California Health Insurance Information and News

Many people ask “why is health insurance so expensive?” The obvious answer is that medical care is expensive. Then, why is medical care so expensive? Dr. Atul Gawande has written a seminal piece in the New Yorker that answers this vexing question. The article, entitled, The Cost Conundrum, explores why the per-capita cost of medical care is nearly the highest in the United States in McAllen, Texas.

Dr. Gawande explains that Medicare pays roughly $15,000 per person per year in this small border town, yet the median income is only $12,000 per year. “In other words, Medicare spends three thousand dollars more per person here than the average person earns.”

After examining and discarding some common explanations of why this small town pays so much for medical care (e.g., malpractice (Texas has a cap), unhealthy lifestyle (no worse than any place else), insurance company’s fault (it was MediCare payments – a government run program that was paying so much) Dr. Gawande concludes that “Health-care costs ultimately arise from the accumulation of individual decisions doctors make about which services and treatments to write an order for. The most expensive piece of medical equipment, as the saying goes, is a doctor’s pen.”

He cites the comments of an area hospital administrator describing the physicians in McAllen: “They had “entrepreneurial spirit,” he said. They were innovative and aggressive in finding ways to increase revenues from patient care. “There’s no lack of work ethic,” he said. But he had often seen financial considerations drive the decisions doctors made for patients — the tests they ordered, the doctors and hospitals they recommended – and it bothered him.”

Dr. Gawande concluded that within the past 15 years there had been a cultural shift in the medical profession in McAllen, Texas from doctors focusing on the medical outcomes of their patients to doctors viewing patients as a revenue stream.

As the article reported that “there are the physicians who see their practice primarily as a revenue stream. They instruct their secretary to have patients who call with follow-up questions schedule an appointment, because insurers don’t pay for phone calls, only office visits. They consider providing Botox injections for cash. They take a Doppler ultrasound course, buy a machine, and start doing their patients’ scans themselves, so that the insurance payments go to them rather than to the hospital. They figure out ways to increase their high-margin work and decrease their low-margin work. This is a business, after all.

“In every community, you’ll find a mixture of these views among physicians, but one or another tends to predominate. McAllen seems simply to be the community at one extreme.”

Dr. Gawande offers hope in the face of such a chilling conclusion. He points to the Mayo Clinic which operates high quality, low cost medical facilities in Minnesota, Arizona and Florida. They have successfully aligned the incentives of the hospital administrators, doctors, nurses, insurance companies, even the janitors to provide the best quality care to the patients. Often specialists confer about a single patient. A surgeon, internist, cardiologiest and others might discuss a case and together conclude on the best course of treatment. This collective decision making often reduces the number of tests performed, which reduces the cost of care – and increases the quality of care. Dr. Gawande reports that in high cost medical areas medical care is not necessarily better – it is just more expensive. He reports that more people die from medical mistakes than from automobile accidents.

Dr. Gawande writes, “somewhere in the United States at this moment, a patient with chest pain, or a tumor, or a cough is seeing a doctor. And the damning question we have to ask is whether the doctor is set up to meet the needs of the patient, first and foremost, or to maximize revenue.”

Tomorrow, June 1, 2009, Senator Kennedy is supposed to release the report of the Senate Health, Education, Labor and Pension (HELP) Committee’s recommendations for comprehensive reform of the health care & health insurance system. Word has it that the Obama administration wants to pass health insurance reform legislation in 90 days. That does not give people much time to evaluate these complicated proposals that will have massive financial implications for everyone in our country.

To get an idea of what might be proposed, we can look at the Senate Finance Committee, led by Senator Baucus. This committiee has been releasing reports on various reform efforts. The Senate Finance Committee’s Policy Options paper on health insurance reform suggests many dramatic changes, including:
* Combining a individual and “micro-group” (companies with 2-10 employees) market;
* Offering “Guarantee issue” health insurance to this market segment;
* Requiring “modified community rating” for rates to this market segment;
* Creating a “national exchange” run by the government to sell health insurance to this market segment;
* Creating a “public/government” health insurance plan.

For an excellent summary of the Senate Finance Committee health care options report, see the report by the National Association of Health Underwriters, the health insurance agent organization, of which I have been a long time, active member.

