What if purchasing medical products and services were like buying peanut butter? Grocery stores have several brands and varieties: smooth, chunky, old-fashioned, natural, organic, no added sugar, reduced fat, no-stir, and pre-mixed with jelly with clearly marked prices ranging from $1.75 for the store’s generic brand to $7 for the over-priced Yuppie brand. After carefully examining the labels, our shopper chose a 16-ounce, $5 jar of no-added-sugar peanut butter. She paid the cashier $5 for the peanut butter and went home.
If our shoppers were transported to the universe of medical billing with the $5 jar of peanut butter, the shopper with Medicare would pay $1.00 but her grandchild will be presented with a bill for $4. When the shopper with private health insurance attempts to pay, the cashier becomes unglued. The shopper cannot say whether she met her deductible or has a co-payment, and whether the brand of peanut butter is approved by the network. She really wants the peanut butter so she grabs the generic from the shelf and pays the $1.75. Our privately insured shopper was pleasantly surprised at the generic’s good taste and healthful ingredients, her wallet was happy for the cost savings, and she was glad not to have the middleman hassle.
Comparison shopping is one pillar of bringing sanity to the high cost of medical care, but the opacity of the pricing system for medical costs limits the value of posting list prices to encourage lower costs through shaming, competition, and choice. In addition to research and development, manufacturing, and distribution costs, drug costs are affected by additional layers of middlemen: pharmacy benefit managers (PBMs) and insurers. Using a “trade secret” process, PBMs negotiate discounts and rebates for private and government insurers. The money saved is supposed to go back to the government (taxpayers) or to insurers to lower premiums or otherwise benefit patients. PBMs typically are paid by a percentage of the rebate or discount off the list price. The higher the price, the bigger the rebate. Thus, the rebate system gives an incentive to raise list prices rather than placing the lowest-priced drug on the insurer’s formulary. (This same system is used by Group Purchasing Organizations (GPOs) for hospital product purchases.)
An analysis of the effect of California’s 2-year old drug price transparency law illustrates the complexity of pricing. Despite being compelled to post list prices, pharmaceutical companies raised the list price for wholesalers by a median of 25.8 percent but the data did not indicate the “price” that consumers actually paid. Moreover, with medical services and products the simple What the Market Will Bear (WTMWB) pricing method works because either the medication is essential (e.g., Epi-Pen®), has no alternative, is in short supply, or the medical consumer is not paying directly for the services.
Similarly, publishing hospital the charge description master (“chargemaster”). i.e., the standard industry price does not give consumers enough information to make a rational choice regarding elective medical services. The data necessary to make price comparisons depends on an individual’s circumstances. More relevant than the chargemaster price, a self-pay patient needs to know the lowest possible cash price. A patient with health insurance must know (1) whether the hospital is in the insurance network, (2) the price negotiated between the health care provider and insurer (including Medicare), (3) the amount and method of calculating cost-sharing, (4) the amount Medicare or other insurer will pay for services performed in a physician’s office in contrast to the hospital which tags on a “facility fee.”
Transparency is one tool for lowering costs through choice. As one of many studies on hospital consolidation noted, “The Sky’s the Limit” on prices where there is lack of competition. But the difficulties of achieving useful price transparency must not be a cue for the government to initiate bureaucratic band-aids. As we have seen with Obamacare, forcing insurers to pay more of the costs leads to higher premiums, deductibles, and/or co-pays.
Nor should the government impose price caps. President Nixon’s 1971 wage and price freeze brought product shortages—which we are already facing with certain drugs, including anesthetics and chemotherapy agents. If the government sticks to enforcing anti-trust laws, a competitive market will thrive. The court house door anti-trust settlement by Northern California’s Sutter Health sends a message to big hospital chains to stop using their market share to inflate prices or require insurers to join their networks on an all-or-nothing basis to prevent insurers from negotiating lower prices at individual hospitals.
If we can get to the point of direct exchange of money for goods and services and reserve health insurance for major expenses, we can see costs decrease just as we have seen with the Surgery Center of Oklahoma over the last 10 years.
