Health Insurance: Can Californians Afford It?
California HealthCare Foundation
May 3, 2005

For minimum-wage workers and the chronically ill, the cost of health insurance is increasingly unaffordable and may not be providing the financial protection for which it is intended, according to Health Insurance: Can Californians Afford It?, a new analysis from the California HealthCare foundation (CHCF). The snapshot of health insurance costs reveals, however, that the issue of affordability is not isolated to those groups.

“We have to consider that these worrisome affordability figures may be a sign of things to come for a greater number of Californians,” said Mark D. Smith, M.D., M.B.A., president and CEO of CHCF.

The snapshot compares health insurance premiums and out-of-pocket expenses to hourly wages and household spending across California and within six local markets: Fresno, Los Angeles, Sacramento, San Diego, San Francisco, and Shasta. The results show the significant financial pressure health care costs are putting on insured Californians.

“… we should recognize that even for those Californians who are insured, it can be a struggle to pay their share of premiums and out-of-pocket expenses. If health insurance becomes unaffordable, this will increase the numbers of uninsured Californians,” (said Dr. Smith).

Press release:
http://www.chcf.org/press/view.cfm?itemID=110808&archive=2005

The report (22 slides):
http://www.chcf.org/documents/insurance/HealthInsuranceAffordability.pdf

Comment: Some important numbers from the report:

The premium for Blue Cross or Blue Shield plans with more limited benefits and higher cost sharing is 66% of the entire income of minimum wage employees (or 77% if standard higher option plans were selected).

For employees with median wages, the median premium is 14% (PPO) to 17% (HMO) of wages.

For small group coverage, the employee’s contribution to the premium plus the out-of-pocket payments for a moderate PPO plan is $370 for the healthy but $5304 for the chronically ill. For limited PPO individual coverage, the premiums paid plus out-of-pocket expenses are $1128 for the healthy and $11,556 for the chronically ill. For an after tax income of $29,458, that means that the chronically ill would be paying 39% of income for this coverage.

Because of the obvious concerns about the uninsured, most efforts at reform today are directed toward patching together coverage by expanding our existing, fragmented system. But this is yet one more report that should make us question the wisdom of continuing on this path of pseudo-reform.

We are paying the insurance industry a couple hundred billion dollars to design insurance plans for us. But the plans they have produced protect their own industry from loss by passing financial risk on to those who most need the protection. This defeats the traditional concept of insurance: pooling funds to provide a source of payment for specified losses, in this case the cost of medical care. And at today’s cost of health care, such financial protection has become essential for all but the very wealthy.

What is ironic is that we do not have a lack of funds to pay for health care. The $1.9 trillion that we are already spending is enough to provide comprehensive health care services for everyone. But we are diverting a significant portion of these funds to an insurance industry that has proven that it cannot competently provide financial protection for those with significant needs. And it continues to get worse.

We would never tolerate that level of incompetence and waste in a government bureaucracy. So maybe it is time to establish our own governmental insurance bureaucracy. At least we’ll be in a position to demand, as voting taxpayers, that health care dollars be spent on health care.

Firms passing on cost of care
By Marguerite Higgins
The Washington Times
May 3, 2005

… out-of-pocket costs, which jumped 9 percent for workers at large companies last year, are expected to continue rising as businesses shift more of the health care costs onto their workers.

The cost shifting signals that insured consumers probably will see more co-payment plans, in which patients pay a set price for doctor and hospital visits, change to plans in which patients pay a percentage of the total cost of the visit, said David Guilmette, a managing director at Towers Perrin.

http://www.washtimes.com/business/20050502-094124-1088r.htm

Comment: Is there any significant difference between a patient paying out-of-pocket a $25 co-payment or 20% coinsurance?

For illustration purposes, let’s compare the impact of a plan that has a $25 co-payment for a physician visit and $250 for hospitalization, with a plan that has 20% coinsurance for both physician and hospital services.

Let’s assume that a patient visits his or her physician and that hospitalization is recommended. The total allowed charges are $43,000 (even though itemized charges before insurance discounts are applied might be $117,000). The patient with the co-payment plan pays $25 plus $250 for a total of $275. The patient with the coinsurance plan pays 20% of $43,000 for a total of $8600. Thus the simple measure of changing from co-payments to coinsurance in this case results in a 3100% increase in out-of-pocket expenses!

