Carnival of Personal Finance now online

MoneyNing hosts this week's roundup of personal finance posts.

Michael Crichton, M.D. 1942 - 2008

May he rest in peace.

Although it is well-known that Crichton trained as a physician it's likely most people think of him as an author. My first encounter with any of his writings was in this March 1970 Atlantic Monthly article. Crichton was 27 years old when he wrote it.

The article is lengthy but you really should read the whole thing. Here is a sampling:

1. "Most research scientists in history are alive today; therefore most of the discoveries in history are being made today. But the consequences of this vast outpouring of information and technology have yet to be grasped. Major questions are raised in such widely diverse subjects as medical education and euthanasia."

2. "welfare reimbursements are always less than the true costs of care. In this situation, the hospital makes ends meet by overcharging private patients and their insurance companies to cover the welfare deficit-in the case of the MGH, roughly $10 [15%] a day overcharge."

3. "to pass on costs to insured patients and make them augment insufficient tax funding for welfare . . . all works out to the same thing: one can pay the money either in taxes or in higher health insurance premiums. But in such a situation, it is probably more efficient to choose one or the other -- and the trend is toward universal health insurance in this country, unmistakably. "

4. "the American medical system . . . has never been able to structure the kind of competitive situation which encourages and rewards economies. Nor has American medicine tried. The American physician has been grossly irresponsible in nearly all matters relating to the cost of medical care. One can trace this irresponsibility quite directly to the American Medical Association."

5. "Other countries are doing better, and most of them have some form of socialized medicine. The United States is extraordinarily backward in this respect. However, many American observers have looked at European socialized systems and have come away shaking their heads; and there is a widespread doubt whether any European system can be adapted to this country. Very likely, America will have to work out its own system. The combination of group insurance with a group-practice system seems a feasible, economical, and practical, method, acceptable both to doctors and patients."

The first half of the article is as clear an explanation as you will find anywhere of the stunning challenges and successes of modern medicine. And the second half remains, after all these years, a valuable critique of the organization and leadership of American medicine, from the AMA, to hospitals, to individual practitioners. I think it's fair to ask: aside from the costs stated in 1970 dollars, what has fundamentally changed in the 38 years since this article appeared?

Health Insurance is not health care. So what?

[Welcome Kaiser Network readers!]

InsureBlog consistently points out that health care and health insurance are different animals. When media and pundits and politicians confuse the two – and it happens with depressing frequency – we think that’s misleading, and we say so. Maybe you believe that's just semantics. Or maybe you reply, so they’re different, so what? Well, let’s look at it.

1. Observe that high health insurance premiums result from high health care costs. If health care were not expensive, health insurance would not be expensive. If the cost of health care were not rising, the cost of health insurance would not be rising. The cost of health care is the deeper problem.

2. The problem of high health care costs is not solved by finding clever ways to shift costs to somebody else via insurance premiums. Insurance is inherently a cost-shifting device, whether private or public. And sometimes the cost-shifting is just politics. Either way, shifting of health care costs does not reduce them by a nickel.

3. It's fine to seek the best & fairest way to allocate health care costs via insurance premiums. But even the optimal manner of setting premiums won't reduce health care costs by a nickel.

4. The problem of high health care costs is not solved by a strategy to subsidize health insurance premiums. That is an aspirin tablet that treats a symptom (high insurance premiums) but ignores the disease (high health care costs). When one has a bad headache, an aspirin is helpful. But if the headache persists for, say, FORTY YEARS, perhaps stronger medicine is needed.

5. And so understanding the distinction between health insurance and health care leads us to the insight that the high cost of health insurance is not primarily an "insurance" problem - it's one of the problems within our present health care delivery system. And in order to eliminate some significant part of the high cost of health care, our attention must be focused on reforming the delivery system.

If there is confusion from the start between health insurance and health care, the analysis will be confused and still more ineffective "solutions" will result. This is why we think understanding the distinction between health care and health insurance is so important.

File under Good to Know

The Wall Street Journal Best of the Web Today reports that Gerry Spence, a prominent California plaintiffs attorney, has this advice for us: legal representation is essential, even more important than health care.

