How can we most fairly spread the total cost of care for all Americans across the whole population?  Should sick people pay more than healthy people?  Should overweight people pay more than their slender neighbors?  Should a family with six children pay more than a family with one child?  Should older people pay more than younger people?  Should people with higher incomes pay more for their health care than lower income families?  These are the sort of questions that address the issue of how to fund our current high-priced health care.  And they are a huge part of the reform debate, including all the discussions about mandatory health insurance and guaranteed issue coverage.

But value in health care is another cost issue, and one that I don’t believe has been adequately addressed in the current health care reform bills.  Earlier this year, we had to call a plumber to have some work done in our bathroom.  He did a great job, and our total bill came to $165, including parts.  A week later, our son caught his finger in a door, ending up with a pretty severe cut.  We took him to the emergency room (unfortunately it happened after the lower-priced urgent care center had closed for the evening) where he had an x-ray and got three stitches.  We’ve started to get the EOBs from Humana, and so far the total amount that we’re expecting to be billed is over $1,400 (that’s after the network negotiated discounts, and there are likely more EOBs to follow).

We have an HSA qualified policy with a $5,000 deductible, so we’ll be paying the whole bill for our son’s finger ourselves.  But that’s not really the point.  Regardless of whether a bill is paid by the patient or by the health insurance company, we all need to be asking ourselves whether we’re really getting a good value for our money.  When the average household income in America is just over $50,000 a year, does it make sense for a cut that requires three stitches to cost more than $1,400?  Health care spending in the US is 16% of our GDP, which is dramatically out of proportion with what other countries spend.  And all of those dollars being spent on healthcare aren’t available to be spent on other things like education and quality food and clean energy.

Both the plumber who came to our house and the PA who stitched our son’s finger performed a very necessary service for us.  Both are highly skilled in their areas of expertise, and we’re grateful for the work that they did.  But was the work that the PA did ten times more valuable than that of the plumber?

Perhaps the question we should be asking is not who should be paying for healthcare, but rather, why in the world are we paying so much in the first place?  Health insurance premiums will continue to rise as long as health care costs do the same.  It won’t do any good to try to address premiums without first figuring out why we’re paying so much for our health care in the first place, and doing something about it.

Anthem charges the same premiums regardless of whether a policy is new or has been in force for several years.  A 40 year old, healthy, non-smoking male who purchases a policy this month will be paying the same premiums as a 40 year old healthy non-smoking male who has had an Anthem policy for ten years, assuming they both live in the same zip code and have the same type of policy.  Because of this, it’s relatively easy to compare Anthem’s rates – even after rate increases go into effect – with those of other carriers in Colorado.  The rates being offered to new Anthem clients include the rate increases that went into effect in January.

To get an idea of how Anthem’s prices compare with other carriers, I got quotes for a family of three, living in the Denver metro area, for a high deductible, HSA-qualified policy with 100% coverage after the deductible.  These plans are relatively easy to compare, as they tend to be quite similar from one company to another.  I looked for policies with a $5000 or $6000 family deductible (most companies offer one or the other, but not usually both), or something in the middle of that range if neither exact number was available.

Here’s what I found, from several of the top carriers in the Colorado individual market:

• Cigna = $325 (for a $6000 deductible)
• Anthem Blue Cross = $377 (for a $5000 deductible)
• Humana = $402 (for a $5000 deductible
• Kaiser = $441 (for a $6000 deductible)
• Assurant/Time = $449 (for a $5700 deductible)
• United HealthOne (Golden Rule) = $461 (for a $5800 deductible
• Aetna = $481 (for a $6000 deductible)

Obviously this isn’t comprehensive data.  I only got quotes for one family, using a single zipcode.  Factors like pre-existing conditions, tobacco use, zipcode, and plan design all have an influence on premiums.  But these numbers would seem to indicate that while Anthem’s rate increase may have been large, it seems to be in line with what other carriers are charging in Colorado.  For the little test I conducted, Anthem’s premium was the second-lowest I found, and the only one with a lower premium had an additional thousand dollars in out of pocket exposure.