Implications for California

All of the ideas listed above by Sen. Baucus’ Committee would dramatically increase the cost of health insurance in California. As difficult as it is to believe, in the high cost state of California, individuals pay the least amount for their health insurance according to this report by America’s Health Insurance Plans (AHIP.) Table 2 in this report shows that Californians pay about 1/3 the amount individuals pay for health insurance in New Jersey and Massachusetts and about half the amount paid by individuals in New York.

The really frightening thing is that media reports state that Senator Ted Kennedy wants to model the nation’s health insurance system after Massachusetts – the second highest cost state in the country.

In California we have age-banded rates, not community rating. This allows younger (likely healthier) people to purchase health insurance at a lower cost than older people. We have medical underwriting and not guaranteed issuance in the individual market. Medical underwriting prevents people from purchasing coverage only after they are sick and forcing them to pay for coverage while they are healthy. It may be unfair to the unhealthy but all must agree that this keeps the cost of medical insurance low for the millions of people who qualify for coverage in California’s individual market. California’s got an “exchange” in every health insurance agent who sells coverage. To see an excellent example of a health insurance exchange, click here and get a quote from BenefitsCafe.com.

All of the private sector provisions that keep health insurance affordable in California will likely get thrown out the window. So, Californians, get ready, you are about to pay about 2-3 times more for your health insurance.

Wellpoint, the largest health insurance company in the United States, and parent company of Anthem Blue Cross of California, is partnering with the XPrize to develop a solution to the problem of ever-increasing medical costs; rising numbers of uninsured people; and medical providers claiming to receive too little payment. The Health Care X Prize will develop criteria to evaluate solutions to these problems; Wellpoint will test the solution in one of the states in which they have a health insurance plan; and, the winner will receive about $10 million.

This is one of the most intractable problems facing the U.S. and the world. Everyone wants better health. More medicine equals better health and a longer life. The huge middle class and upper middle class populations in advanced, industrialized countries have the resources to spend on better health and greater longevity. It is only natural that these cultures spend more and more on health care. Solving this problem deserves more than $10 million!!

Let’s see… everyone wants immediate access to the highest quality medical care. Nobody really wants to pay for the medical care – as an example, just a few years ago grocery workers went on strike for over 6 months in California because their co-payment went from $5 for a doctors office visit to $10 per visit. Yet, I suspect many of the people striking over the unfairness of paying $10 to see a doctor pay much more than that for cell phone service, cable television, and a few cafe lattes each month. No one is striking over the high cost of these items – but ask someone to pay $10 to see a doctor and you have a problem.

So, everyone wants health insurance; nobody wants to pay for it; everyone wants someone else to pay for it; and, no matter who pays for it; health insurance is expensive. Yes, the XPrize is needed to solve this problem. For a previous article on this problem, see No Matter Who Pays for it Medical Care and Health Insurance is Expensive.

Here is my solution to the problem: Pay doctors and hospitals to encourage people to change their behavior to treat illness – rather than prescribing medicine. Make people pay when they over eat; over consume alcohol; and don’t exercise enough. Make parents pay when they give their children poor food and they end up obese at a young age. Removing the excess fat from our system – and the attendant health consequences would drastically reduce the cost of medical care. If only truly sick people received care – and all others were able to prevent illness though healthier life styles, we would reduce the cost of health care.

In the debate and discussion of methods of financing high quality medical care is the daunting challenge of the ever-rising cost of care. While some may blame the insurance companies for excessive rate increases, the reality is that no matter who pays for medical care, be it insurance companies with private or commercial clients; government or taxpayers with Medicare, Medicaid (Medi-Cal in California), or SCHIP (Healthy Families in California); or individuals directly (those who do not purchase health insurance and pay cash for services); medical care is expensive.

The State of Massachusetts is discovering this reality in their experiment to mandate that everyone in the state have medical insurance. In this article in the New York Times, state officials speak about ways to limit the cost of medical care. That state spends 33 percent more for medical care than the national average.

According to the NYT article, “They want a new payment method that rewards prevention and the effective control of chronic disease, instead of the current system, which pays according to the quantity of care provided…The commission is looking at various options, but all would do away with the fee-for-service system, which provides perverse incentives by paying physicians and hospitals for each patient visit. The changes under consideration include reimbursing for episodes of care rather than individual visits and bundling payments to groups of providers who would together take responsibility for a patient’s health.”