He has more to say here:

"I want to ask you which would be more important: If all of the doctors in the country somehow disappeared or all the trial lawyers in America somehow disappeared?" he asked. "We can live without medical care, but we cannot live without justice."

As Jack Benny said, “I’m thinking! I’m thinking!”

Cavalcade of Risk #65: Call for submissions

Managed Care Matters host and CoR veteran Joe Paduda hosts next week's Cavalcade of Risk.

Please send in your risk-related post by this coming Monday (the 17th). As usual, Joe asks that you include:

■ Your blog's url

■ Your post's url

■ The post's trackback URL (if available)

■ A (brief) summary of the post

And remember: ONLY posts that relate to risk (not personal finance tips and the like).

You can submit your post via Blog Carnival or email.

Thanks!

Oh! We have hosting slots available for early '09 - grab yours while you can!

Consumer Driven Health Care: Interesting Update

[Welcome Kaiser Network readers!]

We've been vocal proponents of Consumer Driven Health Plans (CDHP) for a long time, and have seen some of the positive results of putting consumers into the health care driver's seat. Since these plans are relatively new, long term trends have been difficult to ascertain, but that's beginning to change.

Recently, health insurance leviathan WellPoint (WP) published a report that showed some interesting (and hopeful) results. The folks at WP surveyed almost 8,000 of their groups that offered some kind of CDHP in 2007, and made some startling finds:

■ Those employers that adopted a CDHP in 2006 saw their health care spending decline, while those in non-CDHP plans saw spending increase from 7% to 10%

■ Most employers that offered a CDHP also offered other, more "traditional" choices, and families with children were still more likely to opt for the CDHP

■ One of the most oft-cited objections to CDHP plans is that they discourage folks from seeking preventive care (although the logic of this canard has always escaped me). Contrary to "conventional wisdom," however, the study found that "consumers enrolled in CDHPs had higher utilization of preventive care than consumers enrolled in non-CDHPs."

One of the things I most appreciated about the report was that it generally avoids industry jargon; that is, it's understandable to non-insurance-geeks. And it's not an overwhelming amount of information, so it's easy to go through fairly quickly.

Kudos, WellPoint!

[Hat Tip: NAABC]

Post-Election Health Wonk Review now online

Louise Norris, co-blogger (co-blogress?) at Colorado Health Insurance Insider, has an outstanding edition of the HWR. It's obvious that she's read each and every post, and has taken the time to add insightful context to every one.

Kudos, Louise!

All in the Family(Care)

Did you know that Illinois offers low-cost health insurance to parents of young children? Based on family income, rates run from $15 to $40 a month; plans include low ($2!) co-pays for doctors' visits and meds.

Sweet deal.

But that particular gravy train has hit the bumper:

"The Blagojevich administration has stopped payment on most state-subsidized health care, asking a judge to clarify his order to shut down an illegal expansion of the FamilyCare program."

It seems that Gov Blagojevich (pronounced "Schwarzenegger") wanted more folks to qualify for the plan, and so raised the eligibility limits. For example, a family of four could have over $80,000 of income and still qualify for the plan. Seems to me that $80,000 is not "poor," but solidly middle class. This kind of "expansion by fiat" is why a lot of people find the programs themselves so offensive. If the goal is to help "the poor," then let's have a realistic definition of "poor."

And that's exactly what Cook County Circuit Judge James R. Epstein has done: after Gov Blagojevich "unilaterally reinstated the coverage and expanded it to 400 percent of the poverty level, or $83,000 for four," Judge Epstein issued a restraining order, putting the brakes on the expansion. As a result, FamilyCare officials "stopped submitting vouchers it receives from health care providers to the state comptroller for reimbursement."

The net result is that, because the Gov got greedy, even folks who, by almost anyone's definition, really are poor will now suffer. Something about the baby and the bathwater? What is it that drives politicos to take reasonably designed programs and turn them into personal causes?

Sheesh.

"Better Late" Update

Last week, I wrote about North Carolina's new high risk insurance pool. While I liked the plan overall, I did have some reservations about some key features.

Turns out, Colorado's had a similar plan in place for almost 2 decades, and experienced fewer of the problems I mentioned than one might imagine. Louise Norris, co-blogging at Colorado Health Insurance Insider, has the full story, as well as some observations and suggestions for her Tar Heel State colleagues.

