I had a quick visit with Armstrong & Getty this morning to discuss the UHC CEO murder, America’s reaction thereto, why so much of the ire on this topic is off base, Obamacare’s medical loss ratio mandate, the Medicare cost shift, and some super simple advice on purchasing insurance products.
Since 2009, I’ve been on air with Jack and Joe well over 100 times. It's always an honor to be on their show.
All Economic Stakeholders in American Healthcare Are Incentivized by Perpetual Sickness – Except One
7 AM Hour - Just a Wee Bit Less Dynamic: features our guest, Craig, the Obamacare Guru, who joins Jack to discuss...
I spent one morning this week chatting with Armstrong and Getty regarding the news that the federal government will finally begin negotiating the price of drugs. 10 of them. Two and a half years from now.
Well, it's a start...
Your health insurance costs and premiums have skyrocketed compared to the rate of inflation since Obamacare passed. Meanwhile, insurance carrier stock prices have grown by 1900% in the same timeframe.
"They're making unimaginable amounts of money... off of you." -Joe Getty
Craig Gottwals, aka "Craig the Healthcare Guru,” talks about that and more in a new episode of A&G's Extra Large Podcast.
Listen to the Armstrong & Getty Extra Large Podcasts featuring Craig.
Originally posted here.
This week in the government-healthcare complex's
gluttonous plundering of U.S. business, we saw that:
I read stories like this every week and become increasingly enraged at the cruel injustice of it.
We Already Have a Socialized
System
The latest studies on the topic show that the American
taxpayer funds 71% of all healthcare in blue states like California. That leaves 29% of healthcare costs funded by
folks paying their own way to pay 224% of what the healthcare industry's
largest customer (the federal government, primarily via Medicare and Medicaid)
pays for the same procedures at the same facilities. Still think that the healthcare you receive
at work is not taxed?
The rampant fraud riddling American healthcare boggles my mind. No, I'm not talking about the
fact that one of every three dollars spent in the Medicare and Medicaid system
is squandered on waste, fraud, or abuse (1). Nor am I lamenting how America's largest
purely socialized system, the Veteran's Administration, is so indifferent to
our veteran's needs that it creates fake appointments at nonexistent clinics so it can show auditors that the wait times and abject
patient neglect are not as they indeed are.
I'm also not referring to how and why you overpay for prescriptions by
at least 25% to 50%. Pharmacy
benefits are a treasure trove of corrupt pricing, hidden rebates, and shell
games that would expand this post beyond a reasonable length (2).
Instead, I'm talking about the gargantuan tax every
employer and employee (3) pays for the "privilege"
of buying commercial health insurance through the workplace. Because Medicare and Medicaid pay
facilities (4) so meagerly for services, hospitals respond by listing retail
or chargemaster prices that are three, four, five, or even ten times as high
for the same procedures at the same facilities.
Below is a 2016 summary of cost data on Medicaid (for low-income) showing that, on average, Medicaid may not even cover the actual cost of
providing services. Generally, Medicare (for the elderly) pays a little better than this in most states.
Your health insurer then negotiates a 50% discount on
that completely phony "price" the facility claims through its
chargemaster in the hopes that employers and employees will be mollified by the
seemingly considerable discount they receive for the privilege of having a
private plan. In the end, private payers
pay a national average of 224% of Medicare and as high as 600% of a hospital's
cost in a state like California.
Does your business get to mark up its products by
600%?
Additionally, those with self-funded plans know that
you are also paying $20 per employee per month for that privilege of getting a
50% discount on a claim that's been fraudulently priced at 500% of Medicare. It is what Dave Chase, writing at Forbes, hypothesized might be "The Greatest Heist In American History."
Obamacare was going to fix this, right? Remember when President Obama stood in front of cameras and told us, tens of times, that the cost of healthcare was going to godown by $2,500 per family?
Here is what that government promise of a $2,500 reduction in family premiums looks like in real life. It is the orange line below. See the massive drop in 2010 and the continued drop over time? Neither do I.
Source: KFF Employer Health Benefits Survey, 2018-2022.
But certainly, our fearless government leaders finally reined in the obscene carrier profits in order to protect the little guy with the passage of ObamaCare, right? Not so much.
Source: Yahoo Finance.
Okay, enough of this. I cannot stomach another fact in this vein.
Employers, There is Another Way
Three Steps to a 40%
Cost Reduction - A HealthCost Revolution
Step 1: if you are too small to engage in any form of self-funding
or partial self-funding, buy as little insurance as possible. The more premium you pay, the more you are
pilfered. You have to get out of that
game. Purchase the highest-priced
deductible plan your insurer offers, then self-fund the amount under that
deductible with a Health Savings Account (HSA) or Health Reimbursement Account
(HRA). If you have less than about 250
employees, depending on your cash flow, industry, and geographic locations,
this might be the best you can do.