Under our current system doctors and hospitals earn more money the more services, treatment and procedures that they do to diagnose and treat a patient. The more they do, the more they earn. What we know is that doing more does not always result in better outcomes. The idea of “reimbursing for episodes of care” means that a doctor or hospital would be responsible for all of the care and treatment of a specific illness. It is easier to apply this to “acute” illnesses (e.g., heart attack) where all of the treatment is provided in a single setting. The idea of reimbursing for episodic care is gaining traction. This article in the New England Journal of Medicine describes the idea in more depth.

The idea of rewarding medical providers for the care they provide, rather than for the procedures they perform, is not new. HMOs were introduced in the 1990s and actually lowered the cost of medical care. Consumers revolted however and did not want access to specialists limited. Consequently we have had run away inflation spending on medical care. Let’s hope this approach works this time.

I heard Angela Braly, President and CEO of Wellpoint (parent of Anthem Blue Cross of California) speak today at the Town Hall in down town Los Angeles. Wellpoint provides health insurance to 35 million Americans – 1 in 9 people – and has $60 Billion in annual revenue. It is the largest health insurance company in the U.S. Accordingly, I thought that it would be helpful to report what she said.

Ms. Braly said that 18% of the US GDP goes for health care. She also said that 8.5% of GDP is spent by Medicare, Medicaid, SCHIP and other government programs. I had never heard that the US government spends so much. Most alarmingly, Ms. Braly pointed out that CMS has announced that the Medicare Trust fund which finances Part A will be bankrupt by 2016. I certainly hope that Congress fixes this problem before they expand other government health insurance programs.

Ms. Braly said that she is concerned about the quality of medical care in the US. She said that of the 17 million people who will visit a doctor this week, one-half will recieve the wrong medical advice. Further, 30% of the money spent on medicine will go towards something that will not help the patient. Medical technology does much good but also consumes much money. Our paper based medical information system doesn’t work in her opinion. Doctors and hospitals are rewarded for the quantity of their medical care, not the quality of their care. That should change.

Ms. Braly is a strong advocate of evidence-based medicine. In support of this, Ms. Braly said that Anthem Blue Cross paid $75 million to doctors in California last year as a bonus for quality improvements.

Regarding the uninsured, Ms. Braly said that we should provide coverage for all. She said that 45 million people lack coverage. The government buying coverage for people will not work however. As evidence, she pointed to the 12 million Americans who are currently eligible for government provided health insurance but not enrolled. Solving the poor enrollment practice of the government could reduce the uninsured ranks by 12 million people. That should be done.

For the uninsured who earn too much to qualify for government assistance yet not enough to affored private coverage, the government should provide “premium assistance” so that they can purchase a policy and get covered.

Ms. Braly said that individual health insurance should be tax deductible. This got a round of applause from the audience. Further, the government should provide subsidies to small businesses so that they can provide group health insurance to their employees.

Ms. Braly said that some health insurance reform is not good. She seemed to be referring to California’s attempt at health insurance reform in 2007. Anthem Blue Cross was a strong opponent of those proposals.

Ms. Braly described the personal nature of health insurance decisions and how people want any treatment – even if it is unproven – when they are facing serious illness. As an example, she described ABMT, or bone marrow treatment for breast cancer. Many advocates campaigned heavily for this treatment and 10 states mandated ABMT treatment. ABMT has now been proven to not be an effective treatment for breast cancer, according to Ms. Braly and to other medical experts. Because of the emotional attachment to a supposed cure, insurance companies were forced to pay for an unproven and ulitmately ineffective – yet very costly – medical procedure. Ms. Braly said that “we have a responsibility to make sure taht people’s treatments will work.”

Finally, Ms. Braly announced that Wellpoint has teamed up with the XPrize to fund the winning entry into a medical financing system that will deliver value at low cost.

I was very impressed with Ms. Braly’s command of the issues and the positive items she listed that will take steps to insure the uninsured and to reduce the cost of health care.

“Medicare for all” has become a frequent refrain from health care advocates. This sound bite statement implies that the U.S. would be better off if all citizens were covered under the government-run Medicare program. Currently, eligibility for Medicare is limited to those age 65 and over; some age pre-65 with certain disabilities; and people with End-Stage Renal Disease. With this post I would like to explore the personal cost of Medicare to each citizen – as it currently exists – and the benefits of the system. Comparing the cost and benefits of Medicare to private health insurance is an eye opening experience: Medicare ain’t cheap and it doesn’t cover much unless you pay more.