Dr. Singleton is a board-certified anesthesiologist. She is Immediate Past President of the Association of American Physicians and Surgeons (AAPS). Her opinions, medical or otherwise, are her own. She is a guest columnist and this is an edited version of her article originally written for pennypress.com, reprinted with permission.
Ever since Senator Bernie Sanders made “Medicare for All” (M4A) the centerpiece of his campaign, it has attracted support, and others have joined the bandwagon. In a Kaiser Family Foundation poll earlier this year, 56 percent of respondents and 81 percent of Democrats backed “a national health plan, sometimes called Medicare for all,” which has been used to assert a mandate for M4A.
Medicare’s Unfunded Liability
Since exactly what M4A details (where the devil lurks) are less than crystal clear, and even the best-articulated versions are more like political talking points than complete plans, backed by questionable, if not provably incorrect assumptions, the goal is clearly to pass a bill that would be very hard to undo before most citizens have any clear idea of what is involved.
Consequently, it is important to remember what most stories hyping the popularity of M4A leave out: When people were informed it would entail a massive increase in costs and taxes, support cratered. Given that Sanders’ proposal could add $3.2 trillion in annual government spending (when America now spends $3.5 trillion annually on health care), that is easy to understand. However, there is also another multi-trillion-dollar reason why many who now support M4A might switch sides: Medicare’s massive unfunded liability.
As with other Social Security expansions, when Medicare was created in 1966, those in or near retirement paid little or no more in taxes but got substantial benefits throughout retirement. That imposed a large unfunded off-budget liability on later generations. And every expansion since (most recently, Medicare Part D’s prescription drug benefit, whose officially estimated unfunded liability at the time was $17 trillion) has created another free lunch for those older, expanding the huge tab facing later generations.
The same sort of conclusions were reached in an Urban Institute study of Medicare, which found that in 2012, average-earning males were “buying” $180,000 in Medicare benefits for $61,000, while similarly situated females, with smaller lifetime contributions and longer life expectancies, did even better.
The result, as reported by Michael Tanner, was a 2015 forecast of almost $48 trillion of unfunded liabilities under implausibly optimistic assumptions. A return to higher medical cost inflation rates could make it $88 trillion. A continuance of lower birthrates than forecast would push it higher. So would including future commitments to recipients who have qualified for but not yet received all their benefits as of the end date of a study.
So why might recognizing that massive unfunded liability and its continued expansion move Americans into the “anti-M4A” camp?
Because of the wealth transfer to early enrollees, as well as from ensuing expansions, Medicare provided many with a great deal. But that deal was the result of dumping an enormous bill on future generations (bigger than the unfunded liabilities for Social Security plus the national debt).
With that bill starting to arrive, Medicare is not even close to sustainable in its present form, much less to be leveraged to cover the entire population (although one can understand the vote-buying potential in promising massive new M4A generational transfers).
Not only is a massive expansion of an already far-in-the-hole Medicare program a fool’s errand, but the massive unfunded liabilities it has built up also mean that the previous costs were far higher than what recipients paid and continue to be so (even underestimates of its unfunded liability growth add more than $1 trillion per year of hidden costs to Medicare).
As a result, Medicare was a far worse deal than M4A salesmen and women admit, and it is now decaying at an increasing rate, making its extension to all a 14-digit boondoggle, not a boon. And doubling (or more) down on the already unpayable burdens Medicare has laid on future generations also highlights the blatant hypocrisy of backers who, at the same time, preen about all the new plans they have to “invest in the future.”
Gary M. Galles is a professor of economics at Pepperdine University. His opinions are his own. This article originally appeared on fee.org, then pennypress.com Reprinted with permission.
Bernie Sanders is strongly promoting “Medicare for All,” and claims to be its father (“I wrote the damn bill,” he proclaimed to the nation during the second round of Democratic Presidential debates).
His plan does not look like Medicare at all. It appears that he hardly knows anything about Medicare. He probably has no experience with it. Despite his advanced age, he does not need to depend on it. Members of Congress are allowed to receive Medicare benefits, but unlike most other Americans, they can receive other benefits in addition.