But wait, there’s more! Another trend today is to shift to high-deductible plans. Using the same examples, let’s assume that the co-payment plan has a deductible of $250, and the coinsurance plan has a deductible of $5000. With the co-payment plan, the deductible has been met by the co-payments and so the out-of-pocket cost is still $275. With the coinsurance plan, the patient must pay 20% of the amount over the deductible, which is $7600, plus 100% of the deductible, which is $5000, for a total out-of-pocket expense of $12,600, or a 4600% increase in out-of-pocket expenses. Innumerable studies have confirmed that out-of-pocket expenses of much less than this magnitude impair access to care and impair health outcomes, the opposite of what a rational health care system should be supporting.

Buried in this example is a number that really does make a difference. By contracting, charges were reduced by $74,000. That number simply disappeared; no funds changed hands. Was that the right amount to adjust off? Because of all of the cost shifting that is taking place, it’s not clear. But with our own publicly funded and publicly administered system, we’ll eliminate cost shifting and we’ll get that number right. That will represent the degree of savings that our policies should be aiming for. Then we can dispense with diddling around with the institution of individual financial barriers that impair outcomes and concentrate on the more important task of ensuring access for everyone who does need care.

kaisernetwork.org
HealthCast
Cover the Uninsured Week National Launch Event Robert Wood Johnson Foundation and other organizations
4/27/2005

Risa Lavizzo-Mourey, M.D., MBA, president and CEO, Robert Wood Johnson
Foundation:

Our country desperately needs less partisanship and more compromise for its coming to real solutions on this important issue… We wish that more leaders would follow the example of Senators Wyden and Hatch and put aside their preconceived notions about what healthcare reform should look like and come together in the spirit of compromise rising above the partisanship and making compromise the first choice, not the last resort.

There is no responsible reason not to take action. The mechanisms for securing coverage have been worked out. Millions have been spent on policy studies with the physical implication clearly worked out, forecast by some of our own research by the Institute of Medicine. The tools are on the table.

http://www.kaisernetwork.org/health_cast/hcast_index.cfm?display=detail&hc=1421

Transcript:
http://www.kaisernetwork.org/health_cast/uploaded_files/042705_covertheunisured05_transcript.pdf

And…

Critical condition – 6.6 million uninsured in nation’s largest state By Risa Lavizzo-Mourey
San Francisco Chronicle
May 1, 2005

Many of us have our fix, the choice we prefer over all others: tax credits, public programs, business mandates, individual mandates, association health plans, a combination of some or all of these options, or a completely public program like Canada’s.

But every time we get serious about changing the status quo, too many of us stick to our own fix and refuse to budge. The only consensus we reach is that the status quo — the mess we are in — is the least objectionable choice to the most people.

This may sound idealistic, even naive, but something has to give. The mess must be solved. Health care is not a policy, product or political gotcha — it is something everyone needs.

There is no responsible reason for not acting. The main thing we are missing is leadership.

Accepting the status quo isn’t an alternative. The number of uninsured Americans is too large. The number of people at risk of losing their coverage is too great. The consequences of inaction for everyone are too serious.

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2005/05/01/INGCGCFQK81.DTL

Comment: Compromise? Compromise what with what?

Do we cover everyone with health insurance? If not, who do we leave out?

Do we cover all beneficial services? If not, what do we leave out?

Do we make care affordable for everyone? If not, which people will be denied access to what services because of the lack of affordability?

Do we reduce the waste of profound administrative excesses? If not, what administrative excesses should we continue to use in spite of lack of value?

Do we institute measures to control some of the excessive prices in health care? If not, what goods and services are worthy of pricing in excess of their value?

Do we establish policies to end funding of expensive technological excesses that have been demonstrated to have no benefit or even produce worse outcomes? If not, which detrimental services should be funded?

Do we improve quality and reduce costs by strengthening our deficient primary care infrastructure? If not, which specialists in our fragmented system should we put in charge of coordinating integrated preventive and chronic care services?

The call for compromise is a call to work with all of the tools on the table, placing various patches on our fragmented system of health care. But there is a problem. How do we use that one other tool left on the table once most of the interests have used their favorite fix to cobble together a profoundly expensive and highly deficient health care system?

And what is that other tool? A single, efficient, effective, affordable, universal, comprehensive, national health insurance program. But, of course, that tool has to be discarded because it won’t work. It doesn’t allow for compromise.

Passing the Buck
By Paul Krugman
The New York Times
April 22, 2005

Isn’t competition supposed to make the private sector more efficient than the public sector? Well, as the World Health Organization put it in a discussion of Western Europe, private insurers generally don’t compete by delivering care at lower cost. Instead, they “compete on the basis of risk selection” – that is, by turning away people who are likely to have high medical bills and by refusing or delaying any payment they can.

