Post by Tim Collins on Jun 16, 2009 12:03:42 GMT -7
What Health Care Crises?
Every day I read the news I am confronted with at least one story about the “Health Care Crisis”. Usually these stories touch on the same topics: the number of people without health insurance; the cost of providing care for the uninsured; the cost of medical malpractice insurance; the war of the lobbyist representing pharmaceutical companies, doctors, and lawyers armed with their seemingly endless millions of dollars; the partisan political battles over just who ought to provide health care insurance, the government or the private sector.
When the issue of the quality of care available is raised you basically have two responses: 1) The U.S. has the best medical care in the world (why else would people come here for advanced care and 2) the U.S. may have the best care in the world, but only if you have money.
The current debate has degenerated into a battle over government controlled or at least government mandated health care insurance and how and by whom the payment for this will be provided.
I have no doubt there is a Health Care COST crisis, but we do not have a Health Care delivery crisis at all. I think we are asking the wrong questions and driving not toward a solution, but toward a rearrangement of our current health care funding system. We are driving toward changing who pays and how instead of looking at a new model for financing health care. We are making the mistake of accepting the current model as correct, just uncontrolled, when in fact we should be looking at redefining the players in the process. We need a new paradigm of how health care is funded.
The problem, from my perspective is not a lack of money it is the enormous waste built into our current system. Literally billions of dollars are poured into the system every day, but far too few of those dollars actually purchase medical care – they are eaten by non-value added administrative costs. I think we need to ask some basic questions about our current system. I’d like to begin with a question about Health Care Insurance Companies, in later articles I will ask questions about Malpractice Insurance & Liability, and later still about Pharmaceutical Costs.
What value do HEALTH insurance companies add to the delivery/availability of health care?
I spent almost 14 years working for Prudential Insurance (primarily in the Life Insurance and Investment fields, none in the health care market), and hold a State of Texas General Insurance Lines license (inactive). I am by no means an expert on the subject but I do understand the fundamentals of how Insurance Companies use the payments of all insured to cover the costs of paying for health care for those that use it.
The basic principle is that Insurance Companies will collect more in premiums (add to that the investment income they make while holding those premiums) on any given day than what they pay to providers (Hospitals, Doctors, Pharmacy etc). They sell their services to the Medical community by offering to provide a large group of insured patients (customers) to the care providers; they offer the insured “discounted” prescription drugs by using the leverage of a steady stream of income to the pharmacies and drug manufacturers when negotiating costs for drugs and medical devices. Basically they strong-arm the providers into accepting only a portion of what they would otherwise attempt to charge a patient in return for a steady stream of patients (and potential patients - "In-Network") and theoretically regular stream of payments (IE instead of 1000 checks or CC transactions from individual patients, a monthly or quarterly single large payment from the insurer). In theory this sounds like a great deal for the providers and the patients.
This may have worked in the past when, in the interest of attracting and keeping qualified employees, many larger employers began offering health care benefits in lieu of larger a salary and a way around wage controls imposed in the past. This worked fine for a long time.
From where I am sitting today, this whole theory seems to have failed miserably as evidenced by the rising costs of medical care and the number of uninsured - who for the most part are either priced out of the health insurance market or simply impoverished. The rise of third payer health insurance into a full-blown mega industry is no longer providing the benefit intended. It has become an unnecessary and overly expensive cost for health care.
Let's put some real numbers to this.
I pay approximately $7,850.00 per year to provide health insurance to my wife and one child. This is before any co-pays, and deductibles. My company pays an estimate of $4,800.00 for my health care. So just out of the pay check that is $12,650.00 a year. This is just for health insurance - no relationship to what services I use.
Now looking at El Paso only, if you use the population of 583,419 with a median age of 32 years of age, let's say all people 32 and over (50% of the population), pay the same rates I pay for health insurance. That would be 291,709 people X $4,217.00 (my cost / 3 people covered) = $1,230,136,853.00. That is $1.2 BILLION in premium payments flowing through the Health Insurance Companies, just in El Paso.