Step 2: If you have more than about 250 employees, you
should evaluate whether you can opt out of this fraud entirely, say goodbye to
your insurers, and move to a reference-based pricing (RBP) system whereby you
pay some reasonable margin over the Medicare price. For example, you might pay 120% to 140% of
Medicare. It fundamentally works, is
legally quite creative and astute, and will provide your employees with better
benefits, lower costs, and more freedom.
Is the first step intimidating, potentially rocky, and
one that requires plenty of education? Yes. But making this move will reduce the cost of
your health plan by 20% to 40%.
I wrote about how this will be the only mechanism that
has a meaningful chance of saving private healthcare in America back in 2020
here: America will dramatically change the way it provides health care by 2030
I recently wrote about the financial imperative of
evaluating this process now, here: The fiduciary imperative of reference-based pricing: A legal and financial
analysis.
And I was
recently interviewed on the Armstrong and Getty Radio program, discussing this here.
Step 3: In
conjunction with your move to a self-funded RBP platform, you then must also
take control of your pharmacy coverage via a direct contract with a pharmacy
benefit manager (PBM) or one of the newer consortiums that aggregate numerous
employers under one set of contract terms to maximize the pharmacy discounts
and rebates for you, not an insurer.
This move alone reduces your pharmacy bill by 25% to 50%.
If
your broker is not talking to you about what I call the HealthCost
Revolution of:
You need to fire them. Period. Hard stop.
I've been an attorney for 23 years and a full-time insurance broker for 21. The required education and licensing for brokers are hysterically ludicrous. In most states, it takes a one-week course and a junior-high education to become a licensed broker. Carrier influence dominates that process as agents-to-be are taught that they have an equal obligation to their carrier and policyholder. Future agents are trained that this is some sort of collaborative cuddle fest in which carriers, employers, and employees all sit around campfires, roast marshmallows, hold hands and sing Kumbaya.
Oof. I need to step away for a bit. Why do I insist on making myself so sick?
I recently created this meme for my team members after a carrier emailed us, explaining that the carrier did not expect me or my team to market my employer's policy this year, as asking for quotes every year is not the "best way to proceed."
Ha!
Best for whom?
Yes, they are that brazen. They do not partner with you and are not your friends. Their job is to maximize revenue, and that means maximizing your premium.
Here is the reality. Every one of those three steps in the HealthCost Revolution reduces premiums and adds heaping piles of work to your broker's plate. The broker will be giving themselves a pay cut while requiring much more work and expertise. In fact, probably only about 5% to 10% of brokers in the West are qualified to install and manage a self-funded plan, as HMOs have been so dominant in the West that few brokers have had the opportunity to learn what they need to effectively manage this process.
I can hear some of you out there saying, "That's why we don't pay our broker a commission; she is on a fee basis."
To this, I respond, okay, great. At best, you've capped their pay and will be asking them to do much more work to install this protocol. Most likely, you are paying your broker a fee and allowing your carriers to also collect the commission that should be going to your broker. Yep, Obamacare created that double-dip trap as well. I wrote how and why that happened years ago here.
As a lawyer, my training is to protect my client (policyholder) in all cases. I scoff at the "equal duty to carrier and employer drivel" and act solely as my employer's advocate. Asking a broker to be the prosecutor, public defender, and judge in one proceeding is a bad joke.
Our healthcare system is a convoluted, byzantine myriad of corruption. I cannot stand by and refrain from screaming from the rooftop. Don't get me wrong. There are plenty of fantastic people in the healthcare system. In fact, I know that the vast majority of them are there for the right reasons. They want to help people.
But even good people cannot save a corrupt system.
That's
right; it’s corrupt. I used to say it
was broken, but it is not. It is
designed this way. We didn't end up here
by accident. If you doubt me, let me
repeat:
The healthcare industry represents the largest employer and the largest lobbyist in the United States, spending $700 million lobbying legislators and regulators every year. It makes up 18.2% of the U.S. economy. At its highest levels, it is loaded with the shrewdest operators you can imagine. It uses artificial intelligence and massive data analytic tools to vacuum up every conceivable detail about every one of us, as I recently wrote about here: WeaponizingHIPAA privacy.