Yet the cost of providing medical care to those denied private insurance doesn’t go away. If individuals are poor, or if medical expenses impoverish them, they are covered by Medicaid. Otherwise, they pay out of pocket or rely on the charity of public hospitals.

So we’ve created a vast and hugely expensive insurance bureaucracy that accomplishes nothing. The resources spent by private insurers don’t reduce overall costs; they simply shift those costs to other people and institutions. It’s perverse but true that this system, which insures only 85 percent of the population, costs much more than we would pay for a system that covered everyone.

Think about how crazy all of this is. At a rough guess, between two million and three million Americans are employed by insurers and health care providers not to deliver health care, but to pass the buck for that care to someone else. And the result of all their exertions is to make the nation poorer and sicker.

Why do we put up with such an expensive, counterproductive health care system? Vested interests play an important role. But we also suffer from ideological blinders: decades of indoctrination in the virtues of market competition and the evils of big government have left many Americans unable to comprehend the idea that sometimes competition is the problem, not the solution.

http://www.nytimes.com/2005/04/22/opinion/22krugman.html?hp

Comment: The debate today rages on as to whether we want to build on the current system, or replace it with a single, universal system. But why would we continue to support an industry that is consuming ever more of our health care dollars when its primary function is to devise methods of shifting the funding of health care from the insurance risk pool to patients and taxpayers? We are paying for a complex and expensive administrative system designed specifically to defeat the function that is the reason for its existence: pooling risk.

To quote further from Krugman’s article: “According to the (World Health Organization), the higher costs of private insurers are ‘mainly due to the extensive bureaucracy required to assess risk, rate premiums, design benefit packages and review, pay or refuse claims.’ Public insurance plans have far less bureaucracy because they don’t try to screen out high-risk clients or charge them higher fees.”

Why then are we even considering the option of expanding our current system? It’s broken beyond repair. Installing a new universal system would be cheaper and more effective. And we would all be healthier, both physically and financially.

Medicare’s dilemma grows: How far to go in coverage
By Julie Appleby
USA Today
4/21/2005

…an ongoing dilemma for Medicare: whether to pay for a treatment when data on its effectiveness are uncertain or show it to be of limited value. The program… will increasingly face such debates as medical technology advances, baby boomers retire and Medicare confronts vast deficits.

“The question is, are we willing to pay for treatments that have a small chance at success?” says Peter Neumann, associate professor of health policy at the Harvard School of Public Health. “It’s true that we are a wealthy country, but whether we admit it or not, there are limits.”

Should Medicare cover every new $20,000-a month cancer drug? If a treatment is found for Alzheimer’s disease, will it go only to those diagnosed with the disease, or will patients who have normal age-associated memory lapses also be covered? Can the U.S. afford to put a pacemaker or other cardiac device into every patient with heart problems?

Medicare and other insurers are aiming to develop a better understanding of treatment outcomes by studying the results. Medicare, for example, has recently approved some new technologies but will track the patients – either by requiring them to be in clinical trials or by using a databank where medical information can be compiled – to see how well they do.

But cost isn’t the only factor in Medicare’s growing push to gather more data on effectiveness. The head of Medicare, Mark McClellan, says better evidence can help Medicare avoid treatments that don’t work or are dangerous.

“Why shouldn’t a patient who is very desperate say, ‘I’m willing to take a risk of dying from this technology, because I have little to lose’?” asks Princeton economist Uwe Reinhardt. While Medicare and other insurers should not pay for every treatment, regardless of its value, he says that some provision should be made to allow for innovation and experimentation.

http://www.usatoday.com/money/industries/health/2005-04-20-medicare-cover_x.htm

Comment: A common criticism of the Medicare program is that there are excessive delays in approving coverage of new technological advances. But we should keep in mind that new technology has contributed significantly to the continuing escalation of health care costs. So it seems that the Centers for Medicare and Medicaid Services is acting responsibly in requiring adequate evidence that new technology is providing reasonable value for the taxpayer.

It is entirely appropriate to limit coverage of unproven new technology to an experimental protocol until there are adequate data to warrant coverage for everyone.

As patients, each of us may want unlimited access to new, unproven, high tech care, but, as taxpayers, we should be assured that our health care spending on others is responsible.