Now let’s look at the cost of running our county Hospital:
Thomason Hospital in their 2007 financial statement reports:
Operating Revenue
Net Patient Service Revenue $126,500,000
Premium Revenue $ 77,300,000
Disproportionate Share Revenue $ 68,100,000
Other Revenue $ 6,900,000
Total Operating revenue $278,800,000
Non-Operating Revenue $ 50,800,000
Expenses
Maint. And Operating expense $209,300,000
Medical Claims Expense $ 64,000,000
Depreciation & Amortization $ 17,600,000
Total Expenses $290,900,000
Where do the Revenues come from?
Operating Revenue:
Net Patient Services Revenue, 45% of 2007 Operating Revenues, is payments from third party providers (insurance). The biggest contributors to gross patient revenue are Medicare (15%) and Medicaid (26%), Commercial payers (8%), Charity (19%), Self-Pay (26%), HMO/PPO (3%), other (3%) pay the remainder.
Premium Revenue, this revenue source contributed 28% of total 2007 operating revenues. These are payments received from Texas Department of Health and Human Resources through the CHIP and STAR medical programs.
Disproportionate Share Revenue, these payments (24% of Operating Revenue) are provided by the through the “Disproportionate Share Program” established by the State of Texas to access federal matching funds. These funds help off set the cost of paying for medical care for low income and uninsured patients.
Other Operating Revenue, these payments derived from Trauma Service, Cafeteria, and Grant sources accounted for 2.5% of total operating revenues.
Non-Operating Revenue:
Other Revenue is obtained from Investment Income ($7.8 million); Property Taxes ($52 million); Tobacco Settlement Funds ($2.1 million); and Miscellaneous ($1.4 million); less Interest Expense ($1.7 million), Intergovernmental Transfer ($10.6million), and Contributions to Others ($0.05million).
Source: www.epchd.org/webshell/thomasonwe....penFileResource
downloaded 6/15/09
Look closely at the sources of all revenue. If you add it up in the ballpark of 95% of this revenue comes out of your pocket, either through Federal or Local Property Taxes. So going back to the original example of my own personal annual health insurance premiums and using the same population base I can add more cost to my Medical Coverage thusly:
Per person contribution to 95% of Thomason Revenue
$313,120,000 / 583,419 (Pop. Age 32+) $ 583.42
Private insurance per year: $4,217.00
Adjusted Cost of Health Care $4,800.42
Remember this number does not include your co-pay every visit, your deductible and your out of pocket costs for prescriptions.
Again I have to ask the question:
What value do HEALTH insurance companies add to the delivery/availability of health care?
If you strip away all the pretty phrases, Health Insurance companies basically serve the function of accounting for and redistributing payments between patients and providers. In the case of Thomason, admittedly a not-for profit enterprise, very few “premium” dollars are received. Obviously in the for-profit world of Health Care these payments would be the bulk of revenue for the care provider.
What has this system of “third-party” payment created? A huge industry, the top 13 Health Insurance and Managed Care companies on the Fortune 500 list of biggest companies in 2008 generated $247.7 billion in revenues and delivered $13.1 billion in profits. ( cgi.money.cnn.com/tools/fortune/custom_ranking_2008.jsp )
Now under normal circumstances, I am a big fan of profits. In this case, however, I have a major problem.
Health Insurance companies make a profit for shuffling paper. Their profit motive is at odds with the very purpose of medicine – treating the patient. No accountant ever saved a patient suffering from a heart attack, but far too many patients have died because the medical services they required were “not covered”. Read the financial statements of any of the largest Health Insurance/Managed Care companies on Forbes’ list. You will find plenty of examples of fines being levied, or settlements being reached for claims denied.
An Alternative Paradigm
It seems to me, if we replaced the for profit Health Insurance paradigm with a non-profit, mutually owned, model that paid directly to member Health Care providers, we could pay to operate Thomason (and in reality any medical center) five times over with just what we pay now for private insurance.
The “Mutual” operating structure is not a new concept, for decades the majority of Life Insurance Companies operating under this structure and successfully. The Mutual Ownership structure provides the proper incentive – the care provided, not the profit generated. In a Mutual Company, any excess of premiums collected and investment income generated are either reinvested in the infrastructure of the provider, or returned to the investors (policyholders) in the form of a dividend.
Our focus should not be on substituting the Federal Government as the collector and distributor of premium dollars for the existing private profit making firms, but rather on the most efficient means of paying for the needed care for all.