The Cost of Medicare before eligibility at age 65
Currently, every worker in the United States must pay 1.45% of every dollar earned for Medicare. Additionally, every employer must pay 1.45% of every dollar paid to a worker for Medicare. Accordingly, every worker is paying 2.9% of his salary for Medicare. Assuming someone starts working at age 15 and begins receiving Medicare at age 65, he will have worked for 50 years. Paying roughly a 3% tax for 50 years means that a person will have paid 150 percent of the average annual wages earned for Medicare. Stated another way, all of the wages that a U.S. worker earns in one-and-a-half years goes to pay for Medicare.

The 2007 median family income in the USA was $50,070. Multiplying $50,070 by 1.45 (2.9% Medicare tax times 50 years of work) totals $72,600 that the average wage earner will pay for Medicare.

Medicare doesn’t cover much – unless you pay more
After working a year and a half to pay for Medicare, what do you get? You get hospitalization coverage with a $1,068 deductible. This is called Part A and if you stay in the hospital 60 days you’ve got good coverage. Of course very few people spent that long in a hospital. Medicine has changed since Medicare was invented in 1966. Back then hospitals were like hotels and people stayed there to get better. Now, people take lots of medicine and avoid the hospital. Medicare only covers prescription medicine if you pay more. You’ve got to purchase a Part D plan if you want prescription medicine paid. Similarly, you’ve got to pay more if you want to see a doctor outside of the hospital – which is the most common type of medical treatment. You’ll need to purchase a Part B plan plus a Medicare Supplement to plug the gaps in coverage. So, you’ve paid nearly a year and a half’s wages for something that won’t cover you out of the hospital or cover prescription medicine unless you pay more.

The Cost of Medicare once eligible to receive benefits at age 65
Assuming that one lives to age 65 and is able to receive benefits from Medicare, he/she must continue to pay. There is no additional fee for Medicare Part A (which covers hospital services). However, in order to receive Medicare Part B benefits (out of hospital doctor services) one must pay $96.40 per month in 2009. If someone continues to work and earns more than $85,000 per year he/she must continue to pay the 2.9% Medicare tax and may have to pay as much as $308.30 for Medicare Part B.

If someone wants prescription medicine costs covered under Medicare he/she will have to purchase Part D coverage. In 2009, the least expensive Part D Rx plan that include generic medication without a gap (payment through the donut hole) was $71.50

Also, there are HUGE gaps in coverage with Medicare Parts A and B (e.g., $1,068 Part A deductible, Unlimited 20% Part B liability) and one must purchase a supplemental policy to close these gaps. So, add the cost of a comprehensive Medi-gap policy. In California, Anthem Blue Cross’ Plan F provides would close the gaps in Medicare. This policy costs $155/month for someone between the ages 65-69 in Los Angeles County. It rises to $279/month for someone age 80.

So, adding up all of the direct premium costs of Medicare you get:
Part B Premium $96.40/month (person earning under $85,000/yr.)
Part D w/ Gen Rx in donut hole $71.50/month
Plan F Med. Supplement $155.00/month (Anth. Bl. Crs. LA County age 56-69)
Total $340.30/month

Total personal cost of MedicareThe life expectancy of someone age 65 is less than 20 years. Assume that these premiums rise 10% per year which is less than health insurance premiums have risen in the past decade. On average this would triple the above rate for Part B, Part D, and the Med Sup Plan F. We can then calculate the total premium cost for Medicare: 20 years x 12months/yr. x 3 x $340.30 = $245,000. Plus the $72,600 in wage taxes, totals $317,600. This works out to $1,323/month.

I think that if any of those advocating “Medicare for all” realized that it cost nearly $1,323/month for those lucky enough to live until age 65 and receive any benefit, that they would not be such strong advocates.

If you’re an employer with 20 or more employees and you’re wondering how to comply with the COBRA subsidy in the Obama Stimulus Plan, here’s some helpful information. On February 17th, President Obama signed the American Recovery and Reinvestment Act of 2009 (HR 1) to help stimulate the US economy. A major component of this new law created temporary changes in COBRA and the employer’s obligation under COBRA. I have spoken with many COBRA administrators (Conexis, Infinisource, etc.) and they are working feverishly to send out instructions for employers. They should send you something by the second week of March 2009. The new Federal law became effective March 1st and plan employers have until April 17th to notify eligible COBRA beneficiaries of the changes. As of March 2nd, here is the latest information about this issue:

1) I have written a short summary of the COBRA Stimulus Package changes in this blog post.

