After listening to President Obama’s Town Hall meeting today – specifically on the biggest issues with health care in the US – I think he’s going after the right things, but I’m not sure he’s got the right reasons. To summarize some of the president’s comments…
- The biggest economic/deficit issue is the cost of Medicare & Medicaid programs, due to the skyrocketing cost of health care.
- If health insurance were affordable, everyone would have it.
If you’ve ever looked at the billing rate for medical procedures, it’s clear that health care costs are ridiculously high. And as a business owner, I certainly agree that health insurance premiums are equally obscene. But, here’s the real kicker: Medicare, Medicaid, and health insurance companies are RESPONSIBLE for our out-of-control health care costs!
Read on, and I’ll explain why we can’t get a doctor to spend more than 10 minutes talking to us during a visit, can’t afford to pay for health insurance, and can’t afford to pay medical bills without it!
How Managed Care Works
“Managed Care” is the health care industry term for all the groups that negotiate for discounts on the medical products and services you and I use all the time. The ones we’re most familiar with in Managed Care are our own health insurance companies (“carriers”). But, other organizations act behind the scenes, including PBMs, GPOs, etc. There are hundreds of them around the country, and they manage everything from who’s “in your network” to what medical procedures and medicines are and are not covered for you. But, the biggest player in this whole mess is the US Government with the Medicare program, followed closely by each of the state governments and the Medicaid programs.
In a nutshell, here’s how this whole thing works…
First, Medicare sets the price it will pay for a medical service. I’m afraid I’m not up to speed on the basis of how these numbers are set. But, I can tell you the prices are very, very low, and relatively fixed – increasing only slightly each year, probably based on some form of inflationary measure, such as the Consumer Price Index (CPI). Any doctor, hospital, medical device or pharmaceutical company that wants to provide goods or services to patients covered by Medicare must accept this pricing model. And, since Medicare covers more people than any other insurance plan, most private health care providers (HCPs) and health care manufacturers (HCMs) are in the program, and all public HCPs.
Next, since the Medicare rates are published, the insurance companies base what they will pay on those low Medicare rates. Now, they can’t be quite as low, because the Government has to get the best price (more on this in a bit), but the bigger insurance carriers can get pretty close. Of course, it can’t be simple, and the insurance companies need to justify lots of highly paid employees who don’t actually contribute to patient care. So they don’t just manage their contracts altogether like Medicare does – they break it out by individual coverage plan. And 0nce again, all the HCPs and HCMs who want to actually sell their services or products to patients under those plans have to accept those payment terms. In some cases, doctors don’t want to accept the rates that a particular carrier pays, and from the perspective of that plan you get an “out of network” doctor. The same holds true for HCMs, and you end up with drugs or medical devices that aren’t covered by you plan.
Finally, we have Medicaid, which typically covers the poor. And, this one is the mother of all Managed Care plans. Now, Medicaid is a federal program, but paid for by both the federal government and each individual state, and the rates vary by state. In the doctors office, the fees paid by Medicaid are computed by complex formulas determined by the state. In most cases, these fees are below even what Medicare pays. At the pharmacy, Medicaid actually pays full price for the drugs up front, but then gets a significant rebate from the drug maker each quarter to get what they really pay. Remember I mentioned the government getting the best price? Well, Medicaid really gets the best price! Think of it this way: Medicaid ultimately pays the best price that was given to anyone, plus the best payment terms given to anyone. This is a little complicated to wrap your brain around, so here’s an example for a presciption…
- A pharmacy buys a bottle of heart medication – which at full price costs, let’s say, $200 for a month’s supply for one patient. The manufacturer gives the pharmacy a 2% discount if they pay within 30 days – a $4 discount.
- A health insurance plan contracts with the drug’s manufacturer to provide preferred status to that drug for a steep discount. Let’s say they really pay something like 60% discount for that same one-month dose – a price of $80, the lowest offered to anyone.