Imagine a network of Mutually Owned Community Health Care Networks. You live in El Paso and pay an annual premium directly to the Health Care Provider Network. In return you receive an ID card for the network. You show up at the Doctor or Hospital and receive the care you need. No bill, you already paid with your premium. No millions of forms, they already know who you are from your ID card.
Now you go on vacation and travel to Los Angeles. Suddenly you become ill and are taken to the hospital. You present your El Paso ID and receive the medical care you require – no bill to you. The bill is sent to El Paso and payments are exchanged between the Network Members.
Mutual ownership, properly structured, could produce a “Health Care System”, that is responsive to the patient’s medical needs, instead of the investors financial objectives. Mutual ownership, properly structured, could put the medical decisions back in the hands of medical professionals and the patients instead of the accountants that make those decisions now. Mutual ownership needs to be on the table, at least as one option in this discussion.
Obviously elective surgery (cosmetic in nature and not medically necessary) would still require a separate for-profit Health Insurance system – as it should, but for basic medically necessary care the Mutual Ownership, non-profit system could be a big improvement over what we have now.
I know there are many, many details not discussed here, my objective is to simply raise the question, What value do Health Insurance Companies add to the delivery/availability of health care?, and to offer some food for thought on an alternative vision.
In a perfect world…
Everyone would have access to the medical care they need for maintaining their health and receiving the required care or treatment as needed, without having to choose between proper care and financial ruin.
Everyone would have a personal long-term relationship with the physician of his or her choice.
Everyone would have regularly scheduled medical examination, at the very least an annual physical.
Everyone would have access to the medical testing and procedures his or her physician deems necessary for his or her health.
Every physician would be free to practice medicine to the best of their ability without fear of frivolous lawsuits.
Every physician would see their profession as a healing profession and not a for profit business enterprise.
Every physician would be free to apply their best medical judgment to every patient they care for, and not have to consider the financial concerns of their employers, lawyers, or insurance representative.
Everyone not engaged in directly providing a patient with medical care would stay out of the way, allowing the patient, their family, and the physician(s) decide the best course of action.
Everyone would be free to make medical decisions without having to weight the cost versus the health benefit of medically required treatment.
If we take a step back, and look at things without the blinders of the present, perhaps we can reach this “perfect world”
Every day I read the news I am confronted with at least one story about the “Health Care Crisis”. Usually these stories touch on the same topics: the number of people without health insurance; the cost of providing care for the uninsured; the cost of medical malpractice insurance; the war of the lobbyist representing pharmaceutical companies, doctors, and lawyers armed with their seemingly endless millions of dollars; the partisan political battles over just who ought to provide health care insurance, the government or the private sector.
When the issue of the quality of care available is raised you basically have two responses: 1) The U.S. has the best medical care in the world (why else would people come here for advanced care and 2) the U.S. may have the best care in the world, but only if you have money.
The current debate has degenerated into a battle over government controlled or at least government mandated health care insurance and how and by whom the payment for this will be provided.
I have no doubt there is a Health Care COST crisis, but we do not have a Health Care delivery crisis at all. I think we are asking the wrong questions and driving not toward a solution, but toward a rearrangement of our current health care funding system. We are driving toward changing who pays and how instead of looking at a new model for financing health care. We are making the mistake of accepting the current model as correct, just uncontrolled, when in fact we should be looking at redefining the players in the process. We need a new paradigm of how health care is funded.
The problem, from my perspective is not a lack of money it is the enormous waste built into our current system. Literally billions of dollars are poured into the system every day, but far too few of those dollars actually purchase medical care – they are eaten by non-value added administrative costs. I think we need to ask some basic questions about our current system. I’d like to begin with a question about Health Care Insurance Companies, in later articles I will ask questions about Malpractice Insurance & Liability, and later still about Pharmaceutical Costs.
What value do HEALTH insurance companies add to the delivery/availability of health care?
I spent almost 14 years working for Prudential Insurance (primarily in the Life Insurance and Investment fields, none in the health care market), and hold a State of Texas General Insurance Lines license (inactive). I am by no means an expert on the subject but I do understand the fundamentals of how Insurance Companies use the payments of all insured to cover the costs of paying for health care for those that use it.
