There was an illuminating article in the March 4th, 2013 issue of Time Magazine about the exorbitant costs of health care today. In the article, an expose on the billing practices of the nation’s hospitals, the author, Steven Brill, decries the seemingly out of control mark-ups for the goods and services you get from hospitals and medical providers. He gives example after example of the hardships faced when health disaster strikes American families and they are faced with the crippling debt that follows. While this is the unfortunate reality for many Americans, it is important to know WHY these costs occur and what you can do to make sure you are not the next victim.
When is an Aspirin Not an Aspirin?
The article illustrates the sticker shock of horrendous mark-ups on seemingly simple items and procedures on a given hospital bill. The example is used of being charged $1.50 for one tablet of ACETAMINOPHEN TABS 325 MG (Generic Tylenol). The article further points out that you can get a bottle of this very same drug on Amazon.com for 100 at $1.49. So, why aren’t we able to pay 2 cents (rounding up to the next cent, of course) for that same tablet??
Because, we are not just paying for the aspirin! Along with that aspirin, we need to pay the salary of the nurse who gave it to us, rent on the hospital grounds, electricity for the hospital that our monitors are using, administration costs, the list goes on and on. Look around and think of all the things you are NOT being charged for during that stay. For every service that is charged, there are dozens of associated costs that have to be accounted for, and passed on in an increase to the charge for the service itself.
Now, not all of these costs may be fair and understandable. The article goes into great length about the hospital president who is making north of 1.8 million dollars a year. Understand, this individual does not bring in any revenue themselves, so that $1.8m has to be accounted for somewhere- hence the $1.50 tablet of generic Tylenol. These are some of the things you need to consider when you see that hefty charge for such a seemingly simple expense.
Sometimes it’s who pays, that decides how much!
Aside from the cost of a service, and the associated charges, it’s also important to understand the levels of reimbursement that health care providers receive for these services. Depending on who’s footing the bill, that charge may vary greatly.
At the low end of the spectrum you have your Medicaid and Medicare services. The services provided under Medicare and Medicaid are contracted through the federal government and at a heavily discounted rate, most often below the profit line for the provider. Yes, medical professionals commonly lose money treating patients on Medicare or Medicaid. This loss has to be made up somewhere…
Next, you have your private health insurance, both group & individual. Having health insurance is not only a benefit because the insurance company will pay a portion of your expenses- depending on the plan benefits, but because they also have contracted rates with their health care providers. Although these rates are not nearly as low as the ones discussed above with Medicare, they will offer a significant reduction of charges compared to not having insurance at all (keep in mind, we’re only discussing the billed amount for services, not the portion that your insurance coverage may pay!). The health insurance industry is the primary “customer” of the health care provider; most of their income will come from patients having some form of health insurance. Because of that, the rates that are contracted obviously must generate some form of profit for the healthcare provider, as they cannot run at a loss as they may do under Medicare/Medicaid. This is the bread and butter for most health care providers.
Before we continue, let’s look at what we have discussed about reimbursement so far, using very general examples. Let’s assume, like the great hope of Health Care Reform, that everyone has health insurance- either through Medicare/Medicaid or through a private insurance company. Now, your healthcare provider has a “break-even point” (say, 100%) where their income and expenditures (including all the factors we discussed above) are equal. However, in order to maximize the use of what economists refer to as their “factors of production” (labor, costs of supplies, office space, etc.), account for natural rises in costs, and hopefully expand their operation, even a “not-for-profit” healthcare provider must make some sort of profit. So, we take that “100% break-even” and move it to, say “110%” to account for this needed growth.
As we discussed, with Medicare and Medicaid, the contracted rate with the federal government is easily below the original 100%. For sake of argument, let’s say it’s 85% on average of that natural break-even. So, if we were to look at our desired minimum profit margin, every one of these claims is being paid at a 25% loss. (The 85% rate minus the 110% target). Where is that loss made up?
Next, we have our private health insurance. As with the government programs mentioned above, private insurance companies contract with the healthcare providers for special rate consideration in order to reduce the total cost to the consumer. However, unlike the government- which has the bargaining power to force that “85%” discounted rate, the private insurer has to negotiate with the healthcare providers to work out a mutually agreeable rate. On one hand, this rate has to be as low as possible to be attractive to the insurance companies and their subscribers. However, since this rate for services will represent the bulk of the possible income, including offsetting the losses from Medicare/Medicaid, this rate would have to be, using our example, a minimum of approximately 135% of the actual cost of service (adding the 25% loss from Medicare/Medicaid to the target 110% profit goal.). The contracted rates for private health insurance must balance out the reduced rates given to government sponsored programs.