Do check it out.

MVNHS© vs AARP

Okay, not really the AARP (that's an American thing), but ailing English seniors in general. The MVNHS© (Britain's "Much Vaunted" National Health Service) has taken aim - again - at its seasoned citizens, opting to deny them needed health care:

"[O]lder people will be left vulnerable to discrimination and could miss out on life-saving treatment in favour of younger patients."

Seems that Parliament was considering new legislation that would ban health care discrimination based on age. But that's now on hold for at least another year and a half, leaving elder Britons without protection against the kinds of shenanigans for which the MVNHS is so famous. In a move reminiscent of our own brilliant governing class, the "Minister of State for Care Services said the Government will set up an advisory group to look at the issues around age discrimination in health and social care."

But of course: a committee!

And also of course, said committee will use the next 18 months to study the issue, and then (perhaps) issue some guidelines and/or recommendations, which may or may not be implemented some time iin the hazy, distant future.

Which doesn't do sickly seniors much good [ed: maybe that's the point?]

I'll leave the last word to His Right Honorable Phil Hope (the aforementioned Minister), who provides the most authentic example of genuine gummint-speak we've seen in quite a while:

"The Government will undertake consultation on possible exceptions to the ban on harmful age discrimination (in health and social care) taking account of the findings of the advisory group when it has completed its work."

Couldn't have said it better myself, Gabby.

Video Bonus Round!

Aside from passing references, we haven't written much on Humana. Perhaps that's because they've been relatively well-behaved, and thus stayed out of our sights. That may be a good thing, and this definitely is: Humana's launched a new PR drive to help educate the public about ways we can help control health care costs. As regular readers know, this is key to holding down health insurance costs. The carrier's rolling out a series of 10 educational videos "designed to deliver guidance, and to support awareness and understanding of the healthcare industry."

The first one is entitled "Why is Healthcare So Expensive?" Since we've recently done several posts on this very topic (here and here, for example), this seems quite the timely addition:

We'd be very interested in any feedback on this, especially whether our readers found it interesting and/or helpful, and whether we should continue to post them as they come out.

Unintended Consequences (AIG Style)

In the comments section at our latest (well, 'til now) post on the AIG debacle, regular reader Brad Ford observes:

"As someone who competes with AIG, I find it is hard competing with the government."

Exactly!

When the gummint is your reinsurer, you're pretty much bullet-proof as to claims, reserves, you name it. And talk about intimidating: how does one level the playing field when one's competitior is Uncle Sam? Not to mention, yourself: remember, it's taxpayor dollars propping up AIG, and agents are taxpayors, too.

And there's a domino effect here, as well: what if another carrier loses so much business to AIG that it goes under? Do they get bailed out, too?

As I asked before, where does it end?

Please sir, could I have some more?

[BUMPED - SEE UPDATE BELOW]

Although it's hard to imagine erstwhile insurance behemoth AIG in the role of the hungry naif, that's precisely the request being made by the head of that brain trust:

"AIG is asking the US government for a new bail-out less than two months after the Federal Reserve came to the rescue of the stricken insurer with an $85bn loan, according to people close to the situation." [free reg required]

Well sure, better get in there before those irresponsible auto industry chaps drain the well completely dry. It's just government money after all, not actually paid for by the blood, sweat and tears of the American taxpayer.

Sigh.

AIG rocket surgeons were huddled late in the week with gummint pencil pushers, working out a deal that would tranfer millions (billions?) of dollars of "troubled mortgage-backed securities" from AIG's books to ours. And, like the poor saps who opted for those "troubled" mortgages, AIG is now complaining about the interest rate of the original loan. Currently 8 and a half percent over the London Interbank Borrowing Rate (LIBOR), AIG points to the "5 per cent interest rate paid by the banks that recently sold preferred shares to the government." [emphasis added] Um, geniuses, what part of "troubled mortgage-backed securities" don't you get?

If you sense a bit of sarcasm here, it's because we pointed out at the beginning that this was a bone-numbingly bad idea, and this latest installment just underscores that.

But wait, it gets better:

"The U.S. government was near a deal Sunday night to scrap its original $123 billion bailout of American International Group Inc. and replace it with a new $150 billion package, according to people familiar with the matter."