I’ll be curious to see what the Division of Insurance comes up with when they re-evaluate Anthem’s 2010 rates.  My guess would be that they will approve the rates.  If they don’t, it would stand to reason that they will have to also re-evaluate the most recent rate increases for all of the other carriers in Colorado too.

When Jay hurt his knee a couple years ago, an MRI was done prior to surgery.  We have an HSA qualified health insurance policy, and at the time our deductible was $3000.  So we paid for the MRI ourselves, and it amounted to more than a third of the deductible.  And that was after Humana reduced the bill to the network negotiated amount.  MRIs have helped to make medicine a much more exact science, but they are not cheap.

It seems that any system that pays physicians – directly or indirectly – to order additional testing will end up with excessive testing, adding to the overall cost of health care.  Even doctors with the best of intentions are likely to be swayed by the knowledge that they can boost their paychecks by adding a few MRIs here and there.

I believe that the number of tests a doctors orders should not impact his or her income.  And it seems that adding more medical imaging facilities in primary care offices will only increase our already burgeoning health care costs.

I found Stacey’s articles in Grand Rounds, hosted in trick-or-treat style over at Code Blog.

Dialysis does not remove phosphate, so my father has to be on a drug that prevents phosphate from building up in his blood.  In 2002, he was on PhosLo, a brand name drug, because the generic wasn’t available.  At that time, a three month supply cost $108.25.  Now, seven years later, he takes the generic version (calcium acetate) and a three month supply is $528.29 (a 488% increase in price).  Humana, his Medicare D carrier, picks up the tab, but we all know that claims costs are eventually passed along to insureds in the form of higher premiums or reduced benefits as time goes by.

Let’s not forget about the double digit percentage of revenue profits that most of the big pharmaceutical companies rake in.   Nor about the fact that part of Medicare D specifically disallows government negotiation with pharmaceutical companies when it comes to drug prices.  PhosLo is only indicated for patients on dialysis, the vast majority of whom are also on Medicare.  The makers of PhosLo are likely well aware that the majority of patients who take their drug will either be paying for the medication out of pocket (if they don’t have Medicare D), or they will be covered by a drug plan that prohibits the government from negotiating with the drug maker to lower the cost.

My father’s story is just one of many.  Over the last few years, the majority of the individual health plans available in Colorado have added separate  prescription deductibles or started offering plans with no prescription coverage at all.  It’s not hard to see why, when we consider the increasing cost of prescription drugs, combined with increasing utilization.

The individual market is different.  Medical underwriting is part of the application process, and applicants can be declined, offered coverage at a higher price, or offered coverage with pre-existing condition exclusions.  The trade off is that the policies are less expensive than they would be in the group market.

Jay and I have an HSA-qualified policy for our family.  It has a $5000 deductible (one deductible for all three of us together).  Other than a small amount of preventive care, nothing is covered before the deductible is met, so our coverage only comes into play if we have a relatively large claim.  But it only costs $288/month for our family.  It also allows us to put pre-tax money into an HSA and save up for the possibility of having to meet our deductible one day (or for retirement, if we don’t end up needing the money for medical expenses).

Jay and I are both full-time employees of our corporation, and could thus qualify as a group of two with any small group carrier in the state.  For comparison’s sake, I got a quote for us for an Anthem Blue Cross Blue Shield HSA-qualified policy.  Jay and I would each have our own policy as a group of two, with our son added to one of the policies.  I found an HSA qualified small group policy that would cost $578/month for our group.  But the deductibles would end up being a total of $15,000 for our family on that policy.  The policy would be twice as expensive as what we have now, and the out of pocket exposure would be three times as much as what we have now.  And that’s a quote from a very competitive carrier.