Sitting members of Congress can get routine examinations and consultations from the attending physician in the U.S. Capitol for an annual fee. And military treatment facilities in the Washington area offer free emergency medical and dental care for outpatient services.
Members are also eligible for the Federal Employees Health Insurance Program, and they won’t be kicked off as soon as they reach Medicare age. They do have to go through an Obamacare exchange, but it is a small one, the DC Health Link, which reportedly functions well. There are 57 gold-tier plans to choose from, not one or two as in many states. Their portion of the premiums could be as little as 25 percent of the total premiums. Apparently, subsidies for senators don’t run out just because their salary exceeds 400 percent of the federal poverty level.
Funding for Medicare for All will apparently be vacuumed up from all other sources of payment for “healthcare,” and will go into the big collective pot. Then people can get everything without premiums, copays, or deductibles—so they say. This is not at all like Medicare.
Medicare Part A, for hospital care, is funded through the Medicare payroll tax: a 2.9% first-dollar tax—no deductions--on all employment income, half of which is paid by the employer. Seniors believe that they have been funding this through their working years, as they are constantly told. They have indeed paid, but their taxes were immediately used to pay for the care of older retirees. So, their hospital bill today will be paid from the wages of about 2.5 workers (say the persons pumping their gas, collecting their trash, and repairing their plumbing). Already that is not enough, so the IOUs in the “trust fund” are being redeemed from general tax revenues. That fund will soon be gone, according to the Medicare trustees, as Baby Boomers are flooding into the system. It would vanish in a nanosecond if we loaded in everybody, with or without illegal immigrants.
Medicare has long been implementing ways to curb runaway expenditures. From the mid 1980s comes the Prospective Payment System, or Diagnosis Related Groups (DRGs), under which payment has nothing to do with services rendered to a particular patient. According to my 1985 “Ode to DRG Creep”:
“Now the pay’s by the head, if alive or if dead,
Diagnosis determines the money,…
We need costs less than average, and discharges quicker
We will get no advantage -- For care of the sicker.”
Since “quicker and sicker” discharges might cause a need for readmission, the government penalizes hospitals for readmission. One way to prevent readmission is to discharge to hospice or directly to the morgue. If Bernie were an anonymous Medicare patient, he’d get a consultation on POLST. That’s Physicians Orders for Life-Sustaining Treatment, which translates in the Newspeak Dictionary to “Legally Enforceable Orders to Terminate Life-Sustaining Treatment Including Food and Water.”
Bernie might think he had been admitted—say he had an IV in a hospital room. But if he gets discharged before his second midnight, he might be classified as an outpatient, which is covered under Medicare Part B, and get a “surprise” bill for thousands of dollars, because of the “Two-Midnight Rule.”
Or Bernie might expect to have a little rehab after an orthopedic procedure, but if he is in hospital for fewer than three midnights, rehab isn’t covered. He might have the choice of paying out of pocket, or going home where he will be alone, unable to get out of bed.
Yes, Bernie on Medicare will have free choice of doctors—except for the ones who aren’t accepting Medicare patients.
If Bernie himself were stuck on Medicare with no way out, he might think it not so wonderful. Has anyone heard him tell people about these Medicare problems?
Maybe he means the Canadian Medicare system. It does have a way out for non-senators—called the United States.
Senator Bernie Sanders during the 2016 Presidential Election called for a single payer system to cure our healthcare woes. Now Democratic contenders for the 2020 election are calling for the same. Some voters are salivating at the thought, tired of high insurance premiums and deductibles. Others are cringing at the idea of the government running our healthcare system. Yet most are confused and want more details. So let’s break it down.
Medicare is the health insurance offered by the federal government for those over 65 and with disabilities. According to medicare.gov they breakdown medicare as the following:
Part A covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care.
Part B covers certain doctors’ services, outpatient care, medical supplies, and preventive services.