Of course this makes great sense, since the rocket surgeons who run AIG have shown themselves to be such thoughtful stewards of our money. One supposes that this 20%-plus increase will come with a lower interest rate [ed: natch!], thus transferring even more of our wealth to the coffers of the insurance giant.

But that was then, and this is now:

"The Federal Reserve and Treasury Department Monday upped the stakes in the government's role in American International Group to more than $150 billion with a restructuring of its loan package that includes $40 billion in new funding from the financial rescue package and other measures to help the ailing firm."

But of course.

In addition to the extra bucket of moola, our gummint is lowering AIG's interest rate by an additional 5.5%, which comes out to 3% plus the aforementioned LIBOR rate (currently at 2.39%). Not a bad deal, all things considered.

And because just throwing more money at something isn't nearly sufficient, The Fed is ponying up another $22+ billion of our cash to set up a special LLC (limited liability corporation) to buy those "troubled mortgage-backed securities" for us.

Where, exactly, does this end?

Oh, one more thing.

Bob just emailed this to me:

"The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral."

On the one hand, this is unconscionable. On the other, these are the people that many folks want running our health care system. Where, exactly, is the transparency in this transaction, and why would we want this kind of thinking when we look at our health?

"Careful Stewards" UPDATE: Fresh on the heels of "poor mouthing" the raw deal they were offered, looks like AIG execs have some 'splainin' to do:

"Even as the company was pleading the federal government for another $40 billion dollars in loans, AIG sent top executives to a secret gathering at a luxury resort in Phoenix last week."

CORRECTION: Apparently, these folks were "independent financial advisors," not AIG execs. Still, this demonstrates the kind of brilliant thinking that goes into the AIG "decision making process:" let's see if we can frivolously spend even more of the taxpayors' dollars.

After all, figuring out how to spend $150 billion (with a "b") of the taxpayor's money isn't a piece of cake (or torte, to be precise): it takes a lot of soul-searching, and what better place to cogitate on this dilemna than the Pointe Hilton Squaw Peak Resort . Gee, life sure is tough, isn't it?

Life Insurance at Risk

Although we do link to outside articles (e.g. USA Today, WSJ, etc), and to fellow bloggers, we generally don't link directly to commercial websites. It's not that we fear competition (remember, we accept no paid advertising here), but generally find the articles to be self-serving and therefore suspect.

But there are exceptions, and this is an exceptional article:

"As part of its 'Health Shame' study, the British firm polled 5,000 existing policyholders, inviting them to review their original applications and change any information they knew to be incorrect. The result was that one in fourteen admitted to making some kind of error when initially completing forms."

That's a lot of misleading applications. We've blogged before on what can happen when one "fudges" an app, but Chris Brooks actually interviewed industry insiders, and shares some startling information with his readers. Chris emailed us today, inviting our readers to partake, as well.

Do read the whole thing.

And then double-check the last application you completed.

Carnival of Personal Finance: The Struwwelpeter Edition

And what, you may ask, is Struwwelpeter? Carnival of Finance host SVB (proprietor of The Digerati Life), explains that it's "a rather strange and bizarre collection of mid-19th century children’s poems (from Germany)." It's actually pretty fascinating, as is this week's Carnival.

Was it a very good year?

A recurrent theme at InsureBlog has been the distinction between health care and health insurance. A closely-related theme is that, as with all things that are purchased, the purchaser’s cost equals the supplier’s gross income. So I thought everyone might like to see this article from Modern Healthcare. The article reports that total hospital profits reached a record level in 2007 – despite the continuing decline in the number of hospitals.

Most people would be astonished to learn that the average reported hospital profit margin for 2007 (6.9% of revenues - reported by Modern Healthcare) was higher than the average reported profit margin of the top 13 health insurance companies (5.3% of revenues - reported in Fortune magazine) and almost as high as the top 9 oil company profits (8.0% of revenues - reported to Congress by the Congressional Research Service). Why would most people be so astonished to learn that? Well, you know perfectly well why.

Understanding that health care and health insurance are different is only the first step on a hard road. To understand why health insurance in the U.S. is so costly, one must understand why the underlying cost of health care is so high. Suggestions are plentiful, and all have some truth to them. For example, we hear about high-tech medicine (e.g., advances in pharmaceuticals or in radiology), the steady growth in utilization of services from year to year, the preponderance of specialists, and the aging of our population.