The basic principle is that Insurance Companies will collect more in premiums (add to that the investment income they make while holding those premiums) on any given day than what they pay to providers (Hospitals, Doctors, Pharmacy etc). They sell their services to the Medical community by offering to provide a large group of insured patients (customers) to the care providers; they offer the insured “discounted” prescription drugs by using the leverage of a steady stream of income to the pharmacies and drug manufacturers when negotiating costs for drugs and medical devices. Basically they strong-arm the providers into accepting only a portion of what they would otherwise attempt to charge a patient in return for a steady stream of patients (and potential patients - "In-Network") and theoretically regular stream of payments (IE instead of 1000 checks or CC transactions from individual patients, a monthly or quarterly single large payment from the insurer). In theory this sounds like a great deal for the providers and the patients.
This may have worked in the past when, in the interest of attracting and keeping qualified employees, many larger employers began offering health care benefits in lieu of larger a salary and a way around wage controls imposed in the past. This worked fine for a long time.
From where I am sitting today, this whole theory seems to have failed miserably as evidenced by the rising costs of medical care and the number of uninsured - who for the most part are either priced out of the health insurance market or simply impoverished. The rise of third payer health insurance into a full-blown mega industry is no longer providing the benefit intended. It has become an unnecessary and overly expensive cost for health care.
Let's put some real numbers to this.
I pay approximately $7,850.00 per year to provide health insurance to my wife and one child. This is before any co-pays, and deductibles. My company pays an estimate of $4,800.00 for my health care. So just out of the pay check that is $12,650.00 a year. This is just for health insurance - no relationship to what services I use.
Now looking at El Paso only, if you use the population of 583,419 with a median age of 32 years of age, let's say all people 32 and over (50% of the population), pay the same rates I pay for health insurance. That would be 291,709 people X $4,217.00 (my cost / 3 people covered) = $1,230,136,853.00. That is $1.2 BILLION in premium payments flowing through the Health Insurance Companies, just in El Paso.
Now let’s look at the cost of running our county Hospital:
Thomason Hospital in their 2007 financial statement reports:
Operating Revenue
Net Patient Service Revenue $126,500,000
Premium Revenue $ 77,300,000
Disproportionate Share Revenue $ 68,100,000
Other Revenue $ 6,900,000
Total Operating revenue $278,800,000
Non-Operating Revenue $ 50,800,000
Expenses
Maint. And Operating expense $209,300,000
Medical Claims Expense $ 64,000,000
Depreciation & Amortization $ 17,600,000
Total Expenses $290,900,000
Where do the Revenues come from?
Operating Revenue:
Net Patient Services Revenue, 45% of 2007 Operating Revenues, is payments from third party providers (insurance). The biggest contributors to gross patient revenue are Medicare (15%) and Medicaid (26%), Commercial payers (8%), Charity (19%), Self-Pay (26%), HMO/PPO (3%), other (3%) pay the remainder.
Premium Revenue, this revenue source contributed 28% of total 2007 operating revenues. These are payments received from Texas Department of Health and Human Resources through the CHIP and STAR medical programs.
Disproportionate Share Revenue, these payments (24% of Operating Revenue) are provided by the through the “Disproportionate Share Program” established by the State of Texas to access federal matching funds. These funds help off set the cost of paying for medical care for low income and uninsured patients.
Other Operating Revenue, these payments derived from Trauma Service, Cafeteria, and Grant sources accounted for 2.5% of total operating revenues.
Non-Operating Revenue:
Other Revenue is obtained from Investment Income ($7.8 million); Property Taxes ($52 million); Tobacco Settlement Funds ($2.1 million); and Miscellaneous ($1.4 million); less Interest Expense ($1.7 million), Intergovernmental Transfer ($10.6million), and Contributions to Others ($0.05million).
Source: www.epchd.org/webshell/thomasonwe....penFileResource
downloaded 6/15/09
Look closely at the sources of all revenue. If you add it up in the ballpark of 95% of this revenue comes out of your pocket, either through Federal or Local Property Taxes. So going back to the original example of my own personal annual health insurance premiums and using the same population base I can add more cost to my Medical Coverage thusly:
Per person contribution to 95% of Thomason Revenue
$313,120,000 / 583,419 (Pop. Age 32+) $ 583.42
Private insurance per year: $4,217.00
Adjusted Cost of Health Care $4,800.42
Remember this number does not include your co-pay every visit, your deductible and your out of pocket costs for prescriptions.