- A patient picks up a prescription for a month’s supply of that heart medication, and this particular patient is covered by the state’s Medicaid program. (Could be from ANY pharmacy, not necessarily the one that got the 2% discount.)
- Medicaid gets both the $80 price and the $4 discount, paying just $76 for that $200 prescription!
How We Are Getting Screwed
I live in the New Jersey, with some of the highest insurance premiums in the nation. Can you guess what the average discount is for insurance companies in the north east? I’ll tell you… it’s 80%! That’s right, Managed Care companies pay – on average – just 20% of the price for medical services.
So to start with, they’re screwing the doctors. In some cases, doctors get as little as $20 for an office visit. But, most doctors I know still tend to be relatively well off – how’s that possible? Simple: they squeeze as many of us into the office in a days time as is humanly possible. Docs are smart, the do the math… 10 minutes per patient is 6 patient visits per hour, times $20 per visit (minimum) and we’ve got $120/hour! Now, where does that leave us patients?
Take a minute and think about what that 80% discount means in terms of real dollars, because this is where we really get screwed:
- For a $125 office visit, insurance pays about $25.
- For a $1,000 MRI scan, insurance pays about $200.
- And, for a $10,000 surgery, insurance pays maybe $2,000 (if they’ll cover it at all).
I don’t know about you, but I could pay those rates, I would never pay for insurance! To cover my family, I pay thousands of dollars a year in insurance premiums. For that, I get the privalege of paying a $15 copay, being able to go visit doctors that my insurance company says are OK (i.e. are desperate enough to accept their pay-rates), and get only those treatments my insurance company thinks are necessary for me.
If I knew that I could pay just $25 only when I needed to see the doctor, I’d pay out of pocket. If I could pay just $200 for an MRI to make sure I don’t have something like cancer, then I would happily do it every year, possibly multiple times each year. And, if I knew I could get my nose fixed for the same price I could pay for a new transmission in my car… well, I still might not do it, but at least I wouldn’t have to clear it with an insurance company!
Insurance companies are for-profit organizations, who need to show ever-increasing profits to keep their shareholders happy. They’re the same kind of shysters that made a mess of the financial industry, just in another part of the economy. They pay doctors as little as possible, charge people as much as possible in premiums, make decisions about what care or drug is appropriate or not – based on cost, not medical necessity – and ultimately provide no health care value to the patient. It’s legal extortion, but with our current health care system there’s no reasonable alternative.
I’m very happy that President Obama recognizes that health care is the biggest issue in the US these days. And, I will support 100% any effort he makes to reform our health care system. But, I just don’t think trying to tweak the system we have is the best idea – whether it’s “what people are used to” or not. I don’t think either Socialized Medicine or Universal Health Care, as we currently understand those terms, are right either. It’s just the same old method, with a different person paying the bill.
How about we try something completely different, but very much American: Free Market Health Care. Let’s do away with health insurance altogether, and let me pay the same rates those insurance carriers are paying. Maybe instead of seeing a doctor who charges $100 per visit, I’ll see one who charges $25 per visit – or maybe I’ll go to the more expensive guy because he’s just that good! Either way, it’s fair, it’s competitive, and the care I get will be what I need what I want, rather than just what some insurance company says it’s OK.
I don’t want to make it tougher on people who need the most critical care, either. So instead of trying to blanket everyone with some kind of universal “coverage”, let’s really focus on those people who are in the greatest need, and make the best use of limited dollars. If we’re going to provide a safety net, let’s subsidize new and advanced treatments. Make it less expensive for a cancer patient to get chemo-therapy, or for someone with AIDS to get anti-viral drugs – the new and patent-protected kind. Subsidize drug testing, or research into experimental surgical techniques – promoting advances and giving people who need it a real chance at survival, all while keeping costs low and the environment competitive. Who cares if a guy making $100,000 a year can go see a doctor for a $5 copay?
Mr. President, it’s not that people would all pay for health insurance if they could afford it. It’s that if we could pay competitive rates for health care, we wouldn’t need insurance.