Ezra Klein: An Insurance Industry CEO explains why American health care costs so much

[flpoljunkie]

A. We pay far more than anyone else for the same services in our for-profit health care system.

An insurance industry CEO explains why American health care costs so much



On Friday, I sat down with Kaiser Permanente CEO George Halvorson to talk about health-care reform. The conversation was long and ranging and will take a while to transcribe. But before we really got into the weeds, Halvorson handed me an astonishing packet of charts. The material was put together by the International Federation of Health Plans, which is pretty much what it sounds like: an association of insurance plans in different countries. But it showed something I've never seen before, at least not at this level of detail: prices.



The packet's 36 pages are mostly graphs showing the average prices paid in different countries for different procedures, diagnostics and drugs. There is a thudding consistency to the pages: a series of crude bars, with the block representing the prices paid by American health-insurance plans looming over the others like a New York skyscraper that got lost in downtown Des Moines.



There is a simple explanation for why American health care costs so much more than health care in any other country: because we pay so much more for each unit of care. As Halvorson explained, and academics and consultancies have repeatedly confirmed, if you leave everything else the same -- the volume of procedures, the days we spend in the hospital, the number of surgeries we need -- but plug in the prices Canadians pay, our health-care spending falls by about 50 percent.

In other countries, governments set the rates that will be paid for different treatments and drugs, even when private insurers are doing the actual purchasing. In our country, the government doesn't set those rates for private insurers, which is why the prices paid by Medicare, as you'll see on some of these graphs, are much lower than those paid by private insurers. You'll also notice that the bit showing American prices is separated into blue and yellow: That shows the spread between the average price (the top of the blue) and the 90th percentile (the top of the yellow). Other countries don't have nearly that much variation, again because their pricing is standard.

The health-care reform debate has done a good job avoiding the subject of prices. The argument over the Medicare-attached public plan was, in a way that most people didn't understand, an argument about prices, but it quickly became an argument about a public option without a pricing dimension, and never really looked back. The administration has been very interested in the finding that some states are better at providing cost-effective care than other states, but not in the finding that some countries are better at purchasing care than other countries. "A health-care debate in this country that isn't aware of the price differential is not an informed debate," says Halvorson. By that measure, we have not had a very informed debate. But download this pack of charts (pdf), and you'll be a bit more informed.

By Ezra Klein | November 2, 2009

http://voices.washingtonpost.com/ezra-klein/2009/11/an_insurance_industry_ceo_expl.html

[Clio the Leo]

1. Which gives me another opportunity to post...

"We're Number 37, We're the USA!"

http://www.youtube.com/watch?v=yVgOl3cETb4

[Teaser]

2. Ezra Klein criticized someone I like the other day,

so I no longer take him seriously.

[The Doctor.]

4. The criticism had no merit?

What was the substance?

[Teaser]

5. one of these days I'll add a sarcasm tag

but not today.

Ezra get's alternately bashed and cited every other day.

[HowHasItComeToThis]

3. WHY MUST WE PAY TO BE ALIVE AND HEALTHY

[Mass]

6. In other countries, governments set the rates that will be paid for different treatments and drugs,

Yes, this is the main key of cost control and the one that nobody wants to touch.

It was also the reason why a strong public option with fees based on Medicare was necessary. Oops.

[PHIMG]

9. Exactly, this article could be titled: "Insurance CEO makes the case for price controls."

This solution has some merit, it works in other countries, but lets also do profit controls, as in ZERO profit for middlemen who just write checks.

No other country in the country runs medical spending thru FOR PROFIT private middlement. The USA is alone on this.

[flpoljunkie]

11. This is exactly why we pay so much more than any other industrialized country for health care.

They get health care for their taxes, we get a military empire.

[SharonAnn]

18. For years we've had a "free" trip to Chile because the year's supply of drugs saved

us at least the cost of 2 round-trip plane tickets.

These included drugs like Zocor, Lipitor, Plavix, etc. Very commonly prescribed for us agin baby-boomers. Usually the prices were about 1/3 of U.S. price, sometimes 1/2.