This Modern Healthcare article reminds us we rarely see a probing analysis of the incomes of service providers – especially as compared to provider incomes in other countries with nationalized health care or health insurance mechanisms to which the U.S. is so often unfavorably compared. Why not? Well, you know perfectly well why not.

Drivers

No, not those kinds of drivers. Regular readers know our mantra: health insurance costs increase primarily because health care costs do.

But what causes health care costs to rise?

The "usual suspects" generally include over-utilization, malpractice suits that prompt excessive testing, even prescription drug costs. And there's no doubt that all of these factors play a role. But according to a new report from the Robert Woods Foundation, they're not the primary culprit:

"Technology ... is the key driver of health spending, accounting for an estimated half to two-thirds of spending growth."

Of course, if we could just implement some kind of national health care scheme, that wouldn't be a problem, right?

[Hat Tip: Sarah Goodell]

UPDATE: For another perspective on health care cost drivers, be sure to check out Mike's post on the subject.

Questionable Carrier(?) Tricks, Part 2

In Part 1, we became acquainted with a new self-funded plan for local physicians offices. Now, we'll look at some of the other major problems facing folks who opt in.

Back in the day, MEWA's were a popular option. Multiple Employer Welfare Arrangements made it possible for smaller companies in the same industry to band together to purchase self-funded insurance plans. The idea was that none of them individually were large enough to make the numbers work, but taken as one large group, such an arrangement was economically feasible. Unfortunately, many of these arrangements were poorly run, and soon went belly up.

While I'm more familiar with MEWA's and self-funded plans than many of my colleagues, I knew that I was far from expert in either. So I turned to someone who is such an expert, and who just happens to be my co-blogger. I called Bob, and together we noodled around the PHA site. In the meantime, I'd also gotten a quote from another carrier which was actually quite a bit lower than the PHA numbers (even factoring in pre-existing conditions). Armed with our newfound knowledge of the PHA plan, and the new quote, Bob helped to crystallize some important points:

First, the plan is not subject to state insurance laws, but rather the Federal law called ERISA (Employee Retirement Income Security Act of 1974). This means that, if something goes wrong, there'll be no access to the state's guaranty fund if PHA goes down the tubes. Thus, if one is in mid-claim, and the plan runs out of cash, to where would one turn?

Well, one place is directly back to the employer, which could be liable for any unpaid claims. Not a comforting thought.

Second, there are some significant adverse selection issues. For example, who's switching to this "new" plan? That would be groups that can't get lower rates elsewhere. And why would this be? Well, if they've had some major claims and pre-existing conditions. So it's likely that only groups with "issues" are going to jump onto an untried "new" plan.

And since PHA will have no idea what these problems are [ed: well, at least not until the claims start rolling in], how will these conditions be handled? Again, poking around the site, there's no mention of how (or indeed, if) pre-existing conditions will be covered.

Third, the site very prominently (indeed, proudly) displays the rates for its products. These are based solely on family status (single, married, etc), not based on age or sex. That's a great deal for young pregnant women, and older males with heart problems.

Not such a good deal for most folks.

And exactly how do they know that $313 is the appropriate premium? Remember, there's NO underwriting info. As I cautioned my client, since they can't disclose on-going conditions or claims, how many of the other groups are also withholding this crucial info? How many claims are going to be sitting on Mr Kenrick's desk on January 2nd? How likely is it that they'll ALL be paid?

Fourth, absent any written guarantee (and it is indeed absent here), when are rates going to go up to cover the unanticipated claims? There's no way to know for sure (since this is not disclosed), but perhaps this item (from the "What happens after I apply for membership" section) provides a vital clue:

"A PHA Board Meeting is held every three months where applications to the PHA are reviewed and approved. These occur the first Friday in February, May, August and November."

Is this when they change rates, as well?

Finally [ed: yay!], Bob asked, "since we already know the rates for the [insured] plan are at best lower and at worst the same as PHA's, why would they roll the dice to go from a known entity to something untested and unguaranteed?"

Indeed.