Now, let’s talk about what happens when you have no coverage at all. As we have just discussed, the contracted rate for private insurance (the 135% of actual cost), should offer a significant rate reduction to the cost of not having coverage! So, since we have a contracted rate of 135%, what would constitute a significant rate reduction… 50%-65%? So, conceivably, you could have an Out-of-Pocket rate for a service of 200% the actual cost of service or above! (Please note that the percentage figures above are not exact, and used only for illustration.)
On top of all that, you have to account for fees not recovered! Think about this logically- as we illustrated above, the healthcare provider charges the highest amount to the uninsured. Now, if these people had the income, would it not stand to reason they could afford the insurance, thus paying a much smaller fee? So, what happens when someone received an exorbitant bill for services they obviously couldn’t afford in the first place? That bill goes unpaid! At the very least, a large portion of it is written off. Granted, the original price is probably inflated anyways, so some write-off is fine. However, if too many bills are written off, for too long, those losses have to be recouped somewhere, thus overall prices increase.
It’s Going to Get Worse Before it Gets Better
With the advent of Health Care Reform comes the expansion of Medicaid and the tightening of Medicare. With the widespread expansion of Medicaid, you will see many more people covered with government sponsored coverage, and Medicare will be paying less for services. These factors mean more people getting service, paying at that “85%” or even lower, thus disrupting the current balance of rates we discussed above. To counter balance, private health insurance contracted rates will have to increase, however, that amount will be somewhat controlled though the leveraging power of the insurance companies, thus the uninsured rates will skyrocket. There has not been a time in history where it has been more important than it is now that one is covered by a health insurance plan!
Now, not just any health insurance plan will work! There are still controls as to how much one plan will pay, and for what services. Many of the sad stories in the Time Magazine article were from people who had some form of insurance. The problem was that different plans have different networks of health care providers and different schedules of what services may be covered in an effort to keep the costs and member premiums under control. If you go out of the network on some of these plans, or have services that are not otherwise authorized, even your insurance may not help you! It is monumentally important to get your health insurance through a licensed professional who can walk you through exactly what is and is not covered in your plan options, and point out the possible exposure you might face under a given plan.
Also, with healthcare reform, both healthcare providers and insurance companies are being forced to work within much tighter confines, helping a lot more people for a lot less. Add to that the fact that being insured will now be a legal requirement starting in 2014, and you can bet that the debts of the uninsured will not be forgiven nearly as easily as they may be now.
It has never been riskier to be without health insurance. Whether or not it is right or fair, the health care industry will charge what they have to. Last year, health care alone made up 20% of the Gross Domestic Product, dwarfing any other industry in where American dollars were spent. The health care industry is also the largest spender on lobbying in Washington DC, beating out Military/Aerospace, Tobacco, and Big Oil. This is an industry that is too big to fail. And with all the changes and cuts being forced into effect by Healthcare Reform, someone is going to be left holding the bag… Someone will have to pay, and it won’t be the health care industry. As it stands now, it will be the uninsured.
As you may or may not already know, the face of health insurance as we know it is about to change drastically in the coming year. Starting January 1, 2014 the major component of President Barack Obama’s sweeping health care reform goes into practice, as individuals and small business will have unprecedented access to health insurance via what is known as the “Exchange”. The Exchange will be a state or federal run website where individuals will be able to select and choose health care plans for themselves and their families, and, in many cases, get a subsidy to defray the cost of this coverage. Small businesses are also going to be able to have access to similar coverage through a site known as “The SHOP”.
Now, on the upside, this access to health coverage, as well as the low-income subsidies, (oh, and did I mention that starting in 2014, you will not be denied for any pre-existing conditions? …Unless you count smoking as a pre-existing condition- seriously, time to quit, people!), will go a long way to ensure that almost all Americans will have proper health coverage, and be able to afford the medical services they will need! However, as most of us know, the realm of health insurance is a tricky one. It’s a web of little details and fine print. Finding the right insurance coverage for you or your family is a balancing act between getting the things important to you covered while keeping your costs as low as possible. There are hundreds of options to choose from but only a very few that are right for a given individual. Given this free access to buy something so important without proper guidance on such a mass scale, this Exchange could very easily lead to disaster. Never fear though, there is a new breed of government agent to save the day!