Socialized Medicine? From Republicans?
By Matt Miller
Fortune
May 2, 2005

What do General Motors’ woes, the Medicare prescription-drug law, the state and local health-care time bomb…, and Congress’s recent refusal to trim soaring state Medicaid subsidies have in common? They’re all stones on the path toward the nationalization of health-care spending-an idea that’s so easy to slam politically yet so sensible for business that only Republicans can sell it! Before everyone screams, please note that I said health-care spending, not delivery. There’s a difference.

…there’s a potential common agenda lurking beneath today’s health-cost angst. Think of it as a two-step: First, we’d move a chunk of private-sector health costs to government, something business and labor could embrace as a competitiveness booster. Then we’d find ways to guarantee coverage for all while reengineering health-care delivery to lower costs in the long term (without the price controls that stall innovation abroad). Easier said than done, you may say. But seen in this context, the prescription-drug bill last year was the first step in the Republican-led socialization of health spending. Companies have been clobbered funding retiree health plans. The GOP felt their pain, and presto, $750 billion over ten years moved from private to public budgets.

The bigger hurdle may be stereotypes. Business’s sensible drive to get Uncle Sam to take on more of the health burden will run into the nihilistic (but potent) “big government” rhetoric of the GOP-plus the party’s delusion that we can keep federal taxes at 17% to 18% of GDP as the boomers retire. If Republican pols want to help Republican CEOs solve their biggest problems, this caricature of a political philosophy will have to give way to something more grown-up. Just as the Nixon-to-China theory of history says it will ultimately take a Democratic President to fix Social Security, it may take a Republican President to bless the socialization of health spending we need.

http://www.fortune.com/fortune/print/0,15935,1050964,00.html

Comment: It has been said many times. The liberals will educate the nation on the advantages of a universal, publicly funded health insurance program, but it will be the conservatives who enact it. The pro-business argument for it is just too persuasive.

American Medical News
April 25, 2005
Uninsured a problem hard to grasp, solve
By Joel B. Finkelstein

…disagreement over exactly how many uninsured Americans there are continues to muddy the national debate about how to fix the problem, experts said.

The Census Bureau’s Current Population Survey offers the most-often-cited number of 45 million Americans without health insurance for all of 2003. But a survey by the Dept. of Health and Human Services found that only 28.8 million lacked health insurance that year. The surveys differ in size and methods.

In a separate analysis of the Census Bureau data, HHS suggested there may be as few as 9 million uninsured Americans.

Researchers arrived at that number after deducting individuals who should be in Medicaid, illegal immigrants, young adults with little or no health care costs, and people who could afford health insurance but chose not to buy it.

http://www.ama-assn.org/amednews/2005/04/25/gvsc0425.htm

Comment: The Department of Health and Human Services makes a very important point. Policy decisions should never be made based on raw data alone. An intelligent “administrative analysis” of the data can provide us with a much more rational basis for establishing policy. Thanks to HHS’s expertise, it looks as if we may be faced with establishing policies for only 9 million uninsured rather than the 45 million estimate of the Census Bureau.

Giving this more thought, we’ve been pretty stupid in our approach to health care coverage. Instead of being concerned about the 45 million without insurance, we should have been directing our attention to the real numbers: the 251 million who do have insurance, which is 85% of our population.

About 237 million people (80% of our population) use about $380 billion in health care (20% of our national health care spending). That means that the average health care costs per individual for this 80% of our population is about $1600. Yet the Kaiser Family Foundation survey reported that we spend $3700 per individual in health insurance premiums.

If we had used our data more effectively, we would have reframed the debate quite differently. We should have been asking why anyone in their right mind would pay $3700 to cover $1600 in health care benefits! Quite obviously we should have been establishing policies that would make certain that none of these 237 million have health insurance, since it is clear that the real problem is that we have excessive numbers of individuals covered!

But when we discuss our new brilliant analysis of the raw data, we do have to be careful not to mention the other 20% of our population whose health care costs average $26,000 per person. After all, why should we ever establish policies that benefit the minority at the expense of the majority?

HHS is right. The 9 million without insurance is only 3% of our population. That’s such a small number that we can ignore it. Thank goodness we have an administration which selects brilliant bureaucrats who can provide such clarity in our approach to health policy issues.

And the dead that will result from these policies? Everyone understands that collateral damage is just a fact of life.

Don McCanne, MD
Senior Health Policy Fellow
Physicians for a National Health Program
www.pnhp.org

(Please share this message with others. After all, it’s time that we get our national priorities right!)