2) The US Department of Labor sets policy for COBRA and here is their guidance info on COBRA and the Stimulus Package Also, I found their “COBRA Premium Reduction Fact Sheet” helpful.

3) The IRS has sent out some guidance explaining how employers can recoup the premium that they pay on behalf of eligible COBRA beneficiaries .

All of this is happening very quickly and this impacts every company in the United States with 20 or more employees. DOL and the IRS are trying to figure out what to tell people in order to comply and how to adjust their automated payroll tax collection system. The COBRA administrative companies (Conexis, Infinisource, etc.) are trying to figure out what to tell their clients. Payroll companies (ADP, Paychex, etc.) are trying to figure out how to change their systems to integrate the credit on the 941 forms.

I recommend that employers wait to hear from their COBRA administrators. If you administer COBRA yourself, then I recommend that you call your insurance company or broker. You must send out special notices. Hopefully DOL will create these notices. Also, at this time you may want to identify COBRA eligible employees who have been involuntarily terminated from employment since September 1, 2008. It is my understanding that the companies that administer COBRA will send out all of the required notices to the COBRA beneficiaries on behalf of their clients.

Feel free to contact us at BenefitsCafe.com if you have questions.

The American Recovery and Reinvestment Act of 2009 (HR 1) includes subsidies for health insurance for people who recently lost their jobs. Those eligible will only have to pay 35 percent of the cost of health insurance under COBRA. The subsidy will last for 9 months. People who have missed the 60 day period to elect COBRA will be given another 60 days from the date the bill is enacted to elect COBRA with the lower premium.

Title III of HR 1, entitled “Health Insurance Assistance for the Unemployed Act of 2009” specifies the criteria one must meet in order to qualify for the health insurance subsidy. To qualify a worker must have:
1) Worked for an employer with 20 or more employees which must comply with COBRA;
2) Been “involuntarily terminated” between September 1, 2008 and December 31, 2009;
3) Attested that their same year income will not exceed $125,000 for individuals or $250,000 for families; and,
4) Not been able to enroll in Medicare or another employer’s health insurance plans.

Additionally, the legislation gives states the opportunity to expand health insurance coverage to individuals who previously worked at companies which do not have to comply with COBRA (e.g., under 20 employees.)

The U.S. Department of Labor will develop model notices for employers to assist with compliance.

Preliminary discussions had been that employers would obtain credit from employer paid FICA taxes to offset the 65 percent subsidy of the COBRA health insurance premium. The specifics on how the subsidy would reimburse employers has not been released.

If the subsidy takes money from the Medicare Hospital Insurance Trust Fund, that would be tragic. The 2008 projection is that the Medicare Hospital Insurance Trust Fund will be insolvent by 2019. Add the aging baby boomers retiring; fewer work age employees paying into the system; ever-escalating costs for medical care; and you have a recipe for the insolvency of Medicare. Let’s hope that our elected representatives do something to fix this fast approaching problem.

For individuals looking for a low cost health plan which protects you from major medical events such as hospitalization, Blue Shield of California’s Vital Shield 2900 may be the plan for you.

Vital Shield 2900, Blue Shield’s lowest-priced PPO with monthly rates starting as low as $42, offers not only affordable coverage, but as part of one of California’s largest PPO provider networks, makes finding a doctor easy. The plan is limited to basic benefits, so you don’t pay for services you don’t expect to use, such as maternity care or brand name drug benefits.

The plan, which is available to individuals only, allows for two office visits per calendar year at $40 per visit, before having to pay the annual deductible. After paying a co-payment maximum of $5,900, you are generally covered at 100%. The plan also provides for low co-payments of generic prescription drugs at network pharmacies. Other covered services, subject to the plan deductible unless otherwise noted, include preventative care, outpatient services, emergency health coverage, ambulance services, mental health services, chemical dependency services and home health services.

Vital Shield 2900 could be the right health plan for the someone looking for a low cost, high deductible plan with two doctor visits per year with generic prescription medication.

Click here to get a California health insurance quote for the Blue Shield of California Vital Shield 2900 individual plan.