Furthermore, it is important to note that officials responsible for managing federal agencies tasked with supervising the United States healthcare system frequently transition from their governmental positions to leading roles in the very corporations they once regulated. The term for this phenomenon is "revolving door," which refers to the movement of government officials between public sector roles and private sector positions, often within industries they previously regulated. This repugnant twist enables them to capitalize on their expertise, influence peddling, and skillfully manipulate the governance system for the benefit of their new employers. Recently, The Survival Podcast highlighted this phenomenon through a thought-provoking illustration. Employing humor as a coping mechanism for such prevalent absurdity is essential; without the ability to find levity in these situations, I’d struggle to maintain my sanity.
 |
| A light-hearted look at the most recent Revolving Door “swingers.” For a sobering look at the hundreds of these taking place in D.C. visit Open Secrets. |
In summary, it is crucial to understand that health insurers do not serve as your friends or allies. When Chief Financial Officers delegate the responsibility of managing health insurance expenses—which frequently rank as the second or third largest cost for employers—to Human Resources departments, they are neglecting their fiduciary duty to minimize costs in a reasonable manner. Human Resources professionals typically lack the legal expertise of attorneys and the financial acumen of finance executives, which further underscores the importance of involving the appropriate personnel in managing these critical expenses.
It is imperative that American businesses take decisive action to reduce healthcare costs by utilizing the innovative tools at their disposal and engaging the most competent consultants or brokers to aid them in this process. Failure to do so could result in the collapse of the employer-based healthcare system, leading to the implementation of a minimal, Medicaid-for-all arrangement. Under such a system, individuals with the means would acquire supplementary coverage, while those without would face extended wait times for necessary care and elective procedures. This will, in turn, prompt the departure of more top-tier providers from the system (5).
It is essential to emphasize that this scenario envisions Medicaid for all, rather than Medicare. Despite the government's willingness to employ quantitative easing measures, injecting trillions of dollars into the economy at a moment's notice, Medicare remains prohibitively expensive—even for a nation with a $32 trillion debt and no hesitation to take on more.
Concluding on a lighthearted note, I would like to share two more memes. As the adage suggests, "A picture is worth a thousand words," so allow me to present an additional 2,000 words of insight.
 |
| It's time to tighten up your health plan. |
Footnotes:
(1) Malcolm K.
Sparrow, a professor at the Kennedy School of Government at Harvard
University whose book License to Steal is a classic in the field, thinks that Medicare’s
fraud-related losses may run “as high as 30 to 35 percent” of its budget. From Chapter 12 in Overcharged: Why Americans Pay Too Much For Health Care, by David A. Hyman and Charles
Silver.
(2) The following is an excerpt from the same book. It is an anecdotal example of just how corrupt our prescription rules and practices are:
Why do so many eye
doctors use pricier Lucentis when cheaper Avastin is available? You guessed it:
Medicare pays physicians a lot more for using Lucentis. A 2013 Washington Post article explained the
finances.
Under Medicare repayment
rules for drugs given by physicians, they are reimbursed for the average price
of the drug plus 6 percent. That means a
drug with a higher price may be easier to sell to doctors than a cheaper one. In addition, Genentech offers rebates to
doctors who use large volumes of the more expensive drug.
Got that? Medicare pays
doctors far more for administering Lucentis than Avastin to patients with wet
macular degeneration because Genentech charges more for the former than the
latter. Six percent of $2,300 is $138; 6
percent of $60 will barely buy you a white chocolate mocha at Starbucks. Genentech then sweetens the deal by giving
doctors who use large amounts of Lucentis discounts that the doctors get to
keep. It’s easy to see how Medicare put
taxpayers and seniors on the hook for $1.2 billion in payments for Lucentis in
2012. The hard part is explaining why
many doctors, to their credit, continue to use Avastin. The cost to taxpayers and elderly patients
could be much higher.
(3) I write "employer and employee" here to not confuse
folks needlessly while making a different point. But make no mistake; employees pay for every
nickel of this. We often fail to
acknowledge this reality because, on its face, an employer generally deducts
10% to 50% of our healthcare premium and then pays the rest of the bill to the
carrier monthly. However, every single
penny comes from an employee's compensation.
If the employer were not forced to fund those dollars into healthcare,
that remuneration would be provided to employees in the form of pay, other
benefits, time off, or efficiencies resulting in job/employment growth, etc. This is covered expertly in Chapter 1 of
Marshall Allen's book, Never Pay the First Bill.
(4) The same phenomenon exists for providers (doctors) as well as facilities, but the problem with providers is not nearly as pronounced as it is with facilities. Roughly 80% of a plan's claims occur with providers, but 80% of costs are generated via the high-cost services occurring in facilities (primarily hospitals).
(5) America is projected to have a shortfall of 139,000 physicians by 2033, representing 13% of U.S. providers.