Part D adds prescription drug coverage to:
These plans are offered by insurance companies and other private companies approved by Medicare. Medicare Advantage Plans may also offer prescription drug coverage that follows the same rules as Medicare Prescription Drug Plans
Originally suggested by Senator Bernie Sanders, Medicare for All would essentially allow all Americans to qualify for Medicare. According to Unitedmedicareadvisors.com:
The concept sounds nice but Medicare doesn’t currently cover many of the above such as hearing aids, dental exams, and long-term care.
Unitedmedicareadvisors.com reports the following:
Unfortunately, tax hikes on employers could lead to price hikes and less employment.
So the concerns I have are Medicare doesn’t currently cover what Medicare for All is touting and the expense may be underprojected.
Moreover many healthcare providers do NOT take Medicare so access can be an issue.
However, until premiums and deductibles go down, and more Americans become insured, plans such as this will gain attention and popularity.
The most recent World Health Organization rankings of the world’s health systems has the United States at 37th -- seven spots behind its neighbor to the north, Canada, and 19 spots behind its American predecessor, the United Kingdom. That might not seem so bad on a list 190 nations long, but the United States ranks last in health care system performance among the 11 richest countries included in a study conducted by The Commonwealth Fund. In that study, “the U.S. ranks last in Access, Equity, and Health Care Outcomes, and next to last in Administrative Efficiency, as reported by patients and providers.”
Much of our inflated health insurance premiums in America comes from paying to create your bill. That’s right -- 25 percent of total U.S. hospital costs are administrative costs. The United States had the highest administrative costs of the eight countries studied by The Commonwealth Fund. Scotland and Canada had the lowest, and reducing U.S. per capita spending for hospital administration to Scottish or Canadian levels would have saved more than $150 billion in 2011.
Treating healthcare like any other marketplace requires careful, complicated codification of products sold and services rendered. People must be paid to determine how much your healthcare costs, and that can’t be changed, but it can be improved upon. Allowing insurance companies to profit from people’s health makes for a marketplace in which every cent of cost is counted and every penny of profit is protected. Profit motive always results in more scrutiny by the haves at the expense of the have-nots.
You might think that an industry that preys on the unhealthy and the healthy alike would prefer their consumers healthy as to enjoy the profits from your premium payments without paying for healthcare. But the cost of your health insurance premium already includes your health insurer’s profit margin. The health insurer is going to do all it can assure a certain amount a profit except for a catastrophic health emergency that consumes the country. But if the consuming population is unhealthy relative to other markets, the health insurer has good reason to inflate prices to cover its projected costs. That is indeed the case in the United States.
The United States is the 34th healthiest nation in the world, according to 24/7 Wall St. That’s not terrible, but not what you probably expect from a nation advertised by Americans as the greatest in the world. And you’re paying for it.
Not unlike a mortgage or auto insurance premium, the cost of your health insurance premium is an average based on the health insurer’s risk. That risk is the potential costs the health insurer could incur based on the perceived health of its insured consumers. I’ve written in the past how Republicans can’t repeal and replace Obamacare because their constituents, most of whom reside in the South, need Obamacare. Southerners are the least healthy Americans, with 20 percent reporting fair or poor health in 2014. The South also has the highest rates for diabetes, obesity and infant mortality in the nation. The South also accounts for nearly as many uninsured people as the rest of America combined, and 17 percent of the uninsured fall into the coverage gap for Medicaid expansion. Your health insurance premiums pay for their healthcare as well as your own, which is why, given the current for-profit health insurance marketplace, I would welcome a fat tax.
A fat tax is a tax on fat people. People who live unhealthy lifestyles should pay more for health insurance. As a healthy consumer of health insurance, I’d prefer to pay a lower premium given my dedication to maintaining good health at the expense of those who refuse to maintain good health. I might be fat shaming some people, but I don’t care. I shouldn’t have to pay for your diabetes because you can’t resist stuffing your face with Twinkies. Maintaining your health is your responsibility and no one else’s, and you should be punished for failing to maintain good health at the expense of your neighbors. But since something that could ever be referred to as a fat tax by the opposition would never pass Congress, a rewarding people with discounts for their healthy habits would be much more likely.