Again I have to ask the question:
What value do HEALTH insurance companies add to the delivery/availability of health care?
If you strip away all the pretty phrases, Health Insurance companies basically serve the function of accounting for and redistributing payments between patients and providers. In the case of Thomason, admittedly a not-for profit enterprise, very few “premium” dollars are received. Obviously in the for-profit world of Health Care these payments would be the bulk of revenue for the care provider.
What has this system of “third-party” payment created? A huge industry, the top 13 Health Insurance and Managed Care companies on the Fortune 500 list of biggest companies in 2008 generated $247.7 billion in revenues and delivered $13.1 billion in profits. ( cgi.money.cnn.com/tools/fortune/custom_ranking_2008.jsp )
Now under normal circumstances, I am a big fan of profits. In this case, however, I have a major problem.
Health Insurance companies make a profit for shuffling paper. Their profit motive is at odds with the very purpose of medicine – treating the patient. No accountant ever saved a patient suffering from a heart attack, but far too many patients have died because the medical services they required were “not covered”. Read the financial statements of any of the largest Health Insurance/Managed Care companies on Forbes’ list. You will find plenty of examples of fines being levied, or settlements being reached for claims denied.
An Alternative Paradigm
It seems to me, if we replaced the for profit Health Insurance paradigm with a non-profit, mutually owned, model that paid directly to member Health Care providers, we could pay to operate Thomason (and in reality any medical center) five times over with just what we pay now for private insurance.
The “Mutual” operating structure is not a new concept, for decades the majority of Life Insurance Companies operating under this structure and successfully. The Mutual Ownership structure provides the proper incentive – the care provided, not the profit generated. In a Mutual Company, any excess of premiums collected and investment income generated are either reinvested in the infrastructure of the provider, or returned to the investors (policyholders) in the form of a dividend.
Our focus should not be on substituting the Federal Government as the collector and distributor of premium dollars for the existing private profit making firms, but rather on the most efficient means of paying for the needed care for all.
Imagine a network of Mutually Owned Community Health Care Networks. You live in El Paso and pay an annual premium directly to the Health Care Provider Network. In return you receive an ID card for the network. You show up at the Doctor or Hospital and receive the care you need. No bill, you already paid with your premium. No millions of forms, they already know who you are from your ID card.
Now you go on vacation and travel to Los Angeles. Suddenly you become ill and are taken to the hospital. You present your El Paso ID and receive the medical care you require – no bill to you. The bill is sent to El Paso and payments are exchanged between the Network Members.
Mutual ownership, properly structured, could produce a “Health Care System”, that is responsive to the patient’s medical needs, instead of the investors financial objectives. Mutual ownership, properly structured, could put the medical decisions back in the hands of medical professionals and the patients instead of the accountants that make those decisions now. Mutual ownership needs to be on the table, at least as one option in this discussion.
Obviously elective surgery (cosmetic in nature and not medically necessary) would still require a separate for-profit Health Insurance system – as it should, but for basic medically necessary care the Mutual Ownership, non-profit system could be a big improvement over what we have now.
I know there are many, many details not discussed here, my objective is to simply raise the question, What value do Health Insurance Companies add to the delivery/availability of health care?, and to offer some food for thought on an alternative vision.
In a perfect world…
Everyone would have access to the medical care they need for maintaining their health and receiving the required care or treatment as needed, without having to choose between proper care and financial ruin.
Everyone would have a personal long-term relationship with the physician of his or her choice.
Everyone would have regularly scheduled medical examination, at the very least an annual physical.
Everyone would have access to the medical testing and procedures his or her physician deems necessary for his or her health.
Every physician would be free to practice medicine to the best of their ability without fear of frivolous lawsuits.
Every physician would see their profession as a healing profession and not a for profit business enterprise.
Every physician would be free to apply their best medical judgment to every patient they care for, and not have to consider the financial concerns of their employers, lawyers, or insurance representative.
Everyone not engaged in directly providing a patient with medical care would stay out of the way, allowing the patient, their family, and the physician(s) decide the best course of action.
Everyone would be free to make medical decisions without having to weight the cost versus the health benefit of medically required treatment.
If we take a step back, and look at things without the blinders of the present, perhaps we can reach this “perfect world”