Incidentally, if all three of us had medical conditions that allowed us to qualify for Cover Colorado, we could pay a total of $550/month for three separate HSA qualified policies, each with a $2000 deductible.  This is another example of guaranteed issue coverage, and the increased price when compared with our current policy reflects the added cost that comes when health insurance picks up the tab for pre-existing conditions.

That’s what happens when policies have to be guaranteed issue (and include state mandated coverage like maternity on all policies).  Of course, the current small group market doesn’t include any sort of mandate requiring groups to purchase health insurance.  Proponents of a shift away from medical underwriting on individual health insurance policies also tend to back a measure that would require everyone to carry health insurance.  That would help spread the cost of care across a larger population, and would likely help to contain the price increase that we would see if medical underwriting were to cease.  But my guess is that we would still see a rather dramatic increase in premiums.  This highlights the importance of getting to the root of the issue of health care costs, and how to contain them at source.  Health insurance pays the costs, and unless we can lower those costs, it’s unlikely that we’ll be able to lower the cost of health insurance.

I found Hank’s post in the Cavalcade of Risk, hosted down under this week by Andrew at Oz Risk.

We spoke with an underwriter at Humana who said that we had to wait at least 12 months after having the lipoma removed, and then have a doctor write a letter stating that it was gone.  We finally got around to having that done last week.  Jay got a note from a doctor here in Broomfield that says that the lipoma is gone.  We also have a copy of the receipt from the original removal procedure.  Tomorrow we’ll submit the paperwork to Humana, and hopefully the lipoma exclusion will be deleted from our policy soon.

It’s a lot of hoops to jump through, but if you have an individual health insurance policy in a state like Colorado that allows pre-existing condition exclusion riders, you might want to double check to see if your rider can be re-evaluated.  Most carriers in Colorado require that the condition be resolved (treatment and symptom free) for at least a year before you can request a review of the rider.  Some exclusions will never be removed, like the internal fixation rider on Jay’s arm.  He has a titanium rod in his arm from a snowboarding accident years ago, and as long as the rod is in his arm, the exclusion will remain.  Since the rod is permanent, so is the exclusion.

But other exclusions can be subject to review once a condition is resolved.  The same applies to someone who quits smoking.  If you pay tobacco rates on your individual health insurance policy and then quit smoking, you can request that your rates be reduced.  Most carriers in Colorado require that you be smoke-free for 12 months before the rate can be lowered, but it can make a significant difference in the premium, and is definitely worth pursuing.

We’re thrilled with Humana’s decision, and we’re glad to be able to offer their policies to our clients in Colorado.  Jay’s knees are really the first time we’ve had to use our health insurance for anything more than preventive care, and we’re happy to be able to report that everything has worked the way it’s supposed to.  We raised our deductible to $5000 this year in order to lower our premiums, and we’re hoping that we can make it through the year without having any claims.  But if we do end up with a claim, hopefully the process will go as smoothly as it did last year. (yes, I just knocked on wood… there are still a lot of months left in 2009!)

I’m happy to see a recent report that indicates that health insurance companies are indeed working to be better stewards for the customers they serve – insureds and providers.  In 2008, health insurance companies paid providers 5.3% faster and denied 9% fewer claims when compared with 2007.  This is what the health insurance industry is in business to do: pay claims, and pay them quickly.  Denying claims and delaying payments might save money in the short term, but it also generates ill will, which doesn’t bode well for long term success.  In order to continue to be profitable, private health insurance companies have to prove to insureds and providers that they are helpful and worthwhile.  I’m glad to see that they are making strides in this area.

The AthenaHealth report recently ranked Humana, Aetna, and Cigna at the top of a list of insurance companies, with rankings based on speed of payment, efficiency, claim denial rates, and several other factors.  We have worked with Humana since our early days in the health insurance industry, and added Aetna to our lineup when they entered the individual market in Colorado a few years ago.  Cigna – a major player in the large group market – entered the Colorado market with individual plans in January.  It’s nice to see that the top three companies in the Athena report are all available for our clients in the individual market.