As a part of this change, the state exchanges are required to establish what is known as a “Navigator” program- Basically, a paid public advisor to assist you in your options though the exchange. Sounds great, right? Not so fast…
The navigator program has some serious flaws, and is a potential danger to those newly seeking out their insurance options in the coming year. For purposes of comparison, this “navigator” is basically an insurance “agent” with this new exchange, as opposed to actual insurance agents (broker) who already handle assisting people with their insurance needs. The proponents of the navigator program will cite impartiality as the benefit of the navigator over the broker. They would make the argument that the navigator, being paid by the government or independent grant, will not “steer” an individual toward specific plans due to the level of commission that they may get, in contrast to brokers who are paid commissions by the insurance carriers for their work. This is potentially true. However, a good broker acts in the best interest of his client first and foremost, and is held accountable for this (more on that later). It’s just good business sense! If a broker were to continually steer his clients into inferior plans, thinking only of commission and not client need, he or she would not have clients for long. Not to say that this may not happen, but it’s the gross exception, not the rule. But, that’s it! That is your one potential advantage of using a navigator over a broker once you are ready to shop for your health coverage.
Now let’s talk about the disadvantages, shall we?
The big one here is knowledge! Insurance brokers have to go through an upwards of 52 hours of class and pass a state exam, just to get a license. After that, we have to take continuing education classes every year to keep that license current. At this point, navigators are not required to be licensed! Furthermore, brokers also work closely with and train with the insurance carriers to stay current with the details of the plans they are offering. Brokers also have the experience. For example, the licensed brokers at Parisi Insurance Agency have an average of 18 years of health insurance experience. Not only are the navigators not expected to be licensed, to date, no standards have been issued for what they are going to be required to know and if there is a testing, etc.! This program launches its Open Enrollment in October, is that really enough time to learn what they will need to know for such a responsibility? Furthermore, insurance brokers will have to take whatever class/certification the navigators take anyways, so the broker will know everything the navigator will know- the reverse, however, will not hold true.
Availability may also be an issue under this new navigator program, the general idea thus far is that grants from the government would most likely go to trade organizations, business associations, and other community based organizations. What if you do not work or live in a specific trade, business or community? How would you know to find them? Brokers, on the other hand, look in the phone book or internet under “health insurance”, you find a list of them, right in your neighborhood!
It’s important to note that the information provided above regarding the navigators is not final, and is subject to changes as we get closer to the launch of this open enrollment. However, again, is there enough time to launch this navigator program on a national scale and have it be even remotely useful to the consumer?
There will be a lot of very important choices to make in the coming year where your health care is concerned. Chances are you’ll need some guidance in these matters. You will be hearing a lot about these Navigators in the coming months, don’t believe the hype. Do yourself a favor and trust the experience that comes with an insurance agent!
The Food and Drug Administration has approved a first-of-a-kind breast cancer medication that targets tumor cells while sparing healthy ones. The drug is called Kadcyla (kad-SY'-luh) chemically combines the established drug Herceptin with a powerful chemotherapy drug. The chemical keeps the cocktail intact until it binds to a cancer cell, delivering a double-shot of anti-tumor poison. Overall, patients taking Kadcyla lived about 2.6 years, compared with 2 years for patients taking the other drugs. It is estimated that Kadcyla will cost $9,800 per month, compared to $4,500 per month for regular Herceptin. A full course of Kadcyla, about nine months of medicine, is estimated to cost $94,000.
Do you know if your health insurance plan would cover a drug like Kadcyla? Many people don't know what kind of prescription benefits they are entitled to until they develop a serious medical condition such as breast cancer. That is why it is very important to be on a plan that has solid prescription benefits. You never know when you might need a specialty drug like Kadcyla to save your life. If you are unsure of your prescription benefits, call us today. One of our experienced licensed agents can explain your benefits to you, and if necessary, help you take steps to change your plan to one that offers quality prescription benefits.