand, they are her parents, who have chosen a course of treatment for their handicapped daughter. On the other, this seems to be such a draconian regimen that I am finding it difficult not to be appalled.

Some time ago, I discovered a blog called Dream Mom, written by the mother of a similarly handicapped child (although her son is now a teenager). She has written a series of profound and insightful posts, and was recently interviewed by CNN.

Hers (and her son's) is not a pretty story, but it is moving and hopeful. I highly recommend reading her work. To get you started, here are a few posts which address this particular issue:

■ One

■ Two

■ Three

That last one is long (it clocks in at almost 5,000 words). Trust me, it's worth it.

For the Children...

Recently, both Bob and Mike have blogged on states' efforts to get more children insured. Both pointed out that, ultimately, this really means you and I will pay for that coverage (we can argue as to its cost effectiveness another time). Sometimes, though, the private sector gives the gummint an even bigger kick in the pants:

WellPoint (aka Blue Cross) has decided that even more government money needs to be spent on insuring children (and, to a lesser extent, adults). It's pretty easy for a big insurance company to endorse such a plan: you and I will pay for it, and they'll run it (and, presumably, make a buck or three in the process). Their brave new plan calls for increased spending by the states, expanding access to health coverage for children by subsidizing coverage for families that earn up to 3 times the federal level, or about $60,000 a year for a family of 4. How generous.

But that's not all:

■ The WP plan would offer access to a subsidized state health care program for parents who earn up to 200% of the federal poverty level, and

■ Cover all childless adults (those that apparently have no say in foreign policy, anyway) who may earn as much as the federal poverty level (about $10k for a single adult), and

■Help with premiums for families that have trouble paying for their their private insurance (hey, at least they're insured), and

■ TaDa! Set up (and/or expand) state “high-risk pools;” insurance programs for individuals who have trouble buying conventional coverage because they suffer from health problems (e.g. insulin dependent diabetics, folks with MS, etc)

[ed: Actually, I'm pretty much okay with that last...there needs to be a mechanism for folks who want insurance coverage, and are willing to pay for it, but not go broke in the process. But I believe that this is a separate issue]

How much will this wonderful plan cost?

Ask Senator Berglin.

Carnival Monday!

Young & Broke (what a GREAT name for a blog!) hosts this week's Carnival of Personal Finance. I like how each post has enough contect to be useful, but not overwhelming. The categories are helpful, too, which is a very good thing: there are almost 70 posts!

I was going to put off doing this, but I thought better of it: be sure to check out Roth & Co 's tips on tax strategies for this year. And while you're there, be sure to read his take on the AMT (Alternative Minimum Tax). Who know tax blogs could be so edgy?

And the Carnival of the Capitalists is now up, hosted at Endless Gibberish. This 19 year old entrepreneur has 3 dozen entries, each with a quick recap.

MedBlog Award Voting

If you haven't already, please consider voting for InsureBlog in this year's Medical Blog Awards (just click here and select InsureBlog). Thank you!

UPDATE: Voting's over...results on the 19th.

Insurance Dispatch...

In this week's column, we learn that Medical Identity Theft is on the rise. What is it, and why should you care?

Check it out at Trusted.MD (formerly The Medical Blog Network).

Going, Going, Gone...

There's a classic story of a man who bought, and subsequently insured, a box of expensive cigars. After smoking them, he filed a claim, asserting that they had been destroyed "in a series of small fires." The company denied the claim, of course, and the man sued. He won, and the insurer was obligated to pay him $15,000 for his "loss."

The insurance company had the last laugh though: after the man cashed the check, he was arrested on 24 counts of arson! With his own insurance claim and testimony from the previous case being used against him, the man was convicted of intentionally burning his insured property and sentenced to 24 months in jail and a $24,000.00 fine.

That story is no doubt apocryphal (literally, full of a pox), but sometimes life imitates art:

"The casino magnate who accidentally poked a hole in a Picasso painting said insurer Lloyd's of London has offered to settle his $54 million claim of lost value, but the talks aren't going the way he'd like."

Turns out that erstwhile tycoon Steve Wynn, who purchased the painting in 2001, was in the process of selling it when he accidentally poked his own elbow through it, tearing a thumb-sized hole in it. He's made no bones about the fact that it was his own clumsiness which led to the damage, which has since been repaired (but which has also diminished the painting's value).

Apparently, the Lloyd's syndicate which underwrote the policy has a difference of opinion about the value of the claim, and so Mr Wynn is suing them in an effort to "expedite" the claim (i.e. cough up more moola).

I wonder how much coverage I should get for all the mini Picasso's adorning our fridge?

Some futures aren’t much fun to contemplate

Reuters recently reported an interesting dust-up taking place in the U.K.

http://www.medscape.com/viewarticle/550297?src=mp
(free registration required)

“The National Health Service in England faces a shortage of nurses and family doctors over the next four years, according to a leaked government planning document seen by the Health Service Journal” and NHS “also predicts an oversupply of 3,200 hospital consultants [i.e., specialists], the medical weekly reported on Thursday.”