Hopefully 2009 will show more improvements in terms of how efficiently health insurance companies process and pay claims.  And ultimately, we’d like to see them providing coverage for the nearly 50 millions Americans who are currently uninsured.

Jaan points out that state health insurance regulations have thus far kept health insurance carriers from getting too big; they tend to be somewhat fragmented by states or by regions, rather than being national entities.  But his concern is that if a public plan were introduced to compete with private health insurance, there would likely be a rash of mergers in the private health insurance sector, leading to bigger, national companies that might indeed become “too big to fail.”

From the perspective of working in the health insurance industry, I can say that there are already plenty of national health insurance companies.  Companies like Cigna, Aetna, United Healthcare, and Humana are all national carriers.  This doesn’t mean that they offer policies in every state, but they have policies in many states – typically all of the states with regulations that fit their business model.  The Blue Cross Blue Shield plans are often misunderstood in that people think of them as one national company when this is not the case.  The “Blue” name is licensed by health insurance carriers in different states or regions, with the carriers being entirely separate companies from one state (or region) to the next.  For example, here in Colorado, Anthem is the health insurance company that has licensed the Blue Cross Blue Shield name.  So in Colorado, Anthem is synonymous with Blue Cross Blue Shield.  There are several other states where Anthem BCBS offers health insurance, but in each state the policies are different to comply with the state’s specific regulations.

In addition to the smaller, regional health insurance companies, there are plenty of national carriers.  A HumanaOne policy in Colorado will have different underwriting guidelines, different pricing, and different coverage than HumanaOne policies in other states.  But all Humana policies are issued by the same company.  So while the Blue Cross Blue Shield name is licensed by numerous health insurance carriers across the country, and while there are plenty of small state and regional health insurance companies in operation, many of the big name health insurance carriers are already national corporations.

I think that Jaan’s prediction of mergers following the introduction of a public health insurance program is probably very accurate.  Since a public health insurance plan would have an economies of scale advantage over private carriers, it would make sense that the private carriers would want to emulate this model as much as possible.  Mergers and buyouts would be the obvious way for big private health insurance companies to rapidly increase their membership numbers.  Although such mergers would have to comply with anti-trust regulation, which might limit their scope.

I would argue that instead of being considered too big to fail, major health insurance carriers might be seen as too important to fail.  A behemoth  like AIG can be seen as too big to fail simply because of the scope of their reach – nearly all Americans would have been indirectly impacted by the failure of AIG.  But while AIG’s collapse would have been primarily indirect (ie, it would likely have delivered a devastating blow to the financial industry as a whole), health insurance companies work directly with individual Americans.  Even when a group policy is set up through a large employer with thousands of employees, the individual employees are the ones who carry the id cards with the insurance carrier’s logo on them.

As Jaan pointed out in his article, health insurance carrier profits aren’t as healthy as they once were.  But overall the companies are still doing all right, despite the pounding that the economy has been taking for the last year.   Now imagine for a minute that this were not the case.  If a small health insurance company were to fail (leaving its insureds high and dry), it would certainly create regional ripples, but might go largely unnoticed on the national radar.  But I honestly cannot imagine a large, national health insurance carrier going under.  If any of them seemed to be heading in that direction, I have to assume that the government would intervene, either arranging a merger with another health insurance company or providing some type of bailout.  With more than 47 million people currently uninsured, I doubt that the government would stand by and watch the number of uninsureds spike upwards because of the failure of a major health insurance carrier.

I think that at this point, the taxpayers are sick of the idea of bailouts, and corporations know that getting them in the future will be much more difficult.  There will be more concessions involved, and companies will likely see bailouts as a last resort.  I’m glad that health insurance carriers have weathered the economic storm better than some of the rest of the insurance industry, and I hope this continues to be the case.

I found Jaan’s article in the Health Wonk Review, hosted last week at Pizaaz.  Not only are there plenty of great articles, but the introduction to the HWR deserves a read as well.