I foresee this program as mirroring the Progressive auto insurance Snapshot program -- “a program that personalizes your rate based on your ACTUAL driving.” Instead of plugging a device into your car, you’d use a Fitbit or similar health monitoring device with a heart rate monitor. Couple your daily monitoring of your exercise and diet with the results of regular checkups with your physician to confirm your healthy habits and you’ll be given a discount on your monthly health insurance premium as determined by your overall health.
Simply scheduling and completing regular checkups will help lower premium prices by catching things early and allowing for preventative medicine to work rather than resorting to more expensive reactionary measures. That could be the first discount bracket: schedule and complete a physical twice annually for two percent off your monthly premium. That way everyone at least has a chance to save some money. Those who fail to do so will pick up the tab.
The real discounts will be reserved for those consumers who regularly show signs of living a healthy lifestyle. People who don’t use tobacco products would receive a one-percent discount on their monthly premiums that the insurer will recoup from charging tobacco users with a one-percent premium penalty.
Non-drinkers would also receive a one-percent discount, as alcohol is a cancer-causing carcinogen and dangerous when consumed irresponsibly. Accessing a penalty for drinking, however, would be problematic, as social and occasional drinkers shouldn’t be penalized for enjoying alcohol responsibly. But say you get a ticket for driving while intoxicated -- that’s two percent tacked onto your health insurance premium for putting your own health and the health of your neighbors at risk. The same goes for possession of illegal drugs, except cannabis. No discount or penalty would be accessed for cannabis use since it is proven to kill cancer cells and be of medical value.
Even if you are a tobacco user and a heavy drinker or drug user, you too deserve opportunities to lower your health insurance premiums. So anyone who meets the Department of Health and Human Services recommendations for weekly exercise for a month gets a one-percent discount on their premium the following month. That’s just 150 minutes of moderate aerobic activity or 75 minutes of vigorous aerobic activity weekly. Add that to the two-percent discount for completing bi-annual physicals, and you could offset the penalties of driving under the influence and smoking.
Big money will be saved based on your body fat. If an adult male or female maintains an athletic body fat percentage (between five and 10 percent for males and between eight and 15 percent for females), they get an additional two-percent premium discount on top of the two percent for completing bi-annual physicals. That same two percent would have to be paid by someone, though, so it would fall on the obese.
Adult males with a body fat percentage over 24 and adult females with a body fat percentage over 37 would receive a two-percent premium penalty. If they make their two appointments for physicals annually, there wouldn’t be any change to their bill. The overweight, being males with body fat percentages between 21 and 24 and females with body fat percentages between 31 and 36, would receive a one-percent premium penalty.
Adult men with body fat percentages between 11 and 14 and women between 16 and 23 would get a one-percent discount for maintaining a “good” body fat percentage. Those men with body fat percentages between 15 and 20 and women with body fat percentages between 24 and 30 would pay no penalty nor receive a discount for maintaining “acceptable” body fat percentages.
These discounts and penalties would motivate consumers to improve their health in order to save money, in turn, lowering premiums for everyone by improving the overall health of all consumers in the marketplace. The higher the U.S. climbs out of that 34th spot in overall health, the less everyone pays in health insurance premiums.
I pay roughly $135 monthly in health insurance premiums for a high-deductible, Bronze package I found on MNSure -- Minnesota’s equivalent to the Obamacare marketplace. I maintain an athletic body fat percentage under 10 (two-percent discount). I exercise and regularly exceed the Department of Health and Human Services’ weekly recommendations (one-percent discount). I don’t smoke (one-percent discount), and I don’t drink (one-percent discount). I saw my doctor twice last year (two-percent discount). Add it all up and I’d save seven percent on my monthly health insurance premiums, or a measly $9.45 monthly. That’s over $113 annually, though, much of which would be recouped from the penalties assessed to the unhealthy. I could think of a lot of things on which I could spend that $113. It would be nice to be able to afford a steak once in a while.
While Medicare-for-All is picking up steam in Liberal circles, it’s still at least three years away from being seriously considered by Congress as a solution to ever-increasing healthcare costs. Meanwhile, here’s a solution that addresses two problems: ever-increasing healthcare costs and the declining health of Americans overall.
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