In response the Director of The Royal College of Nursing said "Just a few weeks ago, the secretary of state for health told MPs that the NHS had employed too many nurses but now her department has evidence predicting a shortage of 14,000 nurses within the next four years."

Meanwhile, the British Medical Association said it was "absurd" to suggest the NHS needed fewer hospital consultants.

Sounds like an ugly fight over money and control – and central planning of health care. The Reuters article is interesting because American media tend not to report much about other nations’ actual experience with their universal health care plans. That's a shame because it's so relevant to the public debate that this country is trying to have.

It’s wrong to argue that there is nothing good in universal, government-controlled systems. At the same time it’s also wrong to pretend that such systems have no serious problems.

This little glimpse inside the British National Health Service is telling us something about a possible future for America. Some futures aren’t much fun to contemplate.

CDHP Update

We've talked about some of the new, positive changes in store for HSA enrollees. And it's true that Consumer Driven Plans (CDHP) continue to grow in popularity (albeit not as quickly as some might have hoped). Still, the numbers could be better:

Segal-Sibson, an independent HR consulting firm, recently surveyed some 1200 employers, of which about 120 responded. On the one hand, such a statistically insignificant sample renders the numbers pretty meaningless. On the other, it's interesting to see even a small, unrepresentative slice of what's going on with CDH. One might presume that the folks who did respond had pretty strong feelings about the subject, which may be why they bothered to respond at all.

One interesting trend jumped out at me: of the employers which offered some form of CDHP at all, more went the HSA (Health Savings Account) route than the HRA (Health Reimbursement Arrangement) path. This seems to me to be just right: after all, the HSA emphasizes more personal responsibility and thoughtful health care consumption, while the HRA rewards those who spend more. Thus, if one of the stated goals is to rein in costs (both for health care and for health insurance), then the former method is desireable.

Tellingly, few of the respondents even knew whether or not their employees made use of their accounts, or the various health imporovement programs that were made available. Thus, they had no clue as to whether or not such plans were of benefit. In other words, they really had no idea what their true cost savings were, nor whether or not their employees benefitted from their HSA's. Since health insurance premiums supposedly represent such a tremendous portion of a company's expenses, one would think that there would be some interest in ascertaining whether or not there was, indeed, a real value.

What was it Bob said a while back?

Cavalcade # 17: Submissions Due

Submissions for next week's CoR, hosted by David Williams at Health Business Blog, are due this coming Monday (the 15th).

You can submit your (or someone else's!) risk-related post via:

Blog Carnival

or

Email

Please include:

► Your blog's url
► Your post's url
► The trackback url (if applicable)
► A (brief) summary

PS We're scheduling hosts for early Spring '07, so don't wait too long to sign up!

First Health Wonk Review of '07

Roy Poses, one of the voices at Health Care Renewal, hosts an outstanding edition of Health Wonk Review. With 22 high quality entries, it may be the biggest HWR yet - it's certainly one of the most interesting and well laid out.

I was particularly intrigued by a post at Medical Progress Today, where Jurgen Reinhoudt argues against letting the Fed's negotiate on drug prices. Wow.

Our newest team member, Mike Feehan, makes his HWR debut this week.

Tech Alert (Comments)

UPDATE: Okay, comments seem to be working again.

I still hate tech.

An Unlikely View of Transparency...

Transparency in health care is a favorite topic here at IB. Recently, I came across this (perhaps over the top) example on the web:

What Doctor's Say And What They Are Thinking

■ "Welllllll, what have we here...?" (He has no idea and is hoping you’ll give him a clue.)

■ "Let me check your medical history." (I want to see if you’ve paid your last bill before spending any more time with you.)

■ "Why don’t we make another appointment later in the week." (I’m playing golf this afternoon, and this a waste of time or I need the bucks, so I’m charging you for another office visit.)

■ "We have some good news and some bad news." (The good news is, I’m going to buy that new BMW. The bad news is, you’re going to pay for it.)

■ "Let’s see how it develops." (Maybe in a few days it will grow into something that can be cured.)

■ "Let me schedule you for some tests." (I have a forty-percent interest in the lab.)

■ "I’d like to have my associate look at you." (He’s going through a messy divorce and owes me a bundle.)

■ "I’d like to prescribe a new drug." (I’m writing a paper and would like to use you for a guinea pig.)

■ "If it doesn’t clear up in a week, give me a call." (I don’t know what it is. Maybe it will go away by itself.)

■ "That’s quite a nasty looking wound." (I think I’m going to throw up.)

■ "This may smart a little." (Last week two patients bit off their tongues.)

■ "Well, we’re not feeling so well today, are we?" (I’m stalling for time. Who are you and why are you here?)

■ "This should fix you up." (The drug company slipped me some big bucks to prescribe this stuff.)

■ "Everything seems to be normal." (Rats! I guess I can’t buy that new beach condo after all.)

■ "I’d like to run some more tests." (I can’t figure out what’s wrong. Maybe the kid in the lab can solve this one.)

■ "Do you suppose all this stress could be affecting your nerves?" (You’re crazier’n an outhouse rat. Now, if I can only find a shrink who’ll split fees with me.)