You come to work one day, and notice Susan is not there. Nobody knows what happened to her, and everyone appears oddly tight-lipped about her absence. Finally, you and your coworkers are told she has taken a leave of absence. No other details are given. Attorneys, corporate compliance officers, and human resource personnel have been properly coached as to the myriad of stringent health privacy rules in the workplace, and everyone is rightfully paranoid.
I am reminded of an eccentric law professor I had who relished saying, “No good deed goes unpunished,” whenever discussing the inevitable unintended consequences of legislation or contract terms.
But after 22 years of HIPAA Privacy, I am not even sure the main impetus behind its passage was ever a good deed – at least not for those who have weaponized its use against employers.
The Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule was designed to protect individuals’ medical records and other personal health information. However, the latest practices by health insurance carriers raise serious concerns about how they circumvent these rules to maximize premiums. ...
Something struck me as peculiar in Friday's Armstrong and Getty radio program. It was in hour two, on “Geeks and Playgrounds.”
They covered this story from Reason: German Insurance Companies Demand Perilous Playgrounds So That Kids Can Learn About Risk.
My first question was, who is calling for this? Health insurers or property and casualty insurers, or both?
Turns out it is not the traditional health insurance market, but accident insurers. I think of accident insurers as more closely aligned with property and casualty since they pay you for harm done after the fact instead of covering medical costs as you go. But it doesn’t matter for this analysis; I just found that interesting.
The Reason article states:
With young people
spending an increasing amount of time in their own home, the umbrella
association of statutory accident insurers in Germany last year called
for more playgrounds that teach children to develop 'risk competence.’
Insurance lets you purchase a piece of mind for risks that make you uncomfortable. Ideally, it is for risks you know you cannot cover alone. Of course, it is also used for risks that would be too painful to cover, such as if it required you to sell your home or your fist born. I always start there. Most white-collar folks who make more than $100K annually should buy the highest deductible they can stomach for home and auto insurance.
Furthermore, unless an employer pays for all or most of it, there is no need for dental or vision insurance. Those are risks we can assess and should have enough savings to cover. Paying an insurer to do so inserts a middleman, pays them a profit and leaves you worse off.
What do we need? Medical and disability insurance. We also may need life insurance if we have dependents. Eventually, you should get to a point in life where you no longer need it. I.e., kids out of college, home paid off, some savings in the bank. At that point, your dependents will be fine with your assets.
My second question was: why do German accident, property, and casualty insurers want Germans to be better with risk? My initial instinct tells me that this was against their interests. Snowflakes who grow up cringe harder and fear more. Thus, they will buy more insurance, even if it is irrational. And that generates larger profits for insurers. But then I realized I was likely thinking too long-term. Publicly traded corporations may talk in terms of three to five-year plans, but in reality, they had better show growth this quarter lest they want to get a public spanking.
The article does go on to state, "children who had improved their motor skills in playgrounds at an early age were less likely to suffer accidents as they got older." That does lead one to believe that this is about profitability. But I still don't fully buy it. Why? Because as soon as they begin to see more accidents due to a wincing, flaccid populace, they can justify higher premiums and make more profit.
Granted, property and casualty insurers use different loss ratios than health insurers, but the following analogy illuminates the point. In America, it is widely accepted that insurers can make a modest and reasonable profit at an 87% loss ratio. That means the insurer pays 87 cents in claims for every dollar collected in premium, leaving 13 cents on the dollar to pay salespeople, train staff, hire administrative folks, pay rent, and pay taxes.
What is really going on in Germany? I’m not entirely sure. If I take my tinfoil hat off and make an effort to be altruistic (just for a minute, Ayn. It’s just a thought experiment!) I might conclude that the German insurers are genuinely doing what they think is best for their nation. I mean, it is still possible for mega-corps to do the right thing for the right thing’s sake, isn’t it?
Just kidding. It is likely something a little deeper. Actuarial tables are complex sets of data tasking actuaries and, eventually, underwriters with the “art” of assessing risk. Yeah, it is more of an art than a science, as much as they want you to believe it is perfectly cold and calculated. Don’t get me wrong. Their job is, as my buddy Gary would say, “harder than a whore’s heart.” But there is so much wiggle room in there that if policyholders knew how the sausage was made, they’d likely go vegan. And don’t think for a minute government actuaries do any better. For example, when Medicare and Medicaid first passed in 1965, government bean counters told us it would cost $12 billion by 1990. In reality, it was $110 billion.