Chile has a very modern, excellent health care system. Their drugs are all made by the same companies, often in their Europe plants.

[PHIMG]

7. Now add 30% on the top of these prices for Insurance Company Waste

The insurance companies will never tell you that they are greedy middlement who add costs but perform no real service. Medicare can do what the insurance companies do for 1/6th of the management fee (overhead)

Why do we have private insurers exactly?

Because our government was hijacked and because corporate Democrats opened the DNC big tent to Republicans obstructions like Lieberman Nelson Landrieu, et al, who now threaten filibusters on Democratic bills in the Senate.

The solution is for everyone to get involved in THE MOVEMENT for UNIVERSAL MEDICARE.

[Blue_Tires]

16. plus another 10%, just because they can

[midnight]

8. We are being gouged over and over again. Consumers in America are

the golden piggy bank for the corporations...

[Festivito]

10. Have to charge more, some won't/can't pay so some default.

Since they default on individual doctors, hospitals and pharmacies, rather than on the large insurance companies, the smaller entities, individuals, must make up the difference AND pay the lawyers/collectors and/or write off the loss -- often personally write off the loss.

Under single payer, doctors are paid less, but with fewer losses and less time spent collecting and learning several insurance company forms, doctors can actually make more money than American doctors. Same goes for pharmacies and hospital chains.

[flpoljunkie]

12. Let's see the numbers for your supposition.

[Festivito]

14. Title says it will tell WHY, instead tells us THAT ours costs more.

And ours does cost more. I can agree that the charts presented go along with what I've already seen. I do not know how accurate the presentation that keeps saying: "FOR ILLUSTRATIVE PURPOSES ONLY" would be, but, it seems at least close to correct. Just that it says THAT we spend more, lots more.

PBS, Now with Moyers placed the price per capita here and abroad on his website. (I don't have an easy link.) I notice that price is missing from these pictures. It's the most interesting one for me.

$3,000 per capita is what everyone else pays, paying everything for everybody. UK just under 3K, Canada 3500 USD. We pay two to three times these numbers in the USA.

Admittedly, I cannot find a good number for the USA per capita HC spending. I like to find one, been looking for one for years that would include some underlying reasoning. (Does it include Federal spending on pharmaceuticals?) Early this year $8160 per capita appeared. Last month I heard $6000, the other day $7-something thousand.

Regardless, we pay double. We pay at least double to service fewer than our 307-million people. THAT we know, also. WHY, is the question.

We, as in we the people, gave BCBS special provisions if they would insure everyone. They decided not to and went about making more money. They collect... eight percent on whatever is charged for HC. Good deal--for them. They love higher prices. They raise eight percent each year. They love your graphs. They'd love $50 aspirins. They'd love $100 aspirins TWICE as much.

So, what's the difference between my $75 doctor and a Canadian $30 doctor? Well, lets see.

My doc has a staff of people in the basement filling out insurance forms. He charges $100, the insurance kicks him down to $75, he then charges me $25, if I balk he drops it and accepts the $75. He's a nice guy.

Then he has to call in prescriptions, he has a staff for that too. Then the pharma company denies it and he has to call them to okay it again, and again, and again.

When he doesn't have a patient, he's in his office with mounting papers on running his building, paying his staff, keeping up with insurance changes, and maybe keeping up with medicine. Not much time to talk with the other doctors around his office.

Sometimes the insurance companies deny over and over until he needs a lawyer. Then there are people who don't have insurance and who don't pay. To be sure there is a lawyer involved.

The Canadian?

Gets a salary. Might get an incentive payment, might just get an atta-person. Has no insurance payment staff, just someone making sure his electronic notes get transferred instead of transferring them to an insurance company form that then gets transferred to an insurance company.

He knows he'll get paid. Not so for the American.

The single-payer government doesn't need an army of people to read different forms that each insurance company needs. There's no insurance company taking 8% just for being there to deny HC and gleefully raise prices. Instead, like Medicare, there is only 2% needed, and that helps look for fraud as well. And with everyone in the single-payer system, Medicare no longer just gets the ones the insurance companies managed to drop, so it then works, works at the $3K per capita, not ever increasing rates covering fewer and fewer: who end up on Medicare without Medicare ever receiving commensurate payments.