■ "There is a lot of that going around." (My God, that’s the third one this week. I’d better learn something about this.)

■ "If those symptoms persist, call for an appointment." (I’ve never heard of anything so disgusting. Thank God I’m off next week.)

Rate Reviews…

[This post is a joint effort of Bob Vineyard, CLU & Henry Stern, LUTCF]

As mentioned a few weeks ago, one of the key elements of Senator Wyden’s Healthy Americans Act is the implementation of community rating (CR) on a national basis.

There has been a lot of buzz in the medblogosphere about our, shall we say, less than enthusiastic support for this idea. A lot of folks whom we respect and admire have had favorable things to say about CR, but it’s clear that even the brightest among us don’t completely understand the dynamics of health insurance, and especially community rating (CR). Several debates, including some on this site, have focused on the merits of CR, which just goes to show how critical it is to the success (or lack of such) of the HAA.

Proponents of CR claim that it is a way to make health insurance affordable. To an extent this is true, but for whom is it more affordable? A true community-rated product is delivered without regard to the individual’s sex, age or health (or behaviors, for that matter). This means quite simply that everyone in the pool is charged the same rate.

Such an approach is favorable towards those who are older than the average age of the pool, or less healthy. Keep in mind that CR (as it exists now) does not mean that EVERYONE is offered a policy and admitted to the pool. Some with severe pre-ex conditions can still be excluded from coverage, which allows for some selection by the carrier to exist.

So even with community rating, some are able to obtain insurance, others are not. It’s one of the pieces of HAA which is most puzzling: if there is to be true community-based rating, and the coverage is to be mandatory and universal, then how could there be any kind of limitation on coverage, or exclusion of conditions? And if there are no such controls, why would its proponents believe that it will lead to lower costs?

As with almost anything having to do with health care and health insurance, there are exceptions (which often prove the rule). In this case, it’s that CR sometimes works in the small group market. It’s really not hard to see why: it’s the middle ground between the individual and the large group (generally self-insured) markets.

Let’s look at how well CR works in our current system. Currently, 4 states (NY, NH, VT and ME) mandate community rating; in those states, a carrier is prohibited from offering a policy based on age or health condition. If one looks at the insurance market in those states, one finds something else they have in common: few companies (less market choice) and higher than average rates.

There’s a very sound reason for this:

Community rated insurance premiums makes as much sense as community rated loans. That is, in a world of community rated lenders, everyone would pay the same rate when borrowing money. Those who are most credit worthy are lumped in with deadbeats who never pay their bills, and everyone is charged the same interest rate for the same kind of loan. One can easily imagine what those interest rates would be. Why anyone would envision this as fair is beyond our ken, but for some odd reason some believe charging everyone the same rate for health insurance, regardless of health or age, is a more equitable system than the one used in the other 46 states.

As we’ve discussed here at IB many times, risk (it’s assessment and management) is the underlying principle, the raison d’etre (literally: Deter’s raisin) of insurance. Take away that key component, and what we’re talking about is no longer insurance, but a shuffling of dollars from here to there and back again. We won’t argue the merits of such a scheme, but will argue that it is most emphatically not insurance, but rather (and at the risk of invoking Godwin’s Law) simply socialism.

(Pause for raspberries)

Okay, now that everyone’s thrown up their hands in disgust and/or pity, let’s examine why this is not merely name-calling, but sound economic and political reasoning:

Community rating is a method for pricing insurance. It simply says that everyone in a specific demographic cohort (i.e. geographic area, socio-economic class, race or sex) must be charged the same rate for insurance, regardless of health, habits or age. The term “community” simply acknowledges the commonality of that cohort. In the case of the HAA, that “community” becomes the population of the United States (or subsets of it). Fair enough; if that’s what the people really want, then that’s fine. But by prohibiting insurers from taking into account the fact that different people have different physical characteristics, health histories, and behaviors, the plan drastically devalues the element of risk. It is simply transferring money around, which is not insurance. By definition, socialism (whether as an economic or political system) is the forced redistribution of resources (in this case, money) without regard to merit.

In short, community rating encourages adverse selection more than the current system. The result is, the carrier gets more of the unhealthy risks and fewer of the healthy risks. (For a more detailed explication, see here and here)

Why does this matter?

Quite simply, because everywhere CR has been implemented, it has led almost immediately to increased insurance rates and decreased insurance availability. Why would this result not obtain if it is implemented on a (far) larger scale? The principle and the goal is the same, regardless of whether we’re talking one state or 50. It’s fashionable to discuss health insurance in terms of “fairness,” but it is silly to do so. A prevalent (though erroneous) school of thought conflates health insurance with health care; such folks have decided that it makes sense to look at health insurance not as a risk management vehicle, but some fundamental right, akin to voting and peaceful assembly.

It is not.

It is a mechanism for spreading risk. But if we remove (or substantially decrease) the risk, then it’s no longer insurance. Fine, let’s recast the debate, but let's at least be intellectually honest about it: it’s a national health plan, coupled with a nationalized health care system (can’t have one without the other). How about an honest discussion about that?