More recently, Obamacare originally had long-term care insurance embedded within. But the reality on that line of coverage is that folks are living so much longer now, in old folks’ homes and in need of continual care, that the industry still has not come up with a reliable way to assess this risk. Hence, congress repealed Obamacare’s LTC program before it ever got off the ground. Californitopia also recently eliminated its LTC coverage in CalPERS.
The point is, as much as I want to believe insurers can simply raise premiums to cover increased risk, it’s not something that easily happens overnight. And the one thing that insurers hate more than anything is … the unknown. If they can’t measure and assess it, they pull the product or jack the rates so high that nobody wants to buy. Obamacare cemented that trick for American health insurers:
Sure, you can keep it so long as you can afford the premium increases, your employer doesn’t change carriers, and your carrier continues to offer the same obsolete plan even though they are now required, in every state, to license a whole new litany of plans that comply with Obamacare’s mandated bloat. Easy peasy.
The Patient Disruption and Unaffordable Care Act made a rule that mandated insurers always renew coverage at year’s end. Pre-2010, your insurer could cancel you if you had an epically bad year. Obamacare fixed that. Now, carriers issue 75% renewal increases to accomplish the same thing. Problem solved.
I’m left with three possible conclusions as I ponder this story:
1. (1) If German
accident insurers operated under the same warped, public-private partnership (i.e.,
fascistic)
rules as Obamacare, not only would those insurers display indifference toward greater
childhood risk-ignorance, they would foster it. That would lead to more claims and be the only
way German insurers could generate more revenue in the future. Again, 15% of a billion is much better than 15%
of a million. Aren’t price controls
neat?
2. (2) Enough cynicism. Let me white pill this for a moment. It is certainly possible that the insurers want what is best for Germany. And, as they look across the pond to their WWII liberators, they see what happens when you fastidiously bubble-wrap your youth in endless layers of protection. It’s not good. Good times are definitely creating weak men. So, at least on its face, there is an argument that the Deutschlanders are solely doing what is right for their youth.
3. (3) This brings me to my third and most likely conclusion. Germany’s carriers are horrified at the speed at which the namby-pamby are changing risk calculus. Hence, Germany’s plea to allow more risk and play on more dangerous playgrounds is more likely tied to the bottom line. It is not our Obamacare analogy or altruism; instead, it is most like our U.S. long-term care calculus. In their eyes, if people become more paranoid and want to buy more coverage for perceived risks, great. But let’s not do this overnight because we still must have some clue as to how to underwrite our precious little snowflakes in the short term. For a carrier, claim expansion is great for business over the long haul if it is predictable and can be ushered in with higher premiums. But the market will topple when the claims skyrocket in a short enough period (like 1 to 3 years).
Alas, this third conclusion is actually
the scariest. Accident insurers (at
least in Germany) are signaling that the wussification of our youth is
happening so fast, they are not confident in their ability to profit from
it. It’s bad enough that we
bubble-wrapped our snowflakes as we hover over them in helicopters to ensure
nothing bad ever happens. But we’re doing
it so fast that the oligarchs and the oligopoly are worried that our degradation
will infringe upon their ability to plunder from our demise.
I spent a couple of segments on the air with Joe Getty this morning discussing the very latest healthcare cost increases in and out of the exchanges, as well as how employers are fighting back by option out of the Government-Insurer-Complex madness with reference-based pricing.
I spent a couple of segments on the air this morning with Jack on the Armstrong and Getty Radio Program.
Show Notes/More Reading:
This is from Avik Roy, writing on this phenomenon at Forbes:
"Since many of the administrative costs in health insurance are hard to cut out—costs like fraud prevention—insurers will be forced to resort to another option to meet Obamacare’s MLR mandates: premium hikes.Think of it this way: let’s say you’re charging $10,000 for a health plan, and have $7,000 of health costs associated with that plan (and $3,000 of administrative costs), for an MLR of 70 percent. If you want to increase your MLR to 80%, there are two ways to do it. First, you can cut administrative costs and premiums (if administrative costs were $1,750, and premiums $8,750, $7,000 of health costs would equal an 80% MLR). Second, you can keep your administrative costs the same ($3,000 per person), and find ways to spend more money on health-care, passing on the costs in the form of premium hikes ($15,000 in premiums, and $12,000 in health expenses, would also yield an MLR of 80%).To put this another way: if an insurer is forced to choose between cutting administrative costs by 42 percent, or not firing its employees and instead hiking premiums by 50 percent, which is it going to choose? After all the fat is trimmed, the insurer is going to choose to increase premiums, and increase them significantly. It will spend money on wasteful health expenditures, the kind that liberal health wonks are always complaining about, just to meet an arbitrary MLR target."