So, how much does the American doctor make? $100 minus $25 for the savvy recipient, minus $10 for insurance staff, $20 for nursing staff, $10 for the building, and so he makes $40 not $30. Oh, but his own HC is priced so high like his staffs, because he has to pay his part of the per capita and more for the 50-million included in that figure but unable pay anything toward their own or any body's HC, not to mention the ballooning price of it going up 30% this year. Then there are the people who stiff him, and the lawyers for that.

So, can he make more in America? Sure. Especially if he gets rid of poor savvy patients and keeps the gold-star ones happy, the ones that pay full fare. However, on a bad day, he can lose. Now those gold-star patients are losing their stash of money to the bankers, and the doctor's lawyers will end up getting more than the doctor.

In Canada, the doctor also does not have to worry about his useless son, down and out nephews, and the guy that falls off his front porch needing HC. Here, we do.

Lucky US.

[kcass1954]

13. Here's part of the reason that doctors' fees are so high...

I have a really great doctor. He has two offices, but I only go to one of them, so I'm not sure of the set-up at the other one.

He splits his time between the offices. In the office where I go, he has two PA's, two MA's, an office manager, two clerks who deal with records and appointments, and TWO WOMEN WHO DO NOTHING BUT DEAL WITH INSURANCE ISSUES.

[Jeff In Milwaukee]

17. Payment Structures....

Other studies (and if I had links, I would post them) have shown that the way doctors are paid appears to make a great difference in the cost of healthcare. One of the lower-cost providers are the physicians at the Mayo Clinic -- and the possible reason for this is that Mayo Clinic physicians are paid on salary and not on "Production Models" that are used by many health care systems.

A production model is basically like working on commission. The more patients you see and the more tests you run, the more you get paid -- you're "producing" more than the physician who spends more time with a patient and who orders fewer tests. A physician who is working on a salaried basis has no financial incentive to rush patients through the examination room or to order additional tests that may (or may not) be warranted.

This may not be the whole solution (I'm sure it's more complicated than that), but it's something that bears closer scrutiny.

[andym]

15. Shows that the real problem is not greedy insurers per se

But rather the lack of appropriate regulations to negotiate provider rates and drug costs.

First this article shows that there exists upward pressure to raise costs. It's been estimated that around 15%-20% of the costs in the USA are due to insurance company profits and overhead and another 10-15% is due to inefficiency in medical billing and administration-- that's where the 30% number you often see comes from.

Let's take the example of CT head scans from the graph in the OP.
Even if you take out the 30%, US private costs are still way higher 0.7(850-1800)=595-1200. Medicare is substantially less at $300 (at least 50% and as much as 75% cheaper). That means that costs far exceed insurers' 30% combined inefficiency "tax."

So, even removing the greedy insurance companies' overhead and the inefficient administration means that the US system still costs way more than other countries or Medicare.

Why? Insurers have little motivation to rein in total costs, as long as they can pass on the cost to the consumers. In fact, the gross number of their profit increases as more total dollars are spent. So their overhead is not the main problem, rather it is their inability or desire to negotiate lower rates with providers. One could motivate them with a premium cap, that prevented them from passing on increasing costs. But while that would help, it would not completely solve their own problem with the medicare care providers. Second, they may be unable to negotiate good rates even if they wanted to, as the individual companies do not work together to negotiate with providers.

So the best solutions are when somebody (usually a regulator) negotiates cost rates on behalf of a very large group (or everyone). That is the biggest advantage of single-payer, although technically, a regulator could negotiate rates that would apply to all payers (which is done in many European countries that do not have single payer). Perhaps the latter is the most politically feasible solution for the USA: have a regulator negotiate provider rates.

But then to stop the insurers from keeping the cost savings as profits, the insurers need to be required to devote a large portion of their premiums (90% or more) to actual care/service.

[slipslidingaway]

19. Great charts - knr nt