This morning, Bob emailed to add "No stop loss would be a deal breaker in my book. Good chance they can't get a carrier to bite off on it. I can't think of any that write MEWA's any more, much less a virgin one.

This thing could blow up in 6 months. This is 6 o'clock news stuff."

'Nuff said.

Mountain State News...

Regular reader, commenter and colleague Jeff M sent me this update on West Virginia's high-risk health insurance plan, ByrdCare.

I keed, I keed!

Actually, it's called AccessWV, and it currently provides state-subsidized health insurance for about 600 of that state's citizens. Unsurprisingly, the original plan was beginning to get expensive (d'unh!), and one way to address this was to offer a more stripped-down version, a quasi-HDHP (High Deductible Health Plan). Key features of this new option include a $4000 deductible for major med expenses, and an additional $2000 rx deductible.

The current plan costs its participants up to $1200 a month, which seems to me rather self-defeating (and helps explain the paltry participation numbers). Of course, with $10 office visit co-pays, "free" child wellcare, and deductibles as low as $400, it's not rocket surgery.

This new plan should cut that, but we don't yet know by how much.

One very neat feature of the AccessWV plan: agent referral fees. As of last spring, the state will pay agents $50 for every participant they sign up on the state health plan. On the one hand, I'm not crazy about encouraging folks to opt out of the commercial insurance pool and into the public trough, but at least they recognize that the agent provides more service than just quoting and proof-reading. And it's the first such program I've seen that seems to recognize the inherent value the agent brings to the table.

Hear that, Washington?

[Hat Tip: Jeff M]

Questionable Carrier(?) Tricks

First, a little background: a self-funded (aka self insured) group plan can be an attractive way for an employer to save money. Simplified, there are four parties to such an arrangement: the employer, the employee(s), an administrator and an insurance company. If an employee has a $100 claim, the administrator collects $100 from the employer, then pays the claim. On a $1 million dollar claim, the administrator collects $1 million from the insurance carrier, and then pays the claim.

But what happens if there's no insurance company involved?

Recently, one of my groups was approached by a new "carrier" that promised to save them big bucks on their coverage. This outfit, called PHA, is actually owned by one of our area's larger hospital networks, and has targeted physicians' offices as their market. Many of these offices are small, with just a handful of covered employees, and PHA has leveraged its relationship as a subsidiary of this hospital network as an incentive to come onboard.

By banding together, the pitch goes, all of these little offices will have the insurance buying power of a big company, and enjoy some major rate reductions, as well.

So far, so good.

The problem is that the numbers and the premise just don't add up.

After asking my client a lot of questions, I learned that the plan has no "stop loss" carrier (the insurance company's role). This means that claims are paid out of cash on hand.

Or not.

But certainly the folks running the plan have extensive experience with insurance and with self-funded arrangements, and a proven track record in this area, right?

Sadly, no: according to my client, the gentleman in charge has no such experience.

This does not bode well.

But it gets worse:

Currently, PHA has signed up a local physicians office group, comprised of some 25 offices. They're on board, and expecting coverage to begin on January 1. I asked my client if these offices were similar to hers; that is, a handful of employees, expecting to pay about $2500 a month in premiums. She agreed that this was so, and we did a little math:

The 25-office group, with 5 covered employees (plus some dependents) at $2500 (per office) is $62,500 a month.

And although unlikely, let's presume that he's successful in persuading another 25 such offices to sign up, contributing another $62,500.

This means that, assuming everyone pays on time (right!), PHA will have $125,000 on hand to pay whatever claims come in on January 2nd. And 3rd. And so on. Will that be enough?

Well, there's no way to tell, because the enrollment form (not an application) asks no health questions. Who knows how many diabetics, cancer and MS patients and pregnant women are signing up for this? There's just no way for them to know.

But surely, you may ask, there's some way for PHA to know ahead of time what they're getting into? How else would they know how to price the plans?

Nope:

The employer application does ask about any known claims and health conditions. But as my client pointed out, as a physicians' office, she's precluded by HIPAA from disclosing these (especially since PHA specifically asks for names attached to those conditions). Presuming that the other physicians' offices also comply with HIPAA, PHA will have zero underwriting information going in.

I'm sure they'll be well-informed by, say, January 2nd.

In Part 2, we discuss some of the other